i LIBRARY iMichigen State ; University -upu-mn-cr-u‘ - - PLACE iN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. DATE DUE DATE DUE DATE DUE q: _. W98 SE9 0 4 2804 MSU Is An Affirmative Action/Equal Opportunity Institution ‘ emans-od III POLITICAL ICONOI! Of INTIRNA!IONAL.IONITARI POND SUPPORIID ECONOMIC STABILIZAIION PROGRAMS: TH! IXPIRIINCI OP war SUDAN, 1965 - 1984. BY Abdelflaheen Ahmed.lbdelnahnan A DISSIRIAIION Submitted to Michigan State university in partial fulfillment of the requirements for the degree of DOCTOR OP PHILOSOPHY Department of Political Science 1989 \.. ‘u .. ABSTRACT TH! POLITICAL m OP INTERNATIONAL mum PUMD SUPPORTED ICOMOMIC STABILIZATION PROGRAMS: TR! IXPIRIIMCI or T8! SUDAN, 1966 - 1984. BY At the core of this study is an attempt to assess economic performance under International Monetary Fund (IMF) economic stabilization programs in the Sudanese context. The principal purpose of IMF programs is to improve the external payments situation or the balance of payments. This study attempts to evaluate the balance of payments effectiveness of these programs against the situation that would have prevailed in the absence of the programs. This evaluation is carried out in the context of simple empirical regression models. The basic conclusion of the study in this respect is that IMF programs resulted in short-term improvements in the external payments situation. However, no fundamental improvement was attained. The study also examines the view that IMF programs are detrimental to social expenditures. This part of this study uses simple comparisons and regression models to examine this question. The finding of the study here is tflnat the experience of the Sudan does not support this view. In some cases, scxsial expenditures had adverse effects on the fiscal effectiveness of some Programs . ‘0-1 «a ... . <~ A third question which this study attempts to answer is whether IMF programs lead to political protests. This part of the study also uses simple comparisons, a regresssion model, and a descriptive account to answer this question. The basic finding of the study in this regard is that certain IMF program austerity measures (notably, increases in the retail prices of sub- sidized consumer items) do lead to political protests and contribute to political changes. ~.~. ACKNOWLEDGEMENTS I am most grateful to my major adviser Jack Knott, Professor of Political Science and Director of the Social Science Research Bureau at Michigan State University. Jack's insightful and critical comments were indispensable feed- backs. These, together with his support, patience, and warmth were a source of inspiration through all the stages of the doctoral program. I am also grateful to Professor Michael Bratton and Dr. James Tong, who as members of the dissertation committee, encouraged me, read some draft chap- ters, and provided useful comments. My gratitude also goes to Professor David Gordon (also a member of the dissertation committee) of James Madison College at Michigan State University and of the Center for Research on Economic Devel- opment at the University of Michigan (Ann Arbor). Professor Gordon's thorough knowledge about stabilization and structural adjustment programs was inspir- ing. I would also like to thank Dr. Tim Lane, formerly a Faculty member in the Department of Economics at Michigan State University and currently a staff member in the Research Department of the International Monetary Fund, for a useful discussion on macroeconomic models. In the Sudan, I am grateful to the Executive Director of the Office of the Minister of Finance, Ahmed Al-Goni, who provided me with documents on IMF- supported economic stabilization programs and with other related documents. In the Ministry of Finance, I would also like to thank Dr. Khalil, Deputy- ‘Undersecretary for Research and Follow-up, and his assistant for some discus- iv sions on the Sudanese Budget. My thanks also go to the Director of the Final Accounts Department and his assistant for providing me with budgetary data. In the Bank of Sudan, I am thankful to the Director of the Credit Depart- ment and his assistants for useful discussions on domestic credit extension. I am also indebted to the Director of the Research Department for giving me several Bank of Sudan Annual Reports and to the IMF resident representative, Mr. Franz Drees, for lending me some IMF publications. Last but not least, I am most grateful to the University of Khartoum, which granted me a five-year scholarship to study in the United States. LIST OF LIST OF TABLE OF CONTENTS TABLES FIGURES INTRODUCTION CHAPTER CHAPTER CHAPTER CHAPTER I: THE CONTEXT The Political and Administrative Systems of the May Revolution The External Debt Problem Fiscal Constraints Trade Unions II: FUND POLICY PROGRAMS AND BALANCE OF PAYMENTS OUTCOMES The Programs of the 1960s The Programs of the 19708 The Programs of the Late 19705 and Early 19805 Postscript III: THE BALANCE OF PAYMENTS EFFECTIVENESS OF FUND PROGRAMS Literature Review Program Balance of Payments Effectiveness Simple Regression Models The Independent Effects of Fund Programs Prospects IV: FUND PROGRAMS AND SOCIAL EXPENDITURES vi viii xi ll 20 24 32 37 37 45 54 80 83 83 97 99 128 150 152 Literature review Introduction Components of Social Expenditures Fund Policy Programs and Budgetary Imbalances Central Government Areas of Expenditure Fund Policy Programs and Social Expenditures The Relative Shares of Expenditures under Fund Programs Simple Empirical Regression Models Fund Programs and Subsidies CHAPTER V: FUND PROGRAMS AND POLITICAL PROTEST literature Review Fund Policy Programs and Political Protest Policy Austerity Type and Level of Protest Incidence Simple Empirical Regression Model Policy Austerity Measures and Protest Incidence: A Descriptive Account SUMMARY AND CONCLUSIONS APPENDIX A - DETERMINANTS OF EXTERNAL PAYMENTS BALANCES APPENDIX B - EXTERNAL PAYMENTS BALANCES APPENDIX C - CMRONOLOGY OF FUND POLICY AUSTERITY MEASURES APPENDIX D - CHRONOLOGY OF PROTEST INCIDENTS LIST OF REFERENCES vii 152 157 157 161 171 183 183 187 194 204 204 225 231 236 241 263 269 275 277 280 282 ‘- Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table 1.1: 2.1: 2.2: 2.3: 2.4: 2.5: 2.6: 2.7: 2.8: 2.9: 3.1: 3.2 3.3: 3.4: 3.5: 3.6: 3.7: 3.8: LIST OF TABLES External Debt Structure, 1974 - 1977. Domestic Credit Extension, 1964 - 1967. Balance of Payments, 1965 - 1969. Domestic Credit Extension, 1970 - 1973. Balance of Payments, 1971 - 1975. Cotton Production, 1976 - 1981. External Debt Arrears, 1979 ~ 1982. Worker Remittances, 1975 — 1984. Domestic Credit Extension, 1978 - 1984. Balance of Payments, 1978 - 1984. Current Account Deficits and Factors Affecting Them Summary of Regression Results Summary of Regression Results Partial Correlation Co-efficients Program and Actual Domestic Credit Growth Rates Devaluation-adjusted and Pre-devaluation Exchange Rates, 1971 - 1984. Values of Independent Variables in Program Periods Payments Outcomes With and Without Fund Programs Program Target and Actual Expenditures and Revenues, 1965 - 1969. viii 21 38 40 47 48 55 58 61 66 67 106 121 122 125 131 136 138 139 162 f" ' .l .'I. Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table b UibJ-‘k .10: .11: : Program Target and Actual Expenditures and Revenues, 1971 - 1975. : Program Target and Actual Expenditures and Revenues, 1978 - 1984. : Central Government Expenditures by Area, 1961 - 1984. : Shares of Central Government Expenditure Areas, 1961 - 1984. : Shares of Central Government Expenditure Areas under Fund Programs : Expenditure Areas, Growth Ranks. : Annual Changes in Social Expenditures, 1962 - 1984. : Summary of Regression Results Summary of Regression Results Government Budget for the 1974/75 Program : Protest Incidents, 1966 - 1984. : Distribution of Protests by Week of Occurrence Standard Scores of the Number of Protest Incidence by Week of Occurrence : Austerity Measures and Protests in Program Periods : Policy Austerity Type by Level of Protest Incidence : Austerity Measure Implementation Cases and Protest Incidents in Program Periods : Summary of Regression Results : Program and Actual Domestic Credit Growth Rates, 1963 - 1984. : Sudan and US Price Indices, Nominal and Real Exchange Rates, 1971 - 1984. : Export Prices, Import Prices, and Terms of Trade, 1963 - 1984. ix 163 163 175 176 184 185 188 191 191 197 223 226 230 232 235 239 240 270 272 273 Table Table Table Table 6.4: 7.1: 8.1: 9.1: Index of Cotton Prices and Foreign Nominal and Real Interest Rates, 1972 - 1984. Current Account and Balance of Payments Balances, 1963 - 1984. Chronology of Fund Austerity Measures, 1966 - 1984. Chronology of Protest Incidents, 1966 - 1984. 274 276 277 280 Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure LISTS OF FIGURES : Real Exchange Rates and Current Account Deficits, 1971 - 1984. : Changes in Terms of Trade and Current Account Deficits, 1963 - 1984. : Foreign Real Interest Rates and Current Account Deficits, 1972 - 1984. : Current Account Outcomes With and Without Fund Programs : Balance of Payments Outcomes With and Without Fund Programs : Program Target and Actual Expenditures and Revenues, 1965 - 1969. : Program Target and Actual Expenditures and Revenues, 1971 — 1975. : Program Target and Actual Expenditures and Revenues, 1978 - 1984. : Shares of Central Government Areas of Expenditure, 1961 - 1984. : Distribution of the Number of Protests by Week of Occurrence xi 108 111 114 141 143 165 167 169 178 228 9‘. ‘\ 4 . INTRODUCTION Quite recently, the phenomenon of economic stabilization has been the object of increasing attention. This is a reflection of the salience of economic sta- bilization in recent times. In the 19505 and 19605, economic modernization or industrialization held the sway. Because the economic growth associated with these did not trickle down as expected, interest shifted then to economic growth with distribution or equity. The salience of economic stabilization in recent times is a reflection of the supply shocks of the 19703. The decade witnessed two oil shocks and two recessions in the industrial countries. These have had adverse effects on the external payments position of developing countries (in particular, non~oil developing countries).1 This salience of economic stabilization is paralleled by an increasing attention from both economists and political scientists. The interest of political scientists stems from the view that economic stabilization programs are not purely economic issues; they are also political or at least not politically neutral. The involvement of an international agency (the Interna- tional Monetary Fund) in the provision of conditional economic assistance to countries experiencing external payments crises raises the issue of state sovereignty and is thus pertinent to the study of international relations. However, what has come to be known as the political economy or the politics of economic stabilization has focused largely, if not exclusively, on two l. Sidney Dell and Roger Lawrence, The Balance of Payments Adjustment Process ,13_Dgyglgping_§ggg§;ig§, Pergamon Press, New York, 1980, pp. 21-28 and 54-64. 1 2 issues; namely, the political sustainability of stabilization programs and their impact on political stability. Both are related to the view that these programs entail political pressures or protests that could undermine the eco- nomic adjustment reform initiatives or the regime undertaking them. This view underpins the question that has, initially, been at the core of the politics of economic stabilization. This question, drawn primarily from the experience of some Latin American countries with both IMF non-IMF stabilization programs, asks what regime type, democratic or authoritarian, is capable of successfully implementing economic stabilization programs. This question is based on the argument that the austerity measures contained in these programs generate organized group and popular reactions that make the initiation and successful or effective implementation of these programs too politically costly for regimes based on popular consent (that is, democratic regimes) and that there- fore only regimes based on coercion (that is, authoritarian regimes) are capable of successfully implementing these programs. As a field of study, the politics of economic stabilization is still embryonic. There is a virtual lack of systematic empirical studies on the relationship between these programs and political stability. One objective of this study is to make some contribution to this nascent field. Specifically, the study aims at exploring the question as to whether Fund programs engender political protests and changes and the question as to what policy austerity measures account for these effects. Interest in the economic stabilization programs of the International Monetary Fund is also centered on the extent to which these programs are effective in terms of achieving their economic objectives. Although empirical research is hampered by the confidentiality of Fund programs (the IMF does not 3 publish its programs), a number of empirical studies on the payments effec- tiveness of Fund programs have recently emerged. A major drawback associated with these studies is their assessment of program effectiveness on the basis of a before-after comparison rather than a with-without one. These studies and their conceptual and methodological problems are discussed later. Suffice it here to note that there is a need to evaluate the economic effectiveness of Fund programs against the economic outcomes that would have prevailed in the absence of the programs (that is, the counterfactual outcomes). The major objective of this study is to do this, with respect to Fund programs in the Sudanese context. The study also provides insider information on Fund-supported economic stabilization programs that, to the best of my knowledge, has not been published. This is made possible by access to con- fidential information regarding all Fund programs in the Sudan (ten programs undertaken in the period 1966 - 1984). The third objective of the study is to explore the extent to which Fund stabilization programs are detrimental to social expenditures. It has been claimed that these programs have adverse effects on social expenditures. To the best of my knowledge, this claim is not subjected to any systematic empirical investigation. Overview of chapters: The conventional format of having all literature review in one chapter is not followed here. Instead, each chapter has its own literature review as well as the method used for empirical analysis. This format is necessary because each chapter deals with an entirely different issue and uses an entirely dif- ferent method. Chapter one describes the context in which the Fund-supported economic sta- bilization programs were implemented. Specifically, it hightlights the admin- 4 istrative, religious, social, and political impediments to or constraints on the implementation of the programs. It also discusses the relationships among the institutions involved in, or whose activities directly affect, this imple- mentation. Chapters two and three constitute the core of the study inasmuch as they address the fundamental or core issue of the balance of payments (the target variable) effectiveness of Fund programs. Chapter two describes both the extent of implementation of policies desinged to improve the balance of pay- ments position and the actual balance of payments outcomes. Chapter three is an attempt at assessing the independent balance of payments effects of the FUnd policy programs. Chapter four is an examination of the effects of the programs on social expenditures and of the relationship between these programs and commodity sub- sidies. Chapter five addresses the question as to whether Fund programs have political effects. In the following section, the concept of Fund-supported economic stabiliza- tion program and other related concepts are briefly explained. This is neces- sary because reference to them arises repeatedly in the chapters. Fund-supported Economic Stabilization Program: The fundamental purpose of a Fund-supported economic stabilization program is to help Fund member countries rectify their balance of payments dise- quilibria (usually, deficits). This is provided for in the Articles of Agree- Inent establishing the IMF. Thus, Article I (v) states that one of the purposes of the IMF is: To give confidence to members by making the general resources of the FUnd temporarily available to them under adequate safeguards, -. ‘I *4 5 thus providing them with an opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. A member country usually seeks Fund assistance (credit) when it is experiencing a balance of payments deficit and is unable to make its external payments. Fund assistance enables the member country to finance its balance of payments deficit or part of it. However, the Fund makes this assistance conditional on the member country implementing a set of policy measures that the Fund believes will help in rectifying the balance of payments maladjustment. The Fund thus combines balance of payments assistance (financing) with balance of payments adjustment policies. The conditional nature of the assistance is a recognition that balance of payments deficits can not for practical and efficiency con- siderations be financed for ever and that therefore adjustment policies are necessary for rectifying the external resource imbalance. Adjustment policies are required by the Fund when a member country requests credit from the Fund's upper credit tranches. Fund's credit (which takes the form of a member country purchasing with its own cur- rency the currencies of other members or "special drawing rights") is available to member countries in a range consisting of four tranches (segments). A purchase from the first tranche allows a member to draw credit equal to 25 per cent of its quota. Amounts of credit drawable from the second, third, and fourth tranches amount to 50, 75, and 100 per cent of quota, respectively. These three latter tranches are known as the upper credit tranches.2 The conditions associated with the use of 2. Chandavarkar, A. G., The International Monetary Fund: Its Financial Organi- zation and Activities, IMF, Washington, D.C., 1984, pp. 37-41. . !’ l t» L. .1 d P". I I .' Fr”:- "qu . D 4‘. ‘t‘P-Vb “‘ A. . I v<‘ . :k n F‘- A 6 Fund resources are generally the conditions required for drawing from these latter tranches. In the literature, the totality of these condi- tions is referred to as "upper credit tranche conditionality", which has been the subject of a great deal of controversy. Drawing from the upper credit tranches requires approval by the Fund Executive Board of a one-year Stand-By or a three-year Extended Arrange- ment (each one of these is promise from the Fund that a certain amount of credit is available to the member in the course of the period of the arrangement). Both types of arrangement require a member to adopt adjustment policies, the totality of which constitutes an economic sta— bilization program (the time frame of this is either one year or three years, depending on which kind of arrangement is involved). The member is required to submit a stabilization program to the Fund Executive Board for the approval of a stand-by or an extended arrangement. A FUnd technical mission goes to the member country to negotiate with its government what policies should be included in the economic stabi- lization program. When agreement is reached, the minister of finance or the governor of the central bank of the member (usually, the minister of finance) sends the text of the economic stabilization program (this text is referred to as “Letter of Intent”) to the IMF Managing Director, requesting a stand-by or an extended arrangement. In the process of negotiations, the mission may require that certain policies be implemented prior to the submission of the text of the eco- nomic stabilization program to the IMF Executive Board. Such policies are referred to as "preconditions" or "prior actions”. Usually, they include, but are not limited to, exchange rate actions and increases in the retail prices of subsidized consumer items. -1 E“. ‘ . a a s e 7 On the approval by the Fund Executive Board of a stand-by/extended arrangement, only a portion of the whole amount of credit approved becomes immediately available. The remaining credit amount (usually, the bulk of the whole amount) is broken down into quarterly installments over the period of the arrangement. A member's access to each outstand- ing installment is contingent on the implementation of some policy intentions included in the Letter of Intent. Such policies are referred to as "performance criteria". Nonobservance of a "performance criterion" leads to the interruption of the flow of credit and renders the arrange- ment with the Fund inoperative. Principally, policy intentions include quarterly ceilings on domestic credit extendable to the public and pri- vate sectors in the course of the economic stabilization period. 3 sum H ,. CHAPTER I THE CONTEXT The Sudan gained formal independence in 1956 after more than a half century of joint colonial rule by Egypt and Britian. Official steps toward independ- ence began three years earlier when in 1953 the two colonial powers enacted the Self-Government Statute. According to this, Sudan was to be formally inde- pendent after a three-year transitional period during which an elected Sudanese legislative assembly was to exercise some powers. The statute vested supreme authority in the British Governor-General, who was assisted by a five- member commission which included two Sudanese. The statute instituted a British-type parliamentary system. On the eve of formal independence, the Sudan had no constitution. A transitional constitution was improvised. This constitution kept the parliamentary system and vested supreme authority in a five-member council which was to act as head of state. Post-independent Sudan has had three problems. These are devising a permanent constitution, the war in southern Sudan, and economic development. The first democratic regime did not address these problems; the regime lasted for little over two years. During this period, a number of coalition govern— ments broke down due to inter-party and intra-party rivalries. In November 1958, Sudan's first experiment with parliamentary democracy came to an end when General Ibrahim Abboud staged the first military coup in the Sudan. The military regime of General Abboud lasted till October 1964. It did nothing in regard to the question of a constitution. As will later be 9 cfiscussed, it aggravated the war in southern Sudan. In the area of economic development, the military regime formulated the first long-term economic development plan. This was manifested in the Ten-Year (1960/61 - 1970/71) Eco- xxmdc and Social Development Plan. However, the Plan was abandoned when the ndllitary regime was ousted. After a brief transitional period following the overthrow of the military regime in October 1964, parliamentary democracy was restored. The par- liamentary politicians did not make any progress toward solving the three problems. From 1965 when parliamentary democracy was restored and until 1969 when it was abolished by another military take-over, parliamentary governments (which were all coalition governments) were debilitated and at times paralysed by inter-party and intra-party rivalries, party factionalism, and by rival sectarian leaders who had influence over the political parties. Because the behavior of parliamentarians was mainly directed at settling personal and partisan political vendetta, parliamentary democracy in this period was described, aptly, as a game of musical chairs.1 It was the one-party regime that came to power in 1969 and lasted till April 1985 that made substantial efforts at solving all three problems. On May 25, 1969, a group of army officers (who called themselves the "Free Officers") led by Major-General Jaafar Mohammed Nimeiri overthrew the four-year demo- cratic regime. Calling their coup the May Revolution, the officers set as their goals the solution of the three problems. 1. Peter K. Bechtold, Politics in the Sudan: Parliamentary and Military Rule in an Emergent African Nation, Praeger Publishers, New York, 1976, pp. 240- 257. 10 Much of the discussion below pertains to the period after 1969; in this period seven of the ten Fund-supported economic stabilization programs were undertaken by the leaders of the May Revolution. The leaders of the May Revolution sought to construct a new political order in the Sudan. The leader of the group clearly stated this when he noted: Until 24 May this country was on the ground and in crisis...its energies exhausted...its national unity dispersed...and its image of itself distorted...its capacities lost or wasted...and then came May to lift the giant from his fall, restore the glitter to his image and make his national unity a reality and to remove once and for all party divisiveness, the authority of tribalism and the predominance of sectarianism. It was to build in theory and in practice...a new society, populist in origin and revolutionary in organization and practice.2 The leaders of the May Revolution set as their first task the building of new institutions that would transcend the primordial cleavages of sec- tarianism, tribalism, and regionalism. This was done in the period between 1971 and 1973. This short period witnessed institution-building unprecedented in post-indepedent Sudan. In this period, they resolved the problem of southern Sudan, made the first permanent constitution in the Sudan, and created other new institutions, both at the national and subnational levels. Having completed the task of institution-building, the leaders of the May Revolution turned to the question of economic development. They undertook large-scale investment programs and borrowed heavily from abroad to finance the investments. They assumed that the Sudan had the administrative capacities to implement such programs and to manage their fiscal consequences. Their efforts at economic development led to a profound external debt crisis in the early 19803. :2. Quoted in Mansour Khalid, Nimeiri and the Revolution of Dis—May, Routledge and Kegan Paul, London, 1985, p. 27. 11 A key point to note here is that while the leaders of the May Revolution were implementing their policy priorities in institution-building and economic development, they were at the same time undertaking economic stabilization programs under the auspices of the IMF. Economic stabilization was not the only policy priority. More important, the two sets of policy priorities; institution-building and economic development on the on hand and economic sta- bilization on the other conflited with each other. The former entailed increasing government expenditures whereas the latter sought to contain these expenditures. The problem for economic stabilization was compounded by administrative, institutional, legal, political, religious, and social constraints on or impediments to the effective implementation of some aspects of the programs. In the following sections, these constraints and impediments are outlined. The first section is devoted to describing the new institutions built. This description is kept at minimum; it is not the institutions themselves that is of primary importance here but the fiscal consequences of the mere fact of their creation. Nonetheless, this description also provides essential back- ground information because reference to the institutions arises in the other chapters. The Political and.Administrative Systems of the May Revolution: 1. The Problem of Southern Sudan and.Regional Autonomy: The war in southern Sudan has had a profound influence on post-independence politics in the Sudan. As will be shown, it led to the overthrow of the first military regime in 1964 and contributed to the overthrow of the May regime in 1985. 12 The war began shortly before formal independence when southern members of the national army (at that time, the Sudan Defence Corps) rebelled. In the early 1960s, the rebellion developed into a bloody civil war, claiming tens of thousands of life. The southern Sudanese constitute one-quarter of the population of the Sudan and live in three adjacent provinces out of Sudan's fourteen provinces. The three provinces are located in the southern part of the country and are referred to as the South; the rest of the country constitutes the North. This division is mainly the product of the fact that the three provinces are diffi- cult to access from the rest of the country because of the roughness of the terrain surrounding them and also because of poor transportation. This and other considerations led the British colonial authorities to pursue from the 19308 on a policy of ”separate development" (the so-called Southern Policy) for the Southern provinces. In line with this policy which also aimed at countering the spread of Islam and Arabic from the North, the British colonial authorities encouraged Christian missions to open churchs and missionary schools for teaching English in the three provinces.3 The South's rebellion and the subsequent war were the concrete manifesta- tions of fear of Northern domination. According to Bechtold, this fear can be traced to the period of "slave raids one hundred years ago when Northern tribes conducted raiding activities in the South. Many atrocities were com- rnitted in the process and memories of the events have been handed down from generation to generation."4 Southern fear of northern subjugation is rein- forced by broad distinctive cultural cleavages between the Northerners and the 3. P. M. Holt and M. W. Daly, e he Suda ' rom the om n o 1§l§n_§2_ghg_p;g§ggg_g§y, Weidenfeld and Nicolson, London, 1979, pp. 151-153. 4. Bechtold, op. cit., p. 37. l3 Southerners. The Northerners are predominantly Suni Muslims, speak Arabic (though many of them are not Arabs), and tend to identify themselves with the Arab world. The Southerners are mainly animists (the educated minority are Christians) and tend to identify themselves with their consanuineous relatives in neighboring countries to the South. The rebellion was precipitated by the resentment of some Southerners over the allocation of civil service posts. The posts had previously been held by British administrators.5 As noted earlier, the rebellion developed into a civil war in the period of the first military regime. The regime attempted to impose the Arabic language and Islam in the South. Thus, Islamic institutes were opened, mosques were constructed and subsidized, Christian missions were prohibited from opening new schools, and the day of rest was changed from Sunday to Friday, which is the day of rest for Muslims. In reaction to these measures, the Southerners formed in 1963 an insurgent guerrilla army (the Anya Nya).6 Fighting escalated as the military regime tried to forcibly crush the organized, armed insurgency, which led to the emigration of thousands of Southern refugees to neighboring countries. After the military regime was ousted and replaced by a democratic regime in 1965, the Southerners demanded regional autonomy. Norhtern politicians rejected the demand, and civil war continued until the ”Free Officers" took over power. In March 1972, the regime of Major-General Nimeiri and the Anya Nya concluded an agreement whereby the three Southern provinces were created as a self-governing Southern Region with a People's Regional Assembly and High 5. In February 1955, a committee known as the Sudanization Committee was set up to consider which posts in the civil service should be given to Sudanese. Out of 800 posts, the Committee allocated only 4 posts to Southerners, Ibid., p. 185. 6. P. M. Holt and M. W. Daly, op. cit., pp. 179-180. 14 Executive Council. The powers of the regional institutions extend to all areas of public policy except areas such as national defence, foreign affairs, and currency. The agreement put an end to the civil war. The resolution of the conflict is significant in three respects. First, it allowed the leaders of the May Revolution to focus their attention on the question of economic development. It also affected central government expenditures; the central government set up a special fund, the Southern Region Development Fund, for the rehabili- tation of the war-devastated region and for the resettlement of refugees. Third, the political settlement coincided with one of the Fund-suported stabi- lization programs the government was implementing in the first half of the 19708. The effect of this coincidence is discussed in chapter four. 2. Political and Administrative Institutions: (I) National Institutions: A salient feature of the May Revolution system is the integration of admin- istration with politics. At the core of the system is the Sudanese Socialist Union (SSU), which was created as the only political party in the country. The Sudanese Socialist Union replaced the multi-party system which, operating within a British-type parliamentary framework, produced short-lived coalition governments undermined by personal rivalries, party factionalism, and the influence of rival sectarian leaders. The Sudanese Socialist Union starts with a village or town neighbourhood where people elect the "Basic Unit". Basic Units are to carry messages of national leaders to the grass-roots and convey local opinion to higher echelons on the Section (District), Area, Provincial, and National Levels. The supreme political body in the state is the SSU General Congress, which elects a Central Committee and the chairman of the party. The Central Commit- 15 tee meets annually to debate and determine general policies and political guidelines. The organization's political power is concentrated in the Politi- cal Bureau, which is appointed by the chairman of the party. The SSU and government are integrated in that at the national level the president of the republic is also the chairman of the SSU. The constitution requires that the president (who is elected for a six-year period through a plebiscite) be nominated by the SSU. The SSU has always nominated its chairman, Major-General Nimeiri. The integration of the SSU and government is also manifested in the national legislature, the People's Assembly, whose elected members have to be approved by the SSU. The constitution concentrates power in the president. The president is the chief executive and supreme commander of the armed forces. Ministers are appointed by him and are responsible to him rather than to the People's Assembly. The judiciary is directly responsible to the president, who appoints its high judges. The president appoints 12 per cent of the members of the People's Assembly and has the power to dissolve the Assembly before it com- pletes its four years' tenure. Finally, the president is empowered to declare a state of emergency and suspend the constitution. What the leaders of the May Revolution created is an authoritarian one- party system. The authoritarian nature of the system is also indicated by the fact that Major-General Nimeiri was the only presidential candidate, the only President of the Sudan, the only Chairman of the SSU in the period in which this system was in existence (1971 - 1985). On many ocassions, President Nimeiri acted extraconstitutionally. For instance, in April 1984 he imposed a state of emergency which lasted for five months. The constitution allows only a maximum of fifteen days. In June 1983, be abolished the institutions of 16 regional autonomy in the South. The constitution does not empower him to do this. (II) Decentralization and Local Institutions: One of the objective of the leaders of the May Revolution is to involve people outside Khartoum in government and through it in social and economic development. The system that the May Revolutionaries sought to replace pro- vided limited public services, mainly of regulatory nature, and gave religous, tribal, and influential family elites susbtantial control over local affairs. The influence of traditional forces was based on the system of native adminis- tration whereby tribal chiefs and religious leaders in rural and semi-urban areas were entrusted with the administration of justice, the maintenance of law and order, and tax collection. The system was introduced by the British colonial authorities in the 19303 and retained by Sudanese governments after independence. Apart from increasing the number of services, the new system was designed to eliminate the influence of traditional forces in the conduct of local affairs and to integrate politics with administration. The May Regime sought to achieve these objectives through creating modern local administrative institutions that are integrated with the Sudanese Socialist Union. Institution-building at the local level was centred on the 1971 People's Local Government Act. The Act established provincial (the province is the basic unit of subnational government in the Sudan) institutions consisting of a People's Province Executive Council and a Provincial Commissioner.7 7. On this system, see Dennis A. Rondinelli, "Administrative Decentralization and Economic Development: the Sudan's Experience with Devolution,” Ihg Jogrnal 9f Modgrg Afriggg §tgdig§, Vol. 19, No. 4, 1981, pp. 600-608 and M. W. Norris, “local Governments and Decentralization in the Sudan," Journal 9f Development W211, Vol. 3, No. 3, July/September 1983, pp. 210-217. 17 The People's Local Government system is a hierarchical system, at the top of which are People's Province Executive Councils. Next to these are People's Town and Rural Councils. Below these are the basic units which are Town Neigh- bourhood and Village Councils, respectively. These are the first to be elected. Members from each lower councils sit on upper councils. Workers, farmers, professionals, and the army are to be represented. The representation of these groups is designed to exclude traditional (tribal and religious) forces from the conduct of local affairs. The Provincial Councils administer such services as primary and junior secondary education, roads, bridges, community development, social welfare, and public health. Most of these functions were previously the responsibilities of central government ministries. For instance, junior secondary education, health, and the police were previously the responsibilities of the Ministries of Education, Health, and the Interior. Apart from these administrative functions, Provincial Councils are charged with the responsibility for "political enlightment, people's mobilization, economic and social development"8 and with the promotion of the socialist ideology as defined by the SSU. The Commissioner subervises over and co-ordinates the activities of central ministries in his province. He is head of civil service in his province. He is also ex officio chairman of the Provincial Council and head of the provin- cial Sudanese Socialist Union. He thus integrates administration and politics. Essentially, the 1971 Act established provincial administrations rather than provincial governments. Technically, these provincial entities do not govern the provinces but administer them on behalf of the central government. 8. Quoted in Dennis A. Rondinelli, op. cit., p. 602. 39' if. n, i ,- .) ,5 .‘ -1 18 This is manifested in that the Provincial Commissioner is appointed by the president rather than elected by people in the province. He is a political agent of the central government and its ruling party. Accordingly, he is not supposed to represent a local or provincial constituency but to organize resi- dents to be ”responsive to the general policy of the government".9 Thus, it is more appropriate to use local administration rather than local government in describing this system. What is important for the purpose of this study is the budgetary conse- quence of this new system of local administration. The system resulted in the integration of provincial budgets into the central government budget. This resulted, as will be shown in chapter four, in substantially increasing annual central government transfers to the provincial administrations. It is impor- tant to describe the new central-provincial fiscal relationship; this provides essential background information for chapter four and also provides some insight into one of the key constraints on the government in so far as the control of government expenditures is concerned. In the old system, most public services were directly provided by central government ministries through their agents located in the provinces. These services included, inter alia, intermediate education (this is the level immediately above primary or elementary education) and health. Funds for the provision of these services and others were included in the budgets of the central ministries providing the services. Services provided by provincial administrations were limited to primary education, the maintenance of law and order, and local sanitation. 9. Ibid., p. 602. 19 The only fiscal relationships between the central government and the provincial administrations are central grants tied to the provision of primary education and non-recurrent capital grants for minor projects. Provincial administrations finance their other activities from their own local taxes levied on land, buildings, animals, and trees. Apart from the aforementioned grants, they do not receive any other subventions from the central government. A principal problem that has been attributed to the 1971 Local Government System is that it has resulted in ever increasing central government transfers to provincial administrations to finance the latter's growing annual deficits. This is the result of a combination of several factors. First, provincial administrations are generally known to have inelastic taxes which have gener- ated revenue amounts incommensurate with increased expenditures resulting from the transfer of increased responsibilities from the center. The result of this is that provincial administrations have aways had deficits. Second, under the provisions of the 1971 Act, provincial authorities are not required to balance their budgets nor are they permitted to borrow from the banking system or from the nonbank sector through the issue of special bonds. The combination of these factors has meant that the only source for financ- ing the deficits of the subnational administrations is the central government. This is facilitated by the fact that the new system requires the provincial administrations to submit their annual budgets to the central government (the Ministry of Finance), the assumption being that these budgets are part of the budget of the central government. The fiscal relationship that has evolved since 1971 between the central government and the provincial administrations is that the former has annually transferred funds to the latter to help them finance their deficits. The transfers are not based on any revenue-sharing - 9 e--. . us—aa. I .. V *- I ~. e (e . e n m 20 formula that determines amounts transferred on the basis of each province's tax effort. This has created a tendency on the part of the various provincial authorities not to make an adequate tax effort. The fiscal problem of the system is summarized by a World Bank report. The report notes: Since 1971, the Government has sought to give greater autonomy to local authorities. Local authorities, however, have a highly regressive system of revenue raising, and are prohibited from bor- rowing. Most of their expenditures, therefore, are financed by transfers from the central government budget, which account for 25 percent of total central government expenditure in 1978/79. Trans— fers tend to be allocated on the basis of budgetary deficits of the lower authorities, which do not encourage austerity among them or an adequate revenue effort of their own. There is a great need for a rational formula for the transfers...10 The External Debt Problems The external debt problem posed one of the severest constraints on economic adjustment programs, notably those in the late 19703 and early 19803. Many factors contributed to the emergence and aggravation of the problem. However, the primary source of the problem is the government's attempt to implement large scale investment programs. The programs were part of the 1970/71 - 1974/75 Economic Development Plan, which was extended to fiscal 1976/77. The government relied on external borrowing, mainly of a nonconcessional or com- mercial nature, to finance its investment programs.1lBetween 1974 and 1977 alone, Sudan's loan commitments amounted to USS 2,460 million or 35 per cent of Sruian's external debt outstanding at the end of fiscal 1981/82. Of this anmnnnt of loan commitments, US$ 1,670 million (that is, 68 per cent) was on 10. kanorandum on the Economy of Sudan, Report No. 2652 - Su, World Bank, October 1979, 11 . ll. TTLis primary origin is common to most African countries which have experi- enced external debt crises; see Joshua Greene, The External Debt Problem of Sub-Saharan Africa (an IMF Working Paper), International Monetary Fund, Washington, D.C., March 1989, pp. 7-12. 21 hard terms, with a 7.1 percent interest rate and a maturity of 9.7 years (see, Table 1.1). Table 1.1: External Debt Structure, 1974 - 1977. Maturity Maturity Less than More than Total Commitments 2,460 1,670 790 ($ million) Average Interest Rate 5.8 7.1 3.1 Average maturity 16.7 9.7 31.5 Average Grace Period 4.5 3.1 7.5 Source: Memorandum on the Economy of Sudan, Report No. 2652 - Su, World Bank, October, 1979, p. 9. The major factor that facilitated the accumulation of such a large debt in so short a period is that until 1979 there was no one central government unit responsible for authorizing foreign borrowings and for debt management, particularly the assessment of the appropriateness of the terms of loans and the country's capacity to meet future debt obligations. The authority to engage in external borrowings was scattered among different ministries and agencies. As a result, there was no complete record of total external debts nor of future debt obligations. The absence of a central debt management unit also meant that judgements as to the appropriateness of borrowing terms could not be made. In this period, the IMF and the World Bank began to urge caution. In par- tiruflar, they impressed on the Government the need to exercise strict control over the contracting of short- and medium-term loans and warned it of the fixture consequences of the reliance on these kinds of external borrowing. TTNJS. in July 1974, a Fund staff noted, in a report submitted to the IMF Executive Board: 22 The Government has contracted large amounts of medium-term loans in recent months and debt service payments are projected to rise substantially over the next several years. The staff feels that the Sudan should exercise strict surveillance over the contracting of new short- and medium-term debts in order to contain debt serv- ice within the country's capacity to meet obligations. 12 In September 1976, a World Bank report recommended that capital inflows in the next five years be in the form.of concessional long-term loans to insure that the debt service ratio in the 19803 would be manageable. The report also urged the government to refrain from borrowing on commercial terms and to restrict borrowing to priority investment needs.13 The report also urged the Government to set up one unit that would be responsible for centralizing all records regarding external debt. It was not until 1978 that the government began to take concrete steps toward strengthening external debt management. In that year, the Ministry of Finance was made the sole central agency in charge of the collection of debt information. In addition, sole authority to engage in foreign borrowing was vested in the Minister of Finance.14 In the course of 1979, a central debt management unit was set up within the Ministry of Finance and became opera- tional. However, the problem of debt management has not been solved; the unit was not fully effective due to a number of factors. The first was the frag- nmnrtation of the debt management administrative mechanism. Beside the unit, there are other half a dozen or more units also responsible for various aspxects of debt management. These include the Loans Department in the Ministry of Efilanning, the Foreign Exchange Department of the Bank of Sudan, the Debt 12. Srndan - Request for Stand-By Arrangement (July 1974, p. 19), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 22, Ministry of Finance, Khartoum. 13. Economic Memorandum on Sudan, Report No. 1273a-Su, World Bank, September, 1976, p. 30. 14. Memorandum on the Economy of the Sudan (October 1979), op. cit., p. 9. a4 . . in -... . ~ fix . P\ 23 imscheduling Unit in the Bank of Sudan, and other units within the Ministry of Finance. With this fragmentation, the effective performance of the unit required adequate co-ordination and communication techniques which the unit lackedsls. Another factor was that the unit lacked the necessary staff and the support of those responsible for contracting external debt.16 One indication that the establishment of the central debt management unit did not solve the debt management problem was that the size of Sudan's external debt was not known until 1982 after the Government hired an Interna- tional accounting firm (the London-based Peat, Marwick, Mitchell & Co.) to determdne the size of Sudan's external indebtedness and to whom the debts were owed. By this time, however, Sudan's external payments situation was in a profound crisis. As will be discussed in the next chapter, at the core of the this crisis was Sudan's external indebtedness. Another factor that contributed to the debt problem was that the government neglected existing investments, particularly public irrigation schemes for the production of cotton, Sudan's principal foreign-exchange-earning crop. This point is pursued further in chapter two. On the other hand, implementation problems prevented the new investments from being completed within their time frameworks. This precluded the realization of investment returns before the external debts began to fall due. The two factors were identified and their effects noted by a 1984 World Bank Consultative Group meeting on Sudan. Sudan's economic performance since 1972 has been heavily influenced by public sector investment activity. The Government rapidly expanded its investment during the 19703...The investments undertaken led to a major increase in the import of both capital and intermediate goods. At the same time, export volumes declined 15. Sudan - Pricing Policies and Structural Balances (a World Bank Country Study), World Bank, Washington, D.C., 1985, p. 140. 16. Ibid- , p. 140. 24 sharply. This happened in part because the public investment program focused primarily on the development of new production capacity, much of which was not export-oriented, and failed to make adequate provisions for the maintenance of the existing export-oriented public irrigation schemes. The resource gap resulting from the adverse import/export patterns led to a very rapid increase in the level of external borrowing. Project selec- tion and implementation problems generally prevented the invest- ments from generating the anticipated returns in a timely fashion. Consequently, the country was unable to meet the rising debt serv- ice obligations, and arrears began to accumulate. After 1978, severe shortages of foreign exchange led to a fall of import volumes. The growth momentum of the mid-seventies, which was based in large part on external borrowing, could no longer be sustained, and the economy began to stagnate... Fiscal Constraints: The Problem of external debt management is paralleled by an internal fiscal management problem. Before discussing this, it is worth noting that effective fiscal management (in particular, the control of domesic credit) is crucial for the implementation of certain aspects of Fund-supported stabilization programs. Principally, these are the domestic extension credit ceilings of the programs. In the Sudan, public sector entities depend on central bank credit as a regular (annual) source of funds. This dependence is perpetuated by some institutional arrangements. The origin of this dependence is related to the fact that government borrowing from the nonbank public is extremely limited in the Sudan. Before discussing the institutional arrangements and factors that hamper effective control of bank borrowing, a brief discussion of government borrowing from the nonbank public is in order. As noted above, nonbank borrowing by the government and other public sector entities is virtually nonexistent. In particular, open market operations (that 17. Sudan - Outline of Current Status (Chapter 1, Introduction and Summary), IUD-ll-Z. Documments of the International Monetary Fund, File No. 0 - l, 316, Vol. 26, Ministry of Finance, Khartoum. 'v O“ ‘G. '5. ‘\ "I .1 r. 25 is, the buying and selling of government bonds and Treasury Bills) by the non- bank sector are extremely limited. It was only in 1983 that Treasury Bills were sold to the nonbank public. The amount sold was LSd. 20 million, representing merely 3 per cent of that year's fiscal deficit of LSd. 655 mil- lion.18 Government bonds are normally bought and held by commercial banks and are, as such, instruments of government borrowing from the banking system. The key point to note here is that the amounts borrowed by the government through the issue of bonds are very small compared to the size of the fiscal deficit. In fiscal 1980/81, the amount of government bonds held by commercial banks was LSd. 34.9 million, representing only 12.4 per cent of the fiscal deficit of LSd. 280.1 million.19 As a matter of fact, the government does not rely on the sale of bonds or Treasury Bills to finance its deficits; the amounts of funds raised are tiny in proportion to the fiscal deficit. Moreover, bonds and Treasury Bills are not sold every year whereas the government incurs deficits on an annual basis. The primary factor that obstructs borrowing from the nonbank public is the limited scope of the capital market which is virtually nonexistent. Religious attitudes also seem to pose a problem; Islam regards income from an interest rate as 'riba" (usury) and prohibits it. In view of this, people do not normally put their money in interest-earning investments. Sudanese monetary officials repeatedly raised this point in their meetings with IMF officials 'wheatthe latter urged more frequent increases in the interest rate, which 18. Statement of the Government of the Sudan on Its Economic and Financial Policies (p. 12), Documents of the International Monetary Fund, File No. 0 - 1. 316, Vol. 25, Ministry of Finance, Khartoum. 19. 1981 Bank of Sudan Report, Bank of Sudan, pp. 82 and 143. 26 rmmined unchanged for years. Between 1975 and 1981, for instance, the inter- em:rete remained unchanged. Commenting on this, a Fund staff report (sub- Iutted to the IMF Executive Board) noted: The authorities unwillingness to permit more frequent increases in the interest rate structure partly reflected the desire to contain pressures on prices by controlling the cost of borrowing, and also the view that religious attitudes rendererd many banking clients largely unresponsive to interest rate changes.2 Institutional Relationships between Domestic Credit Controllers and Users: 1. The Bank of Sudan and the Central Government: As the central bank, the Bank of Sudan is the principal entity responsible for the extension and control of domestic credit; the central government is the principal domestic credit user. The key constraint on the Bank of Sudan as an effective controller of domestic credit is that it is the agent of the executive branch of government, the Council of Ministers. The Bank was set up in 1959 by the military regime of General Abboud, which supordinated existing and new central government institutions to the Supreme Council of the Armed Forces and to its executive branch, the Council of Ministers. Under subsequent governments, the Bank has remained as the agent of the Council of Ministers. This point is important because in terms of domestic credit policy the Bank is expected to accommodate the budgetary outcomes (deficits) of the central government rather than to pursue an independent credit policy tailored to serving the purpose of macroeconomic management. In this regard, the Bank of Summan contrasts with the United States central bank (the Federal Reserve System) which has the legal authority to pursue monetary or financial policies independently of the executive branch. 20. Sudan - Staff Report for the 1982 Article IV Consultation (August 23, 1982, 13. 9), Documents of the International Monetary Fund, File No. 0 - l, 316, VRJI. 24, Ministry of Finance, Khartoum. 27 The 1959 Bank of Sudan Act, which established the Bank, requires it to extend loans to the central government. Thus, section 57 (A) of the Act reads: The Bank may advance temporary loans to the government, subject to such terms as may be determined by the Bank. The sum total of such loans shall not exceed any time during the fiscal year in which the loans are advanced 10 percent of the current revenues of the central government. The central Government shall repay the loans within a six-month period beginning from the end of the fiscal year in which the loans are extended. The 10 per cent limit and the short-term or temporary maturity of the loans are intended to control government borrowing from the central bank because this borrowing is potentially inflationary. Central government borrowing from the central bank takes the form of printing money. This leads directly to monetary expansion because it infuses new money into the economy rather real- locates existing money from, for instance, the private sector to the govern- ment sector. The practice that has been followed is that at the beginning of each fiscal year (the fiscal year begins on the first of July and expires on the thirtieth of June the following year) the Ministry of Finance calculates from its estimates of current revenues the total amount of central-bank loans legally extendable to the central government for the fiscal year ahead. Central bank credit has become a permanent and regular (annual) source of funds for the Ministry of Finance acting on behalf of the central government. A more impor- tant point to note is that the Ministry of Finance has rarely observed the provisions under Section 57 (A), particularly loan repayments. More often than not, Section 57 (A) of the Bank Act is amended or reinterpreted so as to extend the period of loan repayment by changing the temporary loans into 21.The 1959 Bank of Sudan Act (version amended up to 1984, in Arabic), Bank of Sudan, Khartoum, p.17. 28 ”long-term loans“. The latter has resulted in the build-up of ever increasing central government debt arrears with the Bank of Sudan. The amendments are made by the Council of Ministers and are introduced to the Council by the Min- ister of Finance. An amendment or reinterpretation usually takes place when the Ministry of Finance is unable to repay outstanding debts within the required time period (that is, within six months after the end of the fiscal year in which the debts are incurred). To illustrate, the ceiling on the amount of temporary loans to the government was fixed at LSd. 19.1 million for fiscal 1972/73. The government borrowed the whole legal amount but was unable to repay it by the end of June 1973 - end of December 1973 legally required repayment period. On December 17, 1973, Section 57 (A) was amended and the outstanding debt was regarded as a long-term loan to the government to be repaid in ten years time. This increased the amount of outstanding long-term loans from LSd. 44.8 mil- lion at the end of June 1973 to LSd. 63.9 million at the end of December 1973.22 The dependence of the central government on the Bank of Sudan poses con- straint on the Bank as an effective controller of domestic credit in that the central bank does not fix the legal amount of loans annually extendable to the government. Moreover, the fact that the government can and do often amend Sec— tion 57 (A) means that the Bank has little power, as far as government borrow- ing is concerned, in restraining the monetary expansion implicit in the exten- sion of loan repayment periods. Such an extension contributes to monetary expansion in that it lengthens the period of funds lent (in this case money printed) being in circulation or out of the Bank. 22. 1973 Bank of Sudan Report, Bank of Sudan, Khartoum, pp. 72-73. 29 2. The Bank of Sudan and Independent-Budget Corporations: The number of public enterprises increased substantially in the 19703 due to the emphasis on the part of the leaders of the May Revolution on the public sector as the dominant and leading sector in the economy. This led to the nationalization of a large number of private enterprises in 1970. In subse- quent years, the government established more enterprises in the manufacturing, agricultural, and tertiary sectors. By 1975, the number of public enterprises increased from less than 10 in 1969 to more than 50. A traditional problem of public enterprises in the Sudan has been their financial performance. Instead of generating surpluses which they are required to transfer to Treasury, they have usually ended up with deficits which are financed by the central government budget or by credits from the central bank. In terms of their budgetary relationships with the govenment, public enter- prises in the Sudan can be divided into two kinds. First, there are those cor- porations whose budgets are part of the budget of the central government. The budgetary operations of these corporations are directly controlled by the Min- istry of Finance, which makes regular appropriations to the corporations. The second kind comprises the principal and the largest public corporations in the Sudan. Chief among these corporations are agricultural parastatals, the largest of which is the Sudan Gezira Board (which manages the largest cotton- growing scheme in the Sudan); Sudan Railways; Sudan Airways; and Central Elec- tricity and Water Corporation. These corporations are run as self-financing units. Their budgets are not part of the budget of the central government; they prepare their budgets independently of the Ministry of Finance. Their only fiscal relationship with Finance is that they are required (under the provisions of the 1971 Public Sector Corporations Act later superceded by the 30 1976 Public Corporations Act) to transfer their surpluses to Treasury and to pay interest to Treasury on the central government share in their equity capi- tal. Treasury also guarantees the external loans these corporations contract. These corporations also depend on the Bank of Sudan a3 a regular (annual) source of funds. As is the case with the central government, they are also legally entitled to central bank credit. Section 57 (B) of the Bank of Sudan Act requires the Bank to provide temporary advances and seasonal credits to public sector boards and agencies should the latter request such credits.23 The dependence of indpendent-budget corporations on the Bank of Sudan also poses a constraint on the effective control of domestic credit by the central bank. This stems from the fact that the central bank does not control the budgetary outcomes resulting from the corporations' production activities. In addition, domestic credits to these corporations are intrinsically difficult to control because their credit requirements depend on a number of variable factors, some of which are beyond their control. These factors may include, but are not limited to, home and foreign inflation, the corporations' prod- uction capacities, and production input and logistical constraints. Fund staff themselves acknowledge that because of such factors it is inherently difficult to control credit to these entities. In one of the reports, a Fund staff pointed out: Most of these entities, although under the administrative control of the government, are engaged in activities that are carried out by the private sector in most countries. Their borrowings from the banking system depend upon level of activity, stocks and prices, and are therefore difficult to control through the government budgetary apparatus.24 23. Bank of Sudan Act, op. cit., p. 17. 24. Sudan - Request for Stand-By Arrangement (July 1974, p. 12), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 22, Ministry of Finance, Khartoum. 31 3. The Bank of Sudan and Commercial Banks: The landing operations of commecial banks has a direct effect on domestic credit and on the effectiveness of control of such credit by the Bank Sudan. In the Sudan, the principal client of commercial banks is the private sector; most credit extended by these banks goes to this sector, mainly for the financing of imports and of export crops. As the central bank, the Bank of Sudan has the power to supervise over the lending operations of the commercial banks, issue directives to this effect, and impose sacntions on these banks that do not follow the directives. In regard to the control of domestic credit extended by commercial banks, the Bank of Sudan has usually relied on setting periodic ceilings on the amounts of credit extendable by each commercial bank. However, the Bank's annual reports often indicate that credit ceilings are not observed. There are no officially-stated reasons for this. One reason appears to be that the commer- cial banks themselves have difficulties in controlling the credits they extend. This is apparently the result of two factors. The first is that lend- ing by commercial banks is largely based on personal and family connections. This makes the borrower keep the loaned funds longer than he should. This is reinforced by the social taboo on demanding repayment on the part of the lender. The second factor is administrative and has to do with the fact that court cases involving loan repayment are held up in courts for years. Both factors are identified by a Fund staff member in accounting for the difficul- ties in controlling commercial bank credit. The staff member pointed out: In recent years, there have been difficulties in curbing the growth of private credit. This reflects the highly personilized nature of credit extension wherein access to financing is often contingent on personal and family relationships and in which lend- ing, ostensibly done for short-term, self-liquidating purposes, ends up becoming part of the borrower's permanent funds because of 32 the social inhibitions on demanding repayment and also because of deficiencies in the legal system which result in cases involving commercial debt repayment being held up for years in the courts. Before closing this section, it is useful to point out some noteworthy fea- hues of the Sudanese budgetary process. One feature relates to the fact that the national legislature (that is, the People's Assembly) has a very limited role in the budgetary process. The constitution only requires the Finance Min- ister to submit his budget to the Assembly for examination and approval. The Assembly may make recommendations to the Finance Minister to change some aspects of the fiscal policy contained in his budget proposal. However, these recommendations are not binding on the Minister. In addition, the Assembly does not make taxes nor does it approve appropriations for specific areas of public policy such as defence or education. The latter is the result of the fact that the Minister of Finance submits to the Assembly the aggregate or the sum total of proposed expenditures rather than the breakdown of the proposed total. Another feature is that the Ministry of Finance has monopoly over the formulation and execution of the budget of the central government. Budgetary appropriations for central government units and provincial administrations are made solely by the Ministry. Trade Unions: The Sudan has a long tradition of militant public-sector-employment-based trade unions. This militancy has manifested itself in the strike being the weapon of first resort rather than the ultimate recourse for obtaining workers' demands. This tradition goes back to the immediate post Second World War period when declining real wages and the nationalist drive for self-determination and 25. Sudan - Staff Report for the 1982 Article IV Consultation, op. cit. , p. 9. 33 independence from Britain led to the development of a labor movement. The origin of the movement is the formation in June 1946 of a Workers Affairs Association (WAA) by the railway workers in Atbara (Atbara is a town 350 Km. north of Khartoum and is the headquarters of the state-owned railway system). The railway workers went on strike to force the British colonial authorities to recognize the association, which the authorities did.26 The railwaymen's strike and its success established a precedent of the strike being an effective means for the extraction of concessions from the government. As a result, the strike has become a weapon of first resort by the trade unions in dealing with governments. Sudanese trade unions first go on strike and then negotiate. The problem that this tradition has posed is that the most militant unions are organized around the most vital parts of the public-sector-dominated econ- omy. This is particularly the case with the Sudan Railway Workers Union and the Gezira Tenants Union. The importance of the railway system in the Sudan consists in that it is the principal artery of the Sudanese economy; the rail- way system transports capital and essential consumer goods from Port Sudan on the Red Sea to urban centers, particularly Khartoum and its two adjacent twin cities of Khartoum North and Omdurman where most productive units are con- centrated and most civil servants reside. When the railwaymen go on strike, everybody is alarmed and the government wastes no time in responding. The Gezira Tenants Union organizes farmers around cotton production in the Gezira Scheme (more information on this Scheme is included in chapter two). In the Sudan, cotton is the principal source of foreign exchange. The Sudanese 26F. M. Holt and M. W. Daly, op. cit. p. 157. 34 economy has been described as a text-book example of a one-crop economy because of its primary dependence on cotton. The effects of these two unions on the implementation of IMF-supported eco- nomic reforms and their reactions to the initiation and implementation of such reforms are discussed in the subsequent chapters. This discussion is intended to provide minimum background information on these unions because reference to them arises in the subsequent chapters. With the exception of these two unions, all other principal unions and professional associations are located in Khartoum. Principally, these include the Sudan Doctors Union, the Par Association, Khartoum Univesity Professors Union and the Engineers Union. The political significance of these unions being resident in Khartoum is discussed below. In October 1964, the military regime of General Abboud was overthrown after six days of mass demonstrations and a general political strike in Khartoum.27 The protests were precipitated by the death of a Khartoum University student when armed police entered the campus of the university and opened fire on a group of students discussing the war in southern Sudan. These protests and their aftermath has since October 1964 been referred to as the October Revolu- tion. Like the railway workers' strike in 1946, the October Revolution also established a precedent; viz the general strike is a potentially effective means of overthrowing the government. Both Post-October-Revolution governments 27. The events leading to the military relinquishing power were vividly described by Mohamed Ahmed Mahgoub (the Foreign Minister in the civilian SOVGITunent that was overthrown by General Aboud in November 1958), who sug- gested in a meeting of the Sudanese Par Association the idea of using a gen- eral Strike to bring down the military regime; Mohamed Ahmed Mahjoub, Demog- ect n b a r ca 1 t , Ander Deutsch, London. 1974, pp. 189-190. 35 (principally, the one-party regime of President Nimeiri) and trade unions are aware of the potential of the general strike in ousting the government. On two occasions, President Nimeiri used concessionary and repressive measures to break up a wave of strikes that would have otherwise developed into a general strike. These cases are discussed in chapter five. Awareness on the part of the unions is indicated by the fact that a general strike and the threat of a general strike were used, respectively, to oust President Nimeiri's regime in April 1985 and to force a democratically-elected government to rescind an increase in the retail price of sugar in 1988. The awareness on the part of the government of the politically serious con- sequence of a general strike has resulted in the preferential treatment of Khartoum residents as far as economic welfare policies are concerned. This seems to be the case in the area of price supports regarding some basic con- sumption goods, notably sugar and petrol (the importation of these goods is :monopolized by the government). The retail prices of these goods are sub- sidized by the Central Government only for Khartoum, Omdurman, and Khartoum North. In other urban and.rural areas, the subsidies do not apply. Throughout the 19703 and 19803, the retail prices of these goods were much lower in the Khartoum area than in any other urban center. There are no data to confirm this, but it is common knowledge in the Sudan that this is the case. In some tarban centers, these goods are available only in black markets whereas in :Khartoum no such markets in these goods have ever existed. In my home town, El Fasher (the capital of Darfur Region in western Sudan) petrol stations have reunained.closed since the 1973 oil crisis, and petrol is available only in the black market, at prices multiple the price in Khartoum. Ammother indication of this preferential treatment is the area of price con- trrils which also apply only to Khartoum. In 1981, the Central Government set 36 up Price Courts only in Khartoum, Omdurman, and Khartoum North to handle violations of administratively-fixed retail prices. The preferential treatment of urban dwellers through price support and con- trol policies is widely practised in the African context. Students of African politics view it as performing a key political insurance function; namely, the maintenance off fragile governments (in general) and personal rule (in particu- lar) in power. The argument is that such treatment is one way to keep powerful urban groups (principally, civil servants and members of the armed forces) contended - groups whose political disaffection is potentially inimical to the existence of regimes and personal rule.28 In the Sudanese context, a noteworthy problem that this preferential treat- ment has posed is that it has been an impediment to controlling government expenditures, particularly in times of increases in the international prices of sugar and petrol. This problem is a potential impediment to the fiscal effectiveness of Fund-supported economic stabilization programs; for such programs presuppose and require control of government expenditures in the course of the economic stabilization period. In addition, price control policies run counter to the free market-oriented policies required by the International Monetary Fund for its conditional support. 28. Robert bates made this argument and provided some anecdotal indirect evi- dence for it; see Robert Bates, e s te r ical A c , Univ- ersity of California Press, Berkeley, 1981, pp. 30-44 and Robert Bates, "Eco- nomic Reforms in Africa, " Report on the Conference 93 Economic Reform in Wm. Center for Research on Economic Development (University of Michigan), December 1988, p. 82. This argument is also evident in Richard Sandbrook's reflections on the economic irrationalities of personal rule in Africa; see Richard Sandbrook, "The State and Economic Stagnation in Tropical Africa," Hg;1d_ngyglgpmen;, Vol. 14, No. 3, 1986, pp. 319-332. CHAPTER II FUND POLICY PROGRAMS AND BALANCE OF PAYMENTS OUTCOMES The Fund-supported economic stabilization programs undertaken between 1966 and 1984 covered three periods with each period having a number of successive programs. The first period covered 1966/67 - 1968/69, the second 1972/73 - 1974/75, and the third 1978/79 - 1983/84. 1. The Programs of the 19603: The three annual stabilization programs undertaken in the second half of the 19603 are typically financial programs tailored to improving the external payments position through reduction in excessive domestic credit expansion, mainly due to public sector deficits. Reduction in the volume of domestic credit, coupled with some measures to boost the exports of cotton, was expected to lead to reduction in the external payments deficit and even to the generation of a surplus. Am The 1966/67 Program: The objective of the program was to reduce the balance of payments deficit in fiscal year 1966/67. This was to be achieved in part by a substantial reduction in total bank financing of the private and public sectors' needs and also by restraint on imports. Toward the latter objective, a 5 per cent sur- charge on all imports was levied. In regard to private and public sector domestic borrowing, the program permitted only LSd. 13.5 million in total domestic credit (LSd. 9.5 million and LSd. 4 million to the pubilc and private 37 38 sectors, respectively) compared to LSd.10 million in fiscal 1964/65 and LSd. 20.4 million in 1965/66 (Table 2.1, amounts in LSd. million) Table 2.1: Domestic Credit Extension, 1964 - 1967. Fiscal Year 1964/65 1965/66 1966/67 Program Actual Public sector 21.3 16.4 9.5 10.6 Private sector -11.3 4 4 3.5 Total 10 20.4 13.5 14.1 Sources: Sudan: Article XIV Consultation 1967, (Minutes of Meeting No. 4, March 6, 1967, p. 1) Sudan: Article XIV Consultation 1968 (Minutes of Meeting No. 4, January 31, 1968, p. 1) Documents of the International Monetary Fund, File No. 0-1, 316, Vols. 13 and 15, Ministry of Finance, Khartoum. The program also sought to improve the balance of payments position by promoting cotton sales and exports; slow movements in the sales and exports of cotton was believed to have contributed to the difficult payments position. The slow movement in the export crop resulted from the inability of the Sudan Gezira Board (the principal grower and seller of cotton in the country) to dispose of cotton stocks accumulated over two years. To encourage buyers to purchase and export cotton, the program offered lower prices and a reduced export duty levied on cotton. In this respect, the Minister of Finance noted, in the text of the program, "The government is pursuing a flexible cotton marketing policy...In line with this policy, the Gezira Board has recently reduced its reserve prices by 7 to 12 per cent. . . As a further inducement to 39 experts, the government has granted a temporary rebate from the export duty on cotton equivalent to about 4 per cent of the value of such exports."1 When the stand-by arrangement in support of the program ended in September 1967, credit to the public sector was scaled down from LSd. 16.4 million in fiscal 1965/66 to LSd. 10.6 million. Credit to the private sector was also reduced (Table 2.1). Apparently, the stabilization program also boosted cotton shipments (exports); shipments reached 781,000 bales as against 585,000 and 624,000 bales in fiscal 19964/65 and 1965/66, respectively.2 Despite the reduction in domestic credit and the increase in cotton exports, the balance of payments position in 1966/67 remained virtually unchanged. The basic balance recorded a deficit of LSd. 6.4 million as against a deficit of LSd. 7 million in 1965/66 (Table 2.2; figures in parenthesis indicate a surplus on the relevant account). This figure, however, hides a basic improvement in the payments position, insofar as the deficit on the cur- rent account was reduced by 8 per cent, from LSd. 19 million in 1965/66 to LSd. 17.5 million. This was not reflected in the overall balance because net capital inflow deteriorated by 25.2 per cent. l..Memorandum on the Stabilization Program of the Republic of the Sudan (Sep- tember 5, 1966, p. 1), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 13, Ministry of Finance, Khartoum. 2. 1966 and 1968 Bank of Sudan Annual Reports, pp. 85 and 93, respectively. 40 Table 2.2: Balance of Payments, 1965 - 1969. 1965/66 1966/67 1967/68 1968/69 1. Merchandise Trade 5.2 7.5 8.0 1.4 (1) Exports 74.2 74.7 80.7 92.5 Cotton 33.2 34.9 40.1 49.0 Other 41.0 39.8 40.6 43.0 (ii) Imports 79.4 82.2 88.7 93.9 2. Net Invisible Trade 13.8 10 10.4 10.7 A. Current Account (1 + 2) 19 17.5 18.4 12.1 B. Net Capital Inflow (12) (11.1) (11.5) (4.1) G. Basic Balance ( A + B ) 7 6.4 6.9 8 Sources: Bank of Sudan 1966, 1968, and 1973 Reports, pp. 88, 100-101, and 88, respectively, Bank of Sudan, Khartoum. The result of the program, insofar as the balance of payments is concerned, was summarised by the Minister of Finance in the text of the succeeding program. He pointed out: The Sudan has in recent years experienced persistent balance of payments difficulties resulting in a sharp decline in external reserves. The stabilization program introduced in September 1966 was designed to improve the balance of payments position by reduc- ing the bank financing of the public sector and increasing the exports of cotton through the adoption of a flexible marketing policy. Although the implementation of the stabilization program reduced the reliance of the public sector on bank financing, the balance of payments position did not improve mainly because exports did not increase as expected but also owing to a fall in receipts of external loans... 3. Memorandum on the Stabilization Program of the Republic of the Sudan, (August 26, 1967, p. 1), Documents of the International Monetary Fund, File No. (i- 1, 316, Vol. 14, Ministry of Finance, Khartoum. 41 B. The 1967/68 Program: In terms of its basic policy framework, the 1967/68 Program is quite similar to the preceding one; curtailment of bank financing of the public sec- tor and a flexible cotton markeing policy were the basic features of the program. The objective of the program was explicitly stated by the Finance Minister. ”The government intends to continue," the Mininster noted, "the implementation of stabilization policies with greater vigor during the fiscal year 1967/68 with the objective of reducing the balance of payments deficit in this year and eliminating it during the next year...'4 In regard to its policy content, the program was more restrictive in terms of credit to the public sector. Such credit was to be limited to LSd. 5 mil- lion, representing a 12 per cent reduction from the ceiling set in the previous program. The program ceiling on credit to the private sector was set at LSd. 5 million.5Thus, total credit volume was LSd. 10 million, 35 per cent lower than that of the 1966/67 Program. The program maintained the flexible cotton marketing policy introduced as part of the preceding program. In view, however, of the fact that "...stocks of cotton held by producers still remain high...the government policy," the Minister of Finance stated, ”is to adopt any additional measures that might be necessary to increase cotton exports".6 Apart from this policy intention, the program did not contain any specific policy measures to promote cotton sales and exports. Moreover, Fund mission reports indicate that no specific policy 4. Ibid., p. 1. 5. Ibid., p. l. 6. Ibid., p. l. 42 measure was taken in the course of the stabilization program in line with this policy intention. At the end of the period of the stabilization program, the volume of domestic credit to the public sector stood at LSd. 3.1 million as compared to LSd. 10.6 million in fiscal 1966/67.7Credit to the private sector was LSd. 5.7 million, marginally above the ceiling of the program. Total credit (LSd. 8.6 million) was scaled down by 39 per cent from the previous period's level. There was a substantial increase in cotton exports. The quantity of cotton exported reached 959,000 bales, a 23 per cent increase over the 1966/67 level.8 The reduction in domestic credit and the increase in cotton exports notwithstanding, the balance of payments position deteriorated; the deficit increased by 7.8 per cent, from LSd. 6.4 million in 1966/67 to LSd. 6.9 milion (Table 2.2). The slight increase in net capital inflow was more than offest by the deterioration of the current account position. The program thus failed to achieve its original objective of reducing the balance of payments deficit in fiscal 1967/68. This was also admitted by the Minister of Finance. In the text of the succeeding program (i.e. the 1968/69 Program), he pointed: The program of economic stabilization which the Government of the Sudan has been implementing during the last two years has resulted in a considerable improvement in the financial position of the public sector. The reliance of the public sector on bank financing was reduced from LSd. 16.4 million in 1965/66 to LSd. 10.6 million in 1966/67 and LSd. 3.2 million in 1967/68. However, the balance 7. Sudan: 1969 Article XIV Consultation (Minutes of Meeting No. 5, April 2, 1969, p. 2), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 16, Ministry of Finance, Khartoum. 8. 1969 Bank of Sudan Report, Bank of Sudan, Khartoum, p. 107. 43 of payments difficulties have persisted and resulted in a further decline in external reserves... C. The 1968/69 Program: Unlike the two previous programs, the 1968/69 program aimed at improving the balance of payments position by specific measures to curb import demand and to promote the production of export crops other than cotton. To curtail the demand for imports, the surcharge on all imports introduced as part of the 1966/67 program was increased to 10 per cent. To encourage the production of ‘noncotton export crops, '...virtually all export levies on products other than cotton and gum arabic have been eliminated to provide greater incentives to producers”.10 The balance of payments was also to be improved by further reduction in domestic credit, particularly to the public sector. The program envisaged the elimination of bank financing of the public sector in fiscal 1968/69.1n this respect, the Minister pointed out, ”The objective of fiscal policy for 1968/69 will be to eliminate recourse to the banking system for financing budgetary expenditures..."11 In line with this objective, the program allowed merely LSd. 0.5 million in credit to the public sector over the fiscal year as a whole. Credit to the private sector was not permitted to rise to more than LSd.4 million. In com- parison with previous programs, this program thus envisaged a substantial reduction in the volume of credit. 9. Memorandum on the Stabilization Program of the Republic of the Sudan (November 11, 1968, p. 1), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 15, Ministry of Finance, Khartoum. 10. Ibid., p. l. 11. Ibid., p. l. 44 The one-year stand-by arrangement in support of the program broke down only three months after its inception because credit to the public sector exceeded the ceiling set for the first quarter of the arrangement. At the end of the fiscal year, credit to the public sector reached LSd. 22.1 million, a level which was not reached in any of the four previous fiscal years.12 The balance of payments position worsened ; the deficit increased from LSd. 6.9 million in 1967/68 to LSd. 8 million (Table 2.2). This deterioration was largely accounted for by the capital account which registered a smaller capi- tal inflow; the current account, particularly the trade balance, improved con- siderably. This was probably due to the favorable movement in the terms of trade which increased from 97.1 in 1967/68 to 100.9 in 1968/69. This movement seems to have more than offset the large increase of imports over exports volumes. The quantum (volume) index of imports rose from 91 in 1967/68 to 98 whereas that of exports increased from 86 to 87.13 In the last quarter of 1969, a Fund mission visited the Sudan and, after reviewing the economic situation, concluded that the balance of payments posi- tion worsened in fiscal 1968/69 principally because of the high demand for imports resulting from the inflationary pressures caused by the large bank accommodation of the public sector. To rectify the external imbalance, the mission recommended not only reduction in inflationary financing but also devaluation of the Sudanese Pound. The mission's recommendation was contained in a.memorandum submitted to the Minister of Finance. In the Memorandum, the mission noted: 12. Sudan: Stand-By Arrangement Discussions (Minutes of Meeting No. 3, Septem- ber 13» 1969, p. 2), Documents of the International Monetary, File No. 0 - l, 316, Vbl. 17, Ministry of Finance, Khartoum. l3. Ilnternational Financial Statistics, July 1970 and December 1974 issues, IMF, pp. 286 and 332, respectively. 45 Since the principal cause of the balance of payments deficit is the high demand for imports arising from the inflationary conse- quences of the budget deficit, it is clearly imperative to achieve quickly a large reduction in bank financing of the public sector as the principal step to restore a situation in which there is no further creation of inflationary pressures. While the need for such a noninflationary position is generally recognized, its achievement can be expected to result only in partial elimination of the payments deficit unless it is accompanied by other measures. There is considerable evidence that, as a consequence of rising domestic costs and prices, imports are relatively cheap at the present exchange rate; the effective demand for imports at this exchange rate even under noninflationary conditions tends to result in greater volume of imports than the economy can afford. At the same time, exports of goods other than cotton have grown very little for some years, indicating a need for greater encourgement than is provided by the present exchange rate. Thus, an adequate program to rectify the balance of payments requires noninflationary domestic policies and a more effective exchange rate policy... 4 The Minister, however, rejected this recommendation. This precluded agree- ment with the IMF on a Fund-supported program for the next three fiscal years. 2. The Programs of the 19703: Undertaken in the first half of the 19703, these programs faced an unfavorable external environment. This period witnessed the first oil shock and the subsequent recession in the industrialized world. Rising interest rates are also a noteworthy feature of this period. The London Inter-Bank Offer Rate (LIBOR) or Eurodollar London rose from 5.46 in 1972/73 to 9.24 in 1973/74 and to 11.01 per cent in 1974/75. These external factors were bound to be inimical to the Sudanese balance of payments. To begin with, oil was and still is the major import item. Rising oil prices would have an adverse effect on the merchandise trade account. Secondly, in this period the government l4. Memorandum on the Need for Devaluation and its Effects Submitted by Fund Mission to the Minister of the Treasury, (September 17, 1969, p. 1), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 18, Ministry of Finance, Khartoum. 46 stepped up its economic development efforts and relied in the main on external short-term borrowing on hard terms to finance development projects. As a results, the debt ratio (the ratio of annual interest payments and principal amortization to export proceeds) was mounting. This resulted in a mounting deficit on the invisible trade account. The key point that is worth noting here is that these external factors have to be taken into account when gauging the extent to which Fund-supported programs were effective in regard to ameliorating the external payments position. As The 1972/73 Program: In its approach to solving the balance of payments problem, the 1972/73 Program represents a departure from the previous programs. This program dif- fers from the preceding ones in that exchange rate reform was a basic element in it. Designed to restrain the demand for imports and encourage the exports of crops other than cotton and gum arabic, the reform was a tax/subsidy scheme applied to the fixed (official) exchange rate of LSd.1 - US$ 2.87516. The tax, LSd. 0.518 per 1 US$, was applied to all foreign exchange payments. The same amount was applied as a subsidy to all foreign exchange receipts other than export earnings from cotton and gum arabic.15 The exchange reform resulted in a de facto devaluation (there was no official devaluation) of the Sudanese Pound with respect to the US dollar by 15 per cent, from LSd. 1- US $ 2.87516 to LSd. 1- US$ 2.5. Another basic element in the program was curtailment of domestic credit extendable in fiscal 1972/73. The program envisaged an 11 per cent reduction 15. Text of the Program (in a letter dated March 8, 1972 addressed to Mr. Schweitzer, the IMF Managing Director), Documents of the International Mbnetary Fund, File No. 0 - 1, 316, Vol. 20, Ministry of Finance, Khartoum. 47 in the volume of such credit, from LSd. 28.1 million in fiscal 1971/72 to LSd. 25 million (Table 2.3). Table 2.3: Domestic Credit Extension, 1970 - 1973. Fiscal Year 1970/71 1971/72 1972/73 Program Actual Public sector 20.2 29.2 11 22.7 Private sector 12.8 -1.1 14 23.2 Total credit 33.0 28.1 25 45.9 Source: Sudan - Request for Stand-By Arrangement (July 1973, p. 3), Documents of the International Monetary Fund, File No.0-l, 316, Vol. 20, Minis- try of Finance, Khartoum. Actual domestic credit extended over the fiscal year was far in excess not only of the program target but also of the volume of credit extended in the two previous fiscal years. In fact, the one-year arrangement with the IMF (approved in March 1972) became inoperative at the end of January 1973 because bank financing of the public sector exceeded the program ceiling set for the third quarter of the arrangement. Despite this unfavorable outcome, the external payments position improved considerably, and an external balance was achieved for the second time since fiscal 1960/61. To a large extent, this outcome was accounted for by the sub- stantial improvement in the merchandise trade account which recorded a surplus (Table 2.4; parenthesized figures stand for surpluses on the relevant accounts). This performance was reported to be the result partly of the exchange rate reform and partly of "special factors" related neither to the reform nor to the program. These factors were the clearance of a backlog of 48 cotton shipments at the beginning of the fiscal year and the imposition of restrictions on import licensing in the last quarter of the year.16 Table 2.4: Balance of Payments, 1971 - 1975. 1971/72 1972/73 1973/74 1974/75 1.Merchandise Trade 15.9 (17.7) 3.9 122.2 (1) Exports 104.5 130.8 145.7 157.8 Cotton 56.4 73.5 75.4 63.1 Other 48.1 87.3 70.3 94.7 (ii)Imports 120.4 113.1 149.6 280 2.Invisible Trade(net) 13.3 16.4 26.6 38.1 A.Current Account 29.2 (1.3) 30.5 160.3 (1+2) B.Capita1 Inflow (4.9) 1.3 (15.3) (108.6) (net) B.Basic Balance 24.3 0 15.2 51.7 (A + B) Sources: 1975 and 1977 Bank of Sudan Reports, Bank of Sudan, pp. 88-91, and pp. 91-93, respectively. B. The 1973/74 Program: The policy program for 1973/74 was a recognition that the improvement in the payments position attained in fiscal 1972/73 was not sustainable; for one thing, it was officially recognized that this improvement was the result of ”special factors" and, for another, the 1972/73 Program did not succeed in 16. Although import licensing was shortly liberalized, the effect of this lib- eralization was not, according to the Minister of Finance, reflected in the balance of payments for fiscal 1972/73; text of the 1973/74 Program, (in a letter dated July 28, 1973 addressed to the IMF Managing Director), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 20, Ministry of Finance, Khartoum. 49 scaling down the amount of domestic credit, the primary source of pressure on the balance of payments. The 1973/74 Program was basically designed to reduce the volume of bank financing, particularly by improving the fiscal position of the public sector. In this connection, the Minister of Finance noted: The balance of payments result in 1972/73 benefited from unsually favorable prices for noncotton exports. Morever, a part of the increase in cotton exports was attributable to the clearance of a backlog of cotton shipments at the beginning of the fiscal year... Unfortunately, however, due to a number of extraordinary circum- stances the imbalance of the financial position in the public sec- tor has continued...the rate of monetary expansion has been very high and consequently inflationary pressues have continued. For fiscal year 1973/74 we have adopted a financial program designed mainly to improve the fical position of the public sector. The program envisaged a substantial reduction in the amount of domestic credit. The overall ceiling on the volume of such credit was set at LSd. 24 million as against the 1972/73 actual level of LSd. 45.9 million. A balance of payments deficit of LSd. 8 million was projected for fiscal 1973/74. The deficit was expected to result mainly from an expansion in imports deemed necessary to replenish inventories and from higher interest payments. On the exports side, the program embodied no measures to increase export volume and earnings. Export volume and proceeds were expected to benefit from "higher foreign prices" of both cotton and noncotton crops.18 The program failed to achieve its policy objective of reducing domestic credit expansion. The credit ceiling was exceeded by more than 100 per cent, the volume of credit actually extended being LSd. 61.4 million. The one-year arrangement in support of the program lasted for only six months, the reason 17. Ibid., p. l. 18. Ibid., pp. 1-2. A! at. 50 being once again the failure of the government to limit its domestic bank bor- rowing to the ceiling set in the program. As projected, export prices rose sharply in 1973/74. The export price index increased from 117.7 in 1972/73 to 171 in 1973/74. Nonetheless, the projected balance of payments deficit of LSd. 8 million practically doubled; the actual deficit was LSd. 15.2 million (Table 2.4). The trade account which was in sur- plus to the extent of LSd. 17.7 million in 1972/73 recorded a deficit of LSd. 3.9 million. A number of factors contributing to this result were identified by the Finance Minister, who stated: The 1973/74 program had envisaged a balance of payments deficit of LSd. 8 million which is now estimated to be in the neighborhood of LSd. 13 million. The deterioration in the balance of payments in 1973/74 was entirely in the second half of the year and was largely due to a sharp rise in the international prices of essen- tial imports. The sale of a large part of the cotton crop early in the year when prices are relatively low and some delay in ship- ments in the final quarter were also contributing factors. There was also a slowing down of noncotton exports despite increasingly favorable international prices largely due to withholding of stocks by middlemen in anticipation of further increases in the domestic purchase prices of public exporting companies.19 C. The 1974/75 Program: The program aimed at substantially reducing bank financing of the public sector. Credit to this sector was to be reduced by 48 per cent, from LSd. 22.7 million in 1973/74 to LSd. 11 million.2°The overall domestic credit ceiling was fixed at LSd. 32 million, a 48 per cent reduction from the actual level in fiscal 1973/74. 19. Text of the 1974/75 Program, (in a letter dated July 8, 1974 addressed to Mr. Witteveen, the IMF Managing Director), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 21, Ministry of Finance, Khartoum. 20. Ibid., p. 8. 51 Like the previous program, the 1974/75 Program contained no other measures to rectify the external imbalance. Nonetheless, the balance of payments deficit was projeted to decline from LSd. 15.1 million in 1973/74 to LSd. 9 million. This deficit was based on various assumptions regarding exports, imports, and capital inflow. On the exports side, the program envisaged robust export performance, expected to result from higher international prices of both cotton and noncotton exports. "A surge in the value of cotton exports," the Minister of Finance indi- cated, "is projected due to a considerably larger crop this year...it is expected that this year's crop will be marketed at a higher average price than in 1973/74. The performance of noncotton exports, particularly gum arabic, is forcast to be unsually robust due to sharply higher prices."21 Export proceeds were estimated to rise by 44 per cent compared to an increase of 11.3 per cent in 1973/74. On the imports side, a higher increase was projectd and expected to more than offset this robust export performance. In the words of the Minister, "This impressive export performance...wi11 be more than offset by a near dou- bling of government imports and about 35 per cent increase in private imports. The projected increase in government imports reflect mainly increased outlays for development goods and higher world prices for sugar and wheat. The estimated rise in private imports is mainly because of higher international prices, particularly those of petroleum products which constitutes more than one-fifth of these imports."22 The current account was projected to be in deficit; in addition to the implied merchandise trade deficit, the deficit on the invisible 21. Ibid., pp. 6-7. 22. Ibid., p. 7. 52 trade account was expected to increase owing to increased debt service payments. Net capital inflow which was LSd. 15.1 million in 1973/74 was assumed to double and to partially offset the deficit on the current account. As projected, import payments nearly doubled (Table 2.4). Thirty per cent of the increase in these payments was attributed to an increase in the petroleum import bill. On the other hand, export receipts increased by merely 8 per cent, from LSd. 145.7 million in 1973/74 to LSd. 157.8 million. The merchandise trade account recorded the largest deficit ever. Although net capital inflow was more than three times the program projection, this was not large enough to improve the payments position by offesting the current account deficit which was LSd. 160.3 million (the largest deficit in the 19603 and 19703). As a result, the balance of payment position worsened considerably, the deficit increasing to LSd. 51.7 million. Actual overall domestic credit was far in excess of the limit set in the program.23For the fiscal year as a whole, the volume of credit extended reached LSd. 99.2 million, nearly three times the program target. However, the balance of payments outcome was largely the result of unfavorable external price developments. The prices of Sudan's major 23. The one-year Stand-By Arrangement approved in August 1974 became inopera- tive in the third quarter of the Arrangement when total credit reached LSd. 90 million compared with the program target of LSd. 32 million; Sudan: 1975 Arti- cle XIV Consultation, (Minutes of Meeting No. 3, April 23, 1975, p. 7), Docu- ments of the International Monetary Fund, File No. 0 - l, 316, Vol. 21, Minis- try of Finance, Khartoum. 53 imports (petroluem, sugar, and wheat) rose sharply. Export prices also rose but not so high as to offset the rise in import prices. Conse- quently, the terms of trade which was already unfavorable declined sharply from 92.7 in 1973/74 to 77.4.240ver and above this unfavorable movement, the volume of imports rose whereas that of exports declined. The index volume of imports rose from 105.1 in 1973/74 to 108.1 while that of exports decreased from 88.5 to 71.6.25 In sum, the record of the three annual successive programs begun in 1972/73 indicates that these programs were apparently ineffective in terms of improving the payments position; apart from the improvement attained in 1972/73 (an improvement largely due to ”special factors” unrelated to the policy program), the payments position did in fact deteriorate. The failure of the authorities to curtail or contain monetary expansion might have contributed to this deterioration. However, special factors, including external price developments, seem to have played a more determining role. The point that can be made at this juncture, and assuming that there is a link between monetary expansion and the balance of payments outcome, is that programs were not effective partly because they were not fully implemented and partly because of the adverse impact of the external environment. A major research task then is to separate the effects, if any, of Fund policy programs from the effects of external or program-unrelated factors. 24. National Economic Conference Committee on Statistics, Economic Indicators (in Arabic), Department of Statistics, Khartoum, March, 1986, p. 15. 25. Ibid., p.15. '— 54 3. The Programs of the Late 19703 and Early 19803: The programs implemented in this period depart from all previous ones in one basic respect; they are structural adjustment programs designed fundamentally to bring about a sustainable payments position by increas- ing the output of exportables, particularly cotton. The early programs were in essence financial stabilization programs (demand management programs) that attempted to improve the payments position by containing excessive domestic demand stemming from expansionary monetary policies. In the recent programs, demand management also remained a basic policy objective. The emphasis, however, was more on supply management. The shift in economic stabilization approach was a product of a mul- titude of factors which began to surface in the late 19703 and the effects of which were felt in the early 19803. A fairly detailed des- cription of these factors is essential for the understanding and subse- quent evaluation of these programs. The first of these factors was a downward trend in cotton output and productivity which became particularly precipitous after 1978/79 (Table 2.5). 55 Table 2.5: Cotton Production, 1976 - 1981. 76/77 77/78 78/79 79/80 80/81 Area 1030 1139 997 979 932 Output 3268 3901 2758 2287 1998 Yield 3.2 3.4 2.8 2.3 2.1 Note: Area is in thousands of feddans (the feddan is the basic unit of agricultural tenancy in the Sudan and is equal to 1.04 acres). Output is in thousands of Reuters (a Kantar of cotton seeds is equal to 50 kilograms). Yield is in Kantars per feddan. Source: 1979 and 1981 Bank of Sudan Reports, pp. 126 and 118, respectively. Cotton production has traditionally suffered from problems associated with irrigation, agricultural pests, availablity of production inputs, and labor shortages at picking seasons. The decline in cotton output in the late 19703 was not, however, entirely related to these problems nor to the decline in area cultivated. There were two other factors behind the decline in productivity and production. First, cotton cultivation was not profitable, it was argued, at the foreign exchange rate prevail- ing at the end of the 19703 and early 19803. The Sudanese Pound was overvalued. This made cotton less competitive abroad, and thereby dis- couraged its domestic production and exports.26 The second factor was 26. The problem of cotton production and exports is discussed extensively by Karim Nashashibi, who was a member of various IMF missions to the Sudan in the late 19703 and early 19803; Karim Nashashibi, "A Supply Framework for Exchange Reform in Developing Countries: The Experience of Sudan," IMF Staff Papers, Vol. 27, No. 1, March 1980, pp. 24-78. 56 related to the structure of financial incentives facing cotton growers in public irrigation schemes, the largest and most important of which is the Gezira Scheme. The Gezira Scheme was set up by the British colonial authorities in 1911 and developed in the 19203. Covering an area of 2 million acres, the Scheme accounts for one-half of Sudan's total irrigated agriculture and more than one-tenth of total cultivated land. The scheme accounts for roughly 10 per cent of GDP. The Gezira Scheme has the reputation of being the largest farm in the world under one management. The Scheme is a partnership between the Central Government, its management (the Sudan Gezira Board), and tenant farmers. The Central Government provides irrigation water and owns the land. The Sudan Gezira Board manages the planting program for tenants, lays down the times for sewing and is responsible for fertilizing, weeding, irrigation, plough- ing, spraying, and the marketing of cotton. The tenant farmers are responsible for growing cotton. Benefits are distributed according to fixed proportions. The tenants get 49 per cent of the net returns from cotton while the Central Government and the Board get the remaining 51 per cent. The tenants are also allowed to grow other crops (wheat, sorg- hum, and some vegetables) alongside cotton. However, the returns from these crops belong entirely to them. The decline in cotton production was attributed to the neglect by the tenants of cotton cultivation in favor of the other crops. This neglect ‘was itself attributed to the financial disincentive to grow cotton and the incentive to grow the other crops, present in the structure of financial relationships among the three partners. One feature of this 57 system is that the costs of water and land provision as well as of agricultural operations for the cultivation of all crops are deducted from the gross proceeds of cotton sales. The costs are distributed among tenants on the basis of average tenant output (that is, the costs are averaged out among tenants; in other words, each tenant bears the costs equally with others irrespective of his output). This is known as the "Joint Account”. The system was thought to discriminate against the more efficient tenants; more productive tenants subsidize less productive ones. Another feature which was also thought to be less financially rewarding to the more efficient growers is the "Profit-Sharing" system, a formula on the basis of which half of the net proceeds of cotton sales (net profits) are appropriated, as previously noted, by the Central Government and the management of the Scheme. More importantly, the remaining net profits are apportioned among the tenants on the basis, again, of average tenant output. A third feature is that the two systems are not applicable to the noncotton crops. In the production of these crops, each tenant reaps individually the entire profits from his out- put. In addition, he incurs no costs associated with the provision of land, water, and agricultural operations in the cultivation of these crops. In other words, all these are provided free, in contrast to the case of cotton where each farmer has to pay for the costs and share his profits with others. The problem of cotton cultivation goes back to the mid 19603 when tenants were permitted to grow the noncotton crops. Over the years, the tenants became less interested in cotton cultivation and have errected a psychological barrier against cotton, regarding it, as well, as the {I 58 Government crop. The problem came to the fore in the late 19703 because of the overvaluation of the Sudanese Pound in this period. This made cotton exports less competitive abroad, and thereby discouraged its domestic production. Another factor in the environment of these programs was Sudan's external debt crisis. The crisis manifested itself in the inability of the authorities to meet external debt servicing obligations, due to for- eign exchange shortages. This led to the emergence of external payments arrears (Table 2.6; amounts are in billion of US dollars). Table 2.6: External Debt Arrears, 1979 - 1982. Year Amount 1979 1.3 1980 n.a. 1981 1.1 1982 2.0 Sources: Various Fund Reports. The size of external debt arrears can be contrasted to actual debt service disbursements. In fiscal 1979/80 and 1980/81, actual debt ser- viced averaged US$ 0.2 billion representing 20 per cent of earnings from exports and non-factor services.27 The difference between external debt 27. Sudan - Staff Report for the 1982 Article IV Consultation, (August 23, 1982, p. 15), Documents of the International Monetary Fund, File No. 0 - l, 316, Vol. 24, Ministry of Finance, Khartoum. 59 arrears and actual debt service disbursements underscores the low level of Sudan's debt servicing capacity. It was recognized that the magnitude of the country's external debt burden was such that domestic economic adjustment alone was insufficient to contribute to the attainment of a viable balance of payments position. As a result of this recognition, debt relief in the form of debt rescheduling became necessary. In addi- tion to providing debt relief, debt rescheduling was to provide an equally important service; namely, the restoration of the confidence of external creditors in Sudan's willingness and ability to meet its external payments obligations. The restoration of such confidence was deemed essential for capital inflows (foreign investment); the argument was that Sudan's creditworthiness was impaired by the inability of the authorities to discharge debt service payments which led to the accumulation of the debt arrears. To improve Sudan creditworthiness, and thereby restore foreign investor confidence, the build-up of external debt arrears was to be reversed by debt rescheduling. The latter was thus a central element in the economic adjustment programs in these periods. A third factor was the potential for the balance of payments to bene- fit from foreign exchange earnings of Sudanese Nationals Working Aboard (SNWA), principally in the Arabian Peninsula. The foreign exchange earn- ings of SNWA were quite sizable in these periods. However, much of these earnings was said to be diverted to the importation of nonessential con- sumption goods at a time when the country badly needed foreign exchange to finance the importation of essential consumer goods and production inputs. The use of foreign exchange earnings of Sudanese 60 expatriates for the importation of nonessential consumer goods was facilitated by the introduction in 1972 of a system known as "nil-value" imports. On the basis of this system, any person was eligible for an import license to import almost anything if he could provide for the foreign exchange he would need to pay for the imports. The system was designed to alleviate pressure on foreign exchange resources with the Bank of Sudan, which until that time was the only source of foreign exchange for external payments purposes, by tapping the foreign exchange earnings of Sudanese expatriates. It was believed that these earnings were the principal source of foreign exchange for ”nil-value imports until the system was abolished in September 1979.28 After 1978, remittances increased substantially because of various exchange rate changes (undertaken within the frameworks of the programs in this period) designed to encourage the inflow of remittances (see Table 2.7; because amounts remitted are published in Sudanese pounds rather than in foreign currency, they are converted here into US dollars at the exchange rates applicable to worker remittances in each year). As can be seen from the table, progressive depreciation of the Sudanese pound relative to the US dollar is paralleled in some cases by larger and larger remittances. 28. Siddig Umbadda, Impopp 201161 in phg Spgpp; 1266 - 1226, Monograph Series INo. 17, Development Studies and Research Centre, University of Khartoum, .Ianuary 1984, pp. 36-46. RU Id >\ 61 Table 2.7: Worker Remittances, 1975 - 1984. Fiscal USS Million Year Per LSd. US$ LSd. 1975/76 1.75 6.4 11.2 1976/77 1.75 18.3 32.0 1977/78 1.75 59.5 104.1 1978/79 1.50 130.4 195.6 1979/80 1.25 244.9 306.1 1980/81 1.25 349.8 437.3 1981/82 1.11 369.4 410.0 1982/83 0.77 531.2 409.2 1983/84 0.77 727. 0 559.8 Sources: Bank of Sudan Annual Reports (1976 through 1984). A- The 1978/79 Program: The 1978/79 Program was unique in that it was not supported by a Fund Stand-By Arrangement, as was the case with all other programs undertaken between 1966 and 1984.29The only Fund condition met and which was intended to improve the payments situation was the official devaluaion of the Sudanese Pound with respect to the US dollar on June 8, 1978. The pound was devalued by 15 per cent, from LSd. l - US$ 2.87516 to LSd. l - US$ 2.5. The new official exchange rate was applied to cotton exports and government imports (about half of total imports). The foreign exchange tax/subsidy introduced as part of the 1972/773 Program was increased by 25 per cent, yielding another exchange rate of LSd. 1 - US$ 29. The program was supported by the Fund First Credit Tranche, which does not require the institution of a stand-by arrangement and its attendant policy conditions such as ceilings on bank financing of the private and public sec- tors . 62 2.0. This more depreciated rate was applied to noncotton exports and to private-sector imports.30 The devaluation was principally designed to make cotton production (mainly in the Gezira Scheme) and exports more competitive and profitable. According to a Fund study on the basis of which the devalua- tion was undertaken, devaluation would only have its desired effects if the structure of financial incentives in the Scheme was so reoriented as to make the production of cotton more financially rewarding to the tenant. This was to be achieved by replacing the cost-sharing for the production of cotton by land and water charges to be imposed on all crops in the Scheme. In this respect, the Study notes, "...for the devaluation to bear its full impact on the allocation of resources, it is necessary to allow the price mechanism to adequately reflect costs of production. In particular, a land and water charge imposed on all crops grown in the Gezira Scheme should be substituted for the present cost sharing adopted for the production of cotton”.31 The Fund staff which prepared the study called, in fact, for the dismantling of the financial systems in the Gezira Scheme and for their replacement by land and water charges to be imposed on all craps. This was necessary for the realign- ment of the cultivation costs of noncotton crops with those of cotton. Coupled with the devaluation, this realignment was expected to provide incentives for the cultivation of cotton relative to the other crops. 30. Sudan - Request for Stand-By Arrangement (January 1982, Appendix V, p. 50), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 23, Ministry of Finance, Khartoum. 31. Quoted in Ali, "The Devaluation Debate: A Documentary Approach," in All Abdel Gadir (ed.), 3a e , Khartoum University Press, Khartoum, 1985, p. 31. Karim Nashashibi also emphasized the importance of these institutional reforms as being supportive of the devaluation, op. cit., pp. 65-66. 63 However, this institutional reform was not implemented, most probably due to expected resistance from tenants.32 Perhaps as a result of this, the 1978 devaluation did not increase cotton production in 1978/79; as noted earlier, production did in fact decline in this period. The volume of cotton exports also declined, from 821,000 bales in 1977/78 to 734,000 bales in 1978/79. So much for the 1978/79 Program. This program was intended to set the stage for a more comprehensive three-year adjustment program. B. The Three-Year 1979/82 Program: The main objective of the program was to ”contain the deficit on the current account to a level consistent with reasonable expectations of capital inflow..."33. The objective was to be achieved through struc- tural reform of the irrigated agricultural sector (particularly in the Gezira Scheme) accompanied by a restrained domestic credit policy and measures to reform the exchange rate and trade systems and by debt res- cheduling. As was the case with the preceding program, the objective of struc- tural reform was to reorient tenants' incentives toward the production of cotton. Again, this was to be achieved by the termination of the cost-sharing system, the imposition of land and water charges on all 32. The idea of replacing the cost- sharing system with a charge system by *which the tenant had to pay for water and land for the cultivation of noncot- ton crops was entertained as early as 1968 (1968 Bank of Sudan Annual Report, p.55). The idea was not put into effect most probably because it would not be acceptable to the tenants. The Gezira Tenants Union, which has 100,000 mem- ‘bers, is the largest union in the Sudan. As noted in chapter one, it is also one of the most militant unions in the country. Because cotton is the backbone of'the economy, alienation of the tenants could have serious economic conse- quences for the country. 33. Sudan - Request for Stand-By Arrangement (January 1982), op. cit., p. 4. 64 crops in the Scheme, and by devaluation of the Sudanese Pound. The lat- ter was also to help in attracting private capital inflow, particularly foreign exchange remittances by SNWA. Restraint on domestic credit was to reinforce the devaluation by restraining domestic demand and hence inflationary pressures. Debt rescheduling, as has been indicated, was to provide balance of payments relief and, no less importantly, to restore foreign investor and aid donor confidence in the country's economic management policies. First Year of the Program (1979/80): The Extended Fund Facility (approved by the Fund on May 4, 1979) required the prior implementation of structural reform in the Gezira Scheme. In line with this, the President of the Republic issued a decree imposing water and land charges on all crops in the Scheme. The Gezira Tenants Union went on a one-month strike, forcing the Government not to collect the imposed charges.34 In addition, the authorities did not terminate the financial systems in the Gezira Scheme in line with the program policy prescriptions; the program had assumed that the systems would be dismantled in fiscal 1979/80. Although preparations for the termination of the systems began in June 1980, the systems were not dimantled, as will be shown, until two years later. In regard to other policy areas, the Sudanese Pound was officially devalued in September 1979 by 20 per cent with respect to the US dollar, 34. The strike was staged after the failure of four months of negotiations between the Union and the Government to reach agreement in regard to the charge rates. Because the strike coincided with the cotton planting season (June-August), the Government was forced to act. The strike was called off when the Government promised not to collect the charges until after the end of the cotton season (Sudanow, No. 9, Vol 4, September, 1979, p. 19). In fact, the collection of the charges was delayed for three years, as was the disman- tling of the financial systems. 65 from LSd.1 - US$ 2.5 to LSd.1 - US$ 2.0. The foreign exchange tax/subsidy scheme was abolished and replaced by the so-called parallel rate fixed at LSd.1 - US$ 1.25. The official rate was applied to 96 per cent of exports and government imports (about 52 per cent of all imports); the more depreciated parallel rate was applied to private imports and to foreign exchange remittances.35 The ”nil-value” import system was also abolished. This was designed to switch the foreign exchange earnings of Sudanese expatriates from financing inessential imported consummer goods to remittances. In regard to external debt, the Sudan was also able to get its external debt owed to official creditors rescheduled under the auspices of the Paris Club in November, 1979. In the area of domestic credit, actual credit for fiscal 1979/80 did not exceed program ceiling (Table 2.8). 35. Sudan - Request for Stand-By Arrangements, 1982, Appendix V, op. cit, p. 50. 66 Table 2.8: Domestic Credit Extension, 1978 - 1984. Fiscal Year Program Ceiling Actual Outcome 1978/79 229.4 1979/so 269.2 269.2 1980/81 442 659.3 1981/82 511 418.4 1982/83 835 762.9 1983/84 470 431.8 Sources: Sudan - Request for Stand-By Arrangement, (1982), op. cit., Table 7, p. 21, Table 4, p. 10, and p. 64; Sudan - Request for Stand-By Arrangement, (April 1984, Table 3, p. 7) Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 26, Ministry of Finance, Khartoum; and 1985 Bank of Sudan Report, Table 5.2, p. 27 (for the 1983/84 actual outcome), Bank of Sudan, Khartoum. Despite these policy measures, the deficit on the current account increased substantially from Lsd. 77.9 million in fiscal 1978/79 to LSd. 133.3 million (Table 2.9; figures in parenthesis are surpluses). The merchandise trade account deteriorated sharply, form a deficit of LSd. 83.7 in 1978/79 to a deficit of LSd.199.3. Much of this increase was attributed to higher international prices of petroleum and sugar36. In addition, there was an unfavorable movement in the terms of trade which declined from 79.2 in 1978/79 to 75.9.37 36. Ibid., p. 5. 37} National Economic Conference, op. cit., p. 15. 67 Table 2.9: Balance of Payments, 1978 - 1984. 78/79 79/80 80/81 81/82 82/83 83/84 1.Merchandise Trade 83.7 199.3 392.1 532 454.7 221.4 (1) Exports 223.5 288.9 376.4 417.8 484.9 698.8 Cotton 102.6 139.2 138.5 111.1 123.7 360.3 Other 120.9 149.7 237.8 305.9 361.2 338.5 (ii)lmports 307.2 488.2 768.5 949.8 939.6 920.2 2. Invisible Trade(net) (5.8) (65.5) (209.2) (103.7) (220.4) (100.9) A. Current Account 77.9 133.8 182.9 428.3 234.3 120.5 (1+2) B. Net Capital Inflow (80.3) (94.8) (59.9) (156.1) (64.1) (79.7) G. Basic Balance (2.3) 39 123 272.2 170.2 40.8 (A+B) Sources: 1980 and 1985 Bank of Sudan Reports, Bank of Sudan, Khartoum, pp. 102-104 and pp. 88-90, respectively, Bank of Sudan, Khartoum. Second Year of the Program (1980/81): Most of the policies envisaged in the program for fiscal 1980/81 were not implemented as prescribed. An important policy measure that was not implemented is the unification of the two exchange rates (that is, the official and the parallel rates) by the end of the fiscal year in June 1981, as recommended by the IMF. This unification would entail some depreciation of the exchange rates which was intended to be a continua- tion of the exchange rate reform emparked upon in the first year of the program. 68 Domestic credit which was to be limited to LSd. 442 million turned out to be LSd. 659.3. million (Table 2.8), thereby exceeding program ceiling by 49 per cent. In regard to the policies to promote the production of cotton, the structural reforms in the Gezira Scheme were not also implemented. In terms of policy results, cotton output and productivity continued their downward trends. Output was believed to have declined to its lowest level in twenty-five years. The deficit on the current account rose sharply. This was attributed again to the rise in the international prices of major imports (sugar and petroleum) and also to the continued growth of domestic demand for imports which was fueled by the large monetary expansion. The Third Year of the Program (1981/82): The Three-Year Program did not last for fiscal 1981/82, its last year. The reason for this was that the authorities and the Fund were unable to reach understandings on some policy initiatives.38 The most important of these was the unification of the official and parallel exchange rates. This unification would have resulted in some deprecia- tion (devaluation) of the Sudanese pound and would have entailed upward domestic price adjustments. The authorities felt that the combination of domestic and external factors that they faced at that juncture made such adjustments undesirable. Because agreement could not be reached, the Three-Year Program was abandoned and replaced, later in the same fiscal 38. The third year of the program was supposed to cover fiscal 1981/82 (July 1, 1981 - June 30, 1982). Negotiations on the policy initiatives began in May 1981 and resumed in mid-July. 69 year, by a one-year stabilization program supported by the one—year Stand-By Arrangement of the Fund. The program failed to achieve its principal objective of increasing cotton production. This failure was ascribed to a host of factors in addition to the inability of the government to effect the institutional changes in the Gezira Scheme. The main reasons for this failure were indicated by a Fund staff report which pointed out: At the core of the extended arrangement was an anticipated large expansion of cotton production. This was to result in a 25 per cent increase in export volume which would have considerably improved the balance of payments...However, the achievement of the production and export targets was frustrated by an underlying deterioration in the capital stock of the irrigated schemes and in their overall management. The situation was compounded by labor shortages, in part reflecting migration to the countries of the Arabian Peninsula. As a result, cotton acreage dropped steadily below its level in 1978/79, the base year for the Three-Year Program. Moreover, yields also declined partly because of the slowness with which the restructuring of incentive patterns was implemented. The delay in removing distortions in the cost struc- ture of cotton relative to other crops was partly due to tenant resistance but also reflected administrative difficulties in replacing the entire system of financial relationships based on a sharing of costs and benefits with a system where individuals bear the full cost of cultivation and reap the full benefits.39 In regard to the effectiveness of the overall program, other factors, mainly increases in the international prices of major imports, also had adverse effects. In this respect the report noted: In addition to the decline in cotton output, increases in the international prices of petroleum products and sugar contributed to the deviation from program targets. The net oil import bill rose from about one quarter of export earnings in 1977/78 and 1978/79 to more than 80 per cent in 1980/81. In the case of sugar, the program had assumed a virtual cessation of sugar imports with the projected coming on stream of three new sugar mills in 1979/80. However, problems with the completion and operation of the sugar mills prevented domestic output from increasing suffi- ciently and necessitated a continuation of a high volume of sugar .39. Sudan - Request for Stand-By Arrangement (January 1982), op. cit. p. 14. 70 imports. Increases in the international prices of petroleum and sugar compounded the balance of payments difficulties...40 C. The 1981/82 Program: The policies implemented within the framework of this program were those that were supposed to have been implemented in the previous two years as part of the Three-Year Program. Thus, in the area of exchange rate reform, the official and the parallel rates were unified (effective November 9, 1981) at the rate of LSd. 1 - US$ 1.11. This resulted in the devaluation of the offi- cial rate by 80 per cent and the parallel rate by 12.5 per cent with respect to the US dollar. The exchange rate reform was to help promote cotton prod- uction and exports. In addition, it was intended to terminate the subsidize- tion of imports through their proper valuation. In this respect, a Fund mis- sion noted, "As a result of the unification at the depreciated level, the exchange rate structure is now more rational, thereby serving to strengthen the balance of payments performace as well as reducing internal distortions stemming from the considerable undervaluation of a large proportion of imports".“1 In regard to the restructuring of financial and production relationships in the Gezira Scheme, the authorities undertook to dismantle the Joint Account and Profit-sharing systems in the 1981/82 agricultural season starting in July 1981. The authorities also imposed water and land charges on all crops in the Scheme and undertook to revise them on a yearly basis to match them with rising costs. In these respects, the Minister pointed out, in the text of the program (dated January 5, 1982): ...in June 1980, we launched a restructuring of production rela- tions in agriculture to eliminate distortions in 40. Ibid., p. 14. 41. Ibid., p. 29. 71 farmers'incentives which had resulted in the neglect of cotton cultivation. Toward this end, preparations began for the realign- ment of the costs of cultivation of other crops with cotton and for the termination of the joint account and profit-sharing systems in the Gezira Scheme. Effective the 1981/82 season, these systems will be replaced by individual accounts whereby each tenant would be charged the cost for the separate crop services and reap the full benefits of his productivity in each crop...To complete the restructuring of financial relationships in the agricultural sector and to provide the proper allocation of prod- uction costs among the various crops, we have imposed charges on tenants in the irrigated schemes ...We are setting up a mechanism whereby these charges are collected directly from the proceeds of their respective crops...This will avoid using cotton as a cost recovery ..instrument with the concomitant disincentive to its cultivation. We will reach by May 31, 1982 understandings with the Fund concerning the minimum level of collection from land and water charges in the period ending August 31, 1982.42 To make sure that the charges would be collected, the IMF made the relevant policy intention in the Minister's letter a policy condition (a "performance criterion") written into the text of the approved Stand-By Arrangement. As it turned out, all these policy intentions were implemented, thereby eliminating the financial disincentive to cotton cultivation.43 In the area of external debt rescheduling, an agreement was reached (Decem- ber 30, 1981) with some private creditors (a consortium of foreign commercial banks) under the aegis of the London Club. In view of its effect on the balance of payments for fiscal 1981/82, it is important to provide some 42. Ibid., p. 61. 43. The joint account and profit-sharing systems were dismantled and replaced by an individual charge system. On the basis of this system, each tenant was required to pay individually a land charge based on the size of his holding. Each tenant was also required to pay a flat per feddan overhead water charge to cover the cost of water delivery and the costs of agricultural services rendered to him; Sudan - Staff Report for the 1982 Article IV Consultation, (August 23, 1982), op. cit, p. 4. To ward off tenant resistance, the Govern- ‘ment had offered the tenants several concessions. These included the res- cheduling of tenants' debts and the payment on delivery of their cotton (hitherto, the practice was that tenants were paid some time after the delivery of their harvests). Moreover, the on-delivery payment was to be based on procurement prices announced in advance; 1980 Bank of Sudan Report, Bank of Sudan, p. 10. 72 details of this agreement. The agreement rescheduled US$ 496 million (US$ 398 million in principal and US$ 98 million in interest) out of US$ 776 million of outstanding arrears. Although the agreement provided a repayment schedule with grace periods (3 years for the principal and 1 year for the interest) that covered fiscal 1981/82, it required a down payment of the interests in the unrescheduled portion of the arrears. The down payment amounted to US$ 106 million and was to be made in fiscal 1981/82.44Another debt rescheduling agreement was reached (March 1982) with official bilateral creditors under the aegis of the Paris Club. The Paris Club agreement covered US$ 1.8 billion of debt service payments (including some outstanding arrears) between the end of June 1981 and the end of December 1982. The repayment schedule covered 90 per cent of the total debt to be paid in eleven annual equal installments after a grace period of seven years.“5 Thus, the agreement did not require any payment in fiscal 1981/82. In the area of domestic credit, credit was to be reduced by 22.5 per cent over the actual level in fiscal 1980/81 (Table 2.8). Actual credit extended in the fiscal year was well below the program ceiling (Table 2.8). In terms of policy results, there was a substantial increase in cotton out- put; the downward trend in output and productivity was reversed. Thus, output rose by 56 per cent, from 1,998,000 Kantars in 1980/81 to 3,122,000 Kantars. The increase in output occurred despite a 7.5 per cent reduction in the area of cotton cultivation (from 932,000 feddans in 1980/81 to 863,000 feddans).46 The rise in output notwithstanding the decline in the area cultivated was attributed to the rise in feddan productivity (which rose from 2.1 Kantars in 44. Ibid., p. 29. 45. 1982 Bank of Sudan Report (in Arabic), Bank of Sudan, Khartoum, pp. 71-72. 46. Ibid., p. 13. 73 1980/81 to 3.6 Kantars in 1981/82) brought about by the new cotton cultivation incentives and also by a high level of land preparation, improvement in farm- ing operations, and high rates of fertilizer and pesticide utilization.47 Despite the large increase in cotton output and the other policy initia- tives, the current account recorded the largest deficit ever (see Table 2.9). Both the merchandise and invisible trade accounts contributed to this unprece- dented deficit. Although net capital inflow rose sharply, it was not suffi- cient to offset the large deficit on the current account. Consequently, the balance of payments also recorded the largest deficit ever (Table 2.9). These large deficits were to some extent attributable to two special factors. The first of these was the particularly pronounced decline in cotton output in the last season (that is, 180/81). This affected the balance of payments for fis- cal 1981/82 (July 1, 1981 - June 30, 1982) because exports in a fiscal year relate to production in the preceding year. This is because cotton is picked between January and March and, consequently, given the time required for gin- ning and baling, very little is available for exporting in the fiscal year during which the crop is harvested. As a result of this, the good cotton out- put in fiscal year 1981/82 was not reflected in the year's balance of pay- ments. The second factor was the burden of debt service payments (in particu- lar, the down payment made to foreign commercial banks as a result of the December 1981 debt rescheduling agreement) resulting from the November 1979 and December 1981 debt reschedulings. In regard to the effect of the down pay- rnent on th external payments position, the Staff Report for the 1982 Article :IV’Consultation notes, "Preliminary data indicate that the current account vaidened in 1981/82 reflecting continued growth of imports and the down payment ’— 47. Ibid., p. 13. 74 of the debt rescheduling agreement negotiated with foreign commercial banks at the end of 1981.“:8 The balance of payments deficit would have been larger had the Sudan been able to discharge its external debt service obligations due in fiscal 1981/82. At the end of the fiscal year in June, outstanding debt arrears (including debts under the 1979, 1981, and 1982 reschedulings) amounted to US$ 2 billion. Thus, the Minister of Finance, referring to the debt relief generated by the previous three debt reschedulings, pointed out, ”Despite the debt relief afforded, however, the continuing shortage of foreign exchange has impaired Sudan's ability to meet all debt servicing obligations with the result that new arrears, including arrears on previously rescheduled amounts, have been accumulated. As of June 30, 1982 the amount of external arrears is estimated at about US$ 2 billion." When converted into Sudanese pounds at the official exchange rate of LSd. l - US$ 1.11, this dollar amount of debt arrears (equal to LSd. 1.801 billion) would exceed the 1981/82 export earnings (equal to LSd. .4178 billion; see Table 2.9) by more than 400 per cent. As of June 1982, Sudan's external debt was estimated to be in excess of US$ 7 billion49. The Program had, in fact, underestimated the size of the external debt and of debt servicing obligations due in 1982; at the time the Stand-By Arrange- ment was prepared (January 1982), Sudan's official external debt was estimated to be in the range of US$ 4.0 - 4.5 billion and debt servicing obligations projected at US$ 520 million. The latter was estimated to be US$ 1 billion, even if the outstanding arrears at the end of June were rescheduled. This 48. Op. cit., p. 11. 49. Ibid., p. 15. 75 amount would exceed total receipts from experts of goods and nonfactor ser- vices.50 The reality of external debt obligations influenced the strategy of eco- nomic adjustment for fiscal 1982/83. It was realized that the external pay- ments crisis was so profound as to require domestic adjusment policies that might not be consistent with political stability. To moderate otherwise radi- cal domestic adjustment policies, substantial debt relief and external assistance were to be part of the adjustment strategy. This was explicitly stated by the Finance Minister in the text of the 1982/83 Program sent to the IMF, requesting a Stand-By Arrangement in support of the program. The Minister pointed out: The Government of Sudan is now convinced that the magnitude of Sudan external obligations is now such that domestic adjustment must be supplemented by sufficient external support from Sudan's friends over a long enough duration to permit the adjustment to reach fruition without generating excessive social strain in the process. D. The 1982/83 Program: The program for 1982/83 had two principal elements. The first one was external debt restructuring designed to secure debt relief. As was the case with the two previous programs, agreement with Fund facilitated debt res- cheduling agreements with official and private international creditors. In regard to debt relief from official creditors, an agreement was reached (Feb- ruary 1983 after the approval by the Fund of a Stand-by in January) with Paris Club members to consolidate all arrears outstanding at the beginning of 1983, all principal payments falling due in 1983, and one half of interest payment 50. Ibid., p. 9. 51. Statement of the Government of Sudan on Its Economic and Financial Policies (January, 1983), op. cit., p. 9. 76 due in the year into a sixteen-year loan with a six-year grace period. Private creditors accepted an offer of US$ 30 million as against US$ 160 million in debt service payments due in 1983.528a1ance of payments support aid donor groups also responded to the agreement with the Fund by pledging to disburse US$ 514 million in cash and commodity assistance and US$ 300 million in pro- ject assistance in 1983. The second principal element was fresh exchange rate reform. The Sudanese pound was officially devalued (November 15, 1982) by 44 per cent with respect to the US dollar, from LSd. 1 - US$ 1.11 to LSd. 1 = US$ 0.77. The devaluation was designed to provide further incentives to cotton production and exports and to increase the flow of foreign exchange remittances by Sudanese expatriate workers. The exchange rate depreciation was also intended to close the differentials in official and free market exchange rates. Before July 1981, the only legal market in foreign exchange was the official market administered by the Bank of Sudan. Following the second official devaluation of the Sudanese pound in September 1979, a black market in foreign exchange emerged alongside the official one. To counter this, the authorities instituted in July 1981 a free market in foreign exchange for the first time in the Sudan by legalizing the opening of free market exchange houses in downtown Khartoum. However, due to instability in the market (attributed to a ‘temporary suspension of some dealers' licenses and to official interference in 1the market in the form of setting purchasing and selling prices for the US$ Eotmotn. I «00.5... Eotmotn. E .9506. too> EOLmotalotm D 167 meow) m>\¢h ¢n\nn nn\mn mp\¢h ¢n\n6 n6\N6 8v 6 a.“ a V\ ...\ a V. A\ wow 8‘ ex A\ V\ . a\ ..x V\ m“ year a ...x a\ a v.\ a .06— a w. %\ m w A .. OON 10mm nonco>om mutatocoaxw con 168 Figure 4.3: Program.Target and Actual Expenditures and Revenues, 1978 - 1984. 169 0.0‘O‘0.0‘O'.O‘O‘0.0.'0.0.0...O‘O‘0.0.0.0.0‘0.0.0.0.0‘0...O‘O‘O‘0.0.0‘O‘O‘O‘O (I) Q) 3 C Q) I'0'0'0'0'0'0'0'0'070’e'o'e57070To70707070’0’6’0’0’0’0’0'0 > . (D (I t \ \~».\I.‘\\\‘-\~--\\1 \ \. \1 ~.“\ \. _\. if) 3:010;.1010.01.22.0.010);01°1°1010;010:1031010;033:010i010: (D L. 3 +1 .- U C - - ~. . - Q) 0. LE If.T033?(03333?of.fofofofofo1033333103?o L\\\\A\ \ i- "a I I I I I r I I I I I I I I I T OOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOO nomiaqv—oomhomvnmr Q Q Q D O T— T— 1- T" f" T" ‘— (— Years B Program Target I Program Year Actual El Pre—Program Year Actual Figure 4.3 170 As can be seen from Table 4.1 and Figure 4.1, none of the first three suc- cessive programs beginning in fiscal 1966/67 required reduction in the pre- program-year actual level of expenditures in order to improve the budgetary balance. All three programs depended on revenue increases. In all three cases, actual expenditures and revenues exceeded program targets. However, only the 1966/67 Program achieved the program budgetary balance target. This is entirely the result of a substantial increase in revenues. In regard to the second three successive programs beginning in fiscal 1972/73, the program budgetary balance target was achieved in each case. These programs also relied on increases in revenues to improve the budgetary balances. However, achievement of the program budgetary balance target was( mainly the result of containment of expenditures (program-year actual) to a level below program target level (with the exception of the 1974/75 Program). In the case of the 1972/73 Program, the program year actual level (LSd. 171.4 million) was practically the same as the pre-program year actual level (LSd. 171.9 million). It is worth noting that of all Fund programs in the Sudan, the 1972/73 Program is the only one that envisaged a reduction in the level of overall expenditures. This was explicitly stated by the Minister of Finance in the text of the program. ”In formulating the budget plan for 1972/73," the Minister pointed out, "the government aims at achieving a surplus of LSd. 15 million in the Central Government current operations by reducing current expenditures to LSd. 162 million, i.e. LSd. 10 million below the 1971/73 budgeted level, and instituting required new revenue measures."15 Except for the 1983/84 Program, all programs in in the late 19708 and early 19808 failed to achieve their budget balance targets. The programs envisaged 15. Text of the Program, op. cit., p. 3. 171 substantial increases in both expenditures and revenues. In all cases, actual expenditures and revenues were below program targets (Table 4.3 and Figure 4.3). As noted in chapter two, these programs depended more on structural and institutional reforms than on demand or expenditure management. This appears to partly explain why these programs permitted substantial increases in the level of aggregate expenditures. The key point that emerges from this brief survey is that no program required a reduction in current expenditures (taking the pre-program actual level as the base). In addition, although program-year actual expenditure levels were below program target levels in most cases, they were above pre- program actual levels in all cases. Put simply, the programs did not require nor did they result in any reduction in the level of current expenditures. The fact that no reduction in the aggregate level of expenditures was made does not, of course, necessarily rule out reductions in the levels or rates of growth of specific expenditure categories such as those on social services or defence. A more important point relates to the argument that the Fund views, by virtue of its free-market philosophy, investment and consumption (including social expenditures) as competitive and that therefore in the context of Fund policy programs social expenditures should be expected to fare relatively worse. This expectation is reinforced by the claim that expenditures on defence and the civil service are outside the purview of Fund missions or are more difficult to cut than other kinds of expenditures. 3. Central Government Areas of Expenditure: The areas of Central Government expenditure include General Administration, Debt Service, Defence, Economic Development, Economic Services, Social Ser- vices, and Local Government. These are officially used by the Ministry of 172 Finance and resemble the conventional United Nations functional classification of government expenditures. For the purpose of this chapter, there is some overlap in these categories. Some minor changes are, therefore, made here to serve the purpose of the chapter. In regard to expenditures on education, the Ministry of Finance "Social Ser- vices” expenditure category excludes expenditures on universities and institutes of higher education. These are included under the expenditure category of General Administration. For the purpose of empirical analysis here, expenditures on all kinds of education provided by central government entities are included under the expenditures category of Social Services which also comprise expenditures on health. The Ministry of Finance also divides government development spending into expenditures on ”Economic Services" and expenditures on economic development. The first represents Current Budget allocations to the so-called "Ministries of the Economic Sector" to undertake minor new investments, mainly of infra- structural nature. In terms of development spending as an area of policy, there is no underly- ing rationale for this distinction. The distinction was a product of institu- tional arrangements rather than of an underlying policy difference. It originated in the establishment of a separate section (the Development Branch) within the Ministry of Finance to be in charge of central development planning and spending. Before the establishment of this section in 1951, all investment expenditures were included in the Current Budget under the expenditure category of ”Capital Expenditure". Budgetary allocations for this area of spending were made by the Ministry's Expenditure Branch (currently known as the Budget Administration Department), as were all Current Budget allocations. 173 After its establishment, the Development Branch was entrusted with the for- mulation of annual development budgets for major new investments. At the same time, the Expenditure Branch continued to provide funds in its Current Budget for minor investments. The distinction was reinforced later on when the Ministry of Planning was set up and entrusted with the task of preparing development budgets independ- ently of the Ministry of Finance. However, in terms of budgetary allocations for government expenditures on investments, the existence of the Ministry of Planning does not at all matter because allocations for both types of invest- ment have been and still are under the control of the Ministry of Finance, which is the only government entity in charge of public finances. The Ministry of Planning has no such control. When The Ministry of Planning was finally merged into the Ministry of Finance, it continued (as a department within Finance) to prepare separate development budgets. Consequently, the practice of spreading development spending over the Current and Development Budgets has continued. Most probably, this is due to sheer adherence to tradition. For the purpose of this chapter, expenditures on Economic Services and those on economic development are added together under Investment, as both are essentially investment expenditures. With these changes, each expenditure category (with the exception of debt service and to some extent general admin- istration) corresponds roughly to a particular area of public policy (for instance, defence, social welfare as in the case of social services, invest- ment, etc.). Expenditures on General Administration include a catch-all budget heading known as ”General Central Services". Expenditures on the latter include prin- cipally outlays on running the central government administrative apparatus and 174 a general reserve item that the Ministry of Finance keeps (there are no reli- able and adequate data on how much is spent on these two items). Budget offi- cials point out that the reserves are intended to provide Finance with readily available funds to use in case of emergencies. However, these reserves are not just functionally redundant items; for, it is believed that they are spent in extrabudgetary operations. There is no information as to what these are. However, Fund mission reports indicate that they include outlays on supporting the retail prices of some consummer goods. After 1972, General Administration has also included the Southern Region Development Fund. As noted in chapter one, this Fund was to be used for rehabilitating the Region after the March 1972 political settlement which ended war in southern Sudan. Tables 4.4 and 4.5 present the absolute amounts and the percentage shares of each spending area over the 1961/62 - 1983/84 period, respectively. The percentage shares are presented graphically in Figure 4.4. 175 Table 4.4: Central Government Expenditures by Area, 1961 - 1984. General Debt Defence Invest. Social Subsidies Admin. Ser. Sers. to Local Govt. 61/62 8.8 2.9 11.0 39.5 8.7 4.5 62/63 10.2 3.5 12.6 51.2 10.1 4.7 63/64 11.2 1.6 13.8 67.1 10.7 3.8 64/65 11.8 0.9 14.6 46.5 10fi3 9.0 65/66 15.5 1.5 19.4 43.1 11.0 10.6 66/67 16.8 2.5 24.1 40.9 11.7 9.0 67/68 15.5 4.8 25.2 39.2 12.7 10.2 68/69 20.4 6.5 29.5 40.9 14.8 15.1 69/70 39.1 9.2 37.1 38.4 17.2 20.1 70/71 25.6 11.8 46.2 37.3 17.7 17.7 71/72 32.9 14.7 47.6 42 4 18.4 18.6 72/73 51.5 16.1 45.7 53 2 19.4 15.6 73/74 55.2 19.0 41.2 65.2 12.9 37.9 74/75 96.3 27.6 41.9 130.4 21.7 48.1 75/76 98.9 37.5 45.5 147.9 26.6 59.8 76/77 106.7 37.0 67.2 189.9 32.2 73.2 77/78 113.9 81.2 82.7 225.1 46.7 87.6 78/79 246.7 67.1 80.2 194.6 53.4 108.6 79/80 227.9 123.4 112.6 256.3 51.6 169.6 80/81 285.7 130.3 132.8 329.7 56.2 229.4 81/82 246.9 138.2 205.0 357.2 79.5 250.3 82/83 327.1 256.1 177.8 462.0 113.2 249.2 83/84 476.6 256.9 268.0 514.5 132.3 235.3 Source: Final Accounts Administration Department, Ministry of Finance, Khartoum. 176 Table 4.5: Shares of Central Government Expenditure Areas, 1961 - 1984. Admin. Debt Defence Invest. Social subsidies Services to Local Govt. 61/62 12.0 4.0 14.5 52.3 11.5 5.7 62/63 11.0 4.0 13.6 55.5 11.0 4.9 63/64 10.3 1.5 12.8 62.0 9.9 3.5 64/65 12.6 0.1 15.7 50.0 11.1 10.5 65/66 15.3 1.5 19.0 42.6 10.9 10.7 66/67 16.0 2.4 23.0 39.0 11.0 8.6 67/68 14.4 4.5 23.4 36.4 11.8 9.5 68/69 16.0 5.1 23.2 32.1 11.6 12.0 69/70 24.2 5.7 23.0 23.8 10.8 12.5 70/71 16.4 7.5 29.5 23.8 11.3 11.5 71/72 18.8 8.4 27.3 24.3 10.5 10.7 72/73 25.5 8.0 22.7 26.4 9.6 7.8 73/74 23.8 8.2 17.8 28.2 5.6 16.4 74/75 26.3 7.5 11.4 35.6 6.0 13.2 75/76 23.7 9.0 11.0 35.5 6.4 14.4 76/77 21.0 7.3 13.3 37.5 6.4 14.5 77/78 17.9 12.7 13.0 35.3 7.3 13.8 78/79 32.8 8.9 10.7 25.9 7.1 14.6 79/80 24.2 13.1 12.0 27.2 5.5 18.0 80/81 24.5 11.2 11.4 28.3 4.8 19.8 81/82 19.3 10.8 16.1 28.0 6.2 19.6 82/83 20.6 16.2 11.2 29.1 7.1 15.8 83/84 25.3 13.6 14.2 27.3 7.0 12.6 Source: Based on calculations from Table 4.4. 177 Figure 4.4: Shares of Central Government Areas of Expenditure, 1961 - 1984. wromcr e5 3:3..— v©\b®\rv@\\ ©\O®\®A\®A\AA\©A\IOA\VA\M,A\WA\~ A\OA\®©\®©\Ab\©®\b®\v®\h®\W©\ boo we hm 0% 0M ©A «A 6A 0A vA hm WA NA 0A we we Ac 0,0 be vb no We No [by ~ _ P w _ — _ _ — — _ _ _ — — — _ h h h — — O \ \ /../l ‘ \ \ . ....... T m... .I 1 .I\\ II vllvllir ul \\ I . I I F \x/ \ 7 r: ..z...n.v fl 0 \ , . VA, 1... / . I me 178 \1 x «K / \ -mN - - - , - /\ I on 1mm ........................ 10¢ .wbx/OO _0004 X Ow wwfifinjm ,, 1%.? mooscmm _Owoom / ”.5383. ., x - om legume: x. lmm 3?an 5.5 ,, -ow CODObEEC6< _OL_®C®O [mm smug iuemed 179 As can be seen from Table 4.5 and Figure 4.4, investment expenditures claimed the largest share of government budgetary resources for most of the period. However, this share was not stable over the period. The rise in the share in the first three years of the period, the subsequent decline which became par- ticularly pronounced in 1969/70, and the two rises in the first half of the 19703 and in the beginning of the 19803 were the results of specific events. The upsurges in the share in the beginning of the period was related to emphasis on economic development as evidenced by the 1960/61 - 1970/71 Ten- Year Economic Development Plan, the first plan of its kind. The subsequent decline coincided with the change in government after the overthrow in 1964 of the military regime of General Abboud, which intiated the Plan. The democratically-elected government that took over in 1965 scaled down projects under the original Plan. This resulted in the decline of development expendi- tures both in absolute and relative terms (Tables 4.4 and 4.5). The reversal in 1971/72 in the share’s downward trend was related to a new emphasis on eco- nomic development as manifested in the formulation and implementation of the 1970/71 - 1974/75 Five-Year Plan (extended to fiscal 1975/76 and 1976/77), which was undertaken by the leaders of the May Revolution. After a temporary decline, the share of investment expenditures began to increase in the beginning of the 19803. In this period, the Fund-supported programs of struc- tural adjustment were undertaken. As noted above, these programs aimed at increasing the output of exportables and import substitutes to improve the country's external payments situation. To facilitate the increase of such out- put, major efforts were made to rehabilitate aging or worn-out agricultural and industrial capital stocks and to alleviate infrastructural constraints, particularly transportation deficiencies. 180 The share of defence experienced some erratic fluctuations over the period. These are also the results of specific events that affected defence as an area of policy priority. As can be seen from Table 4.5, the share of defence rose sharply in the second half of the 19603. As discussed earlier, this period witnessed the intensification of the civil war in southern Sudan. Apparently, this resulted in increasing outlays on defence. There was a pronounced rise in the absolute level and in the share of defence expenditures in fiscal 1970/71. This coincided with the removal of the pay-roll of the members of armed forces from the jurisdiction of the Ministry of Finance, following the assumption of power by the military in 1969. This was believed to have resulted in substan- tial increases in the salaries of the members of the armed forces. After the end of the civil war in 1972, the share of defence dropped sharply and, except for a few marginal increases, stabilized roughly around 11 per cent of total expenditures for most of the rest of 19703 and the early 19803. The share of social services is relatively more stable. In the period between 1961/62 and 1972/73, it ranged roughly between 10 and 11.5 per cent of total expenditures. Between 1973/74 and 1983/84, the share represented approx- imately 6 per cent of the budget. The substantial drop in the share in fiscal 1973/74 was the result of the 1971 Local Government Act, which shifted responsibilities for primary and junior secondary education from the central government (the Ministry of Education) to provincial administrations around the country. As a result of this decentralization measure, central government budgetary allocations for primary and junior secondary education have been made to provincial administrations rather than to the Ministry of Education as was previously the practice. As is clear from Table 4.5 and Figure 4.4, the sharp drop in the share of social services in fiscal 1973/74 was paralleled by a sharp increase in the share of transfers to Local Government. 181 The share of transfers to Local Government grew steadily over the period as a whole. In the early 19603, it was around 4 per cent. It grew to about 10 per cent and was relatively stable around this figure for most of the second half of the 1960s and the early 19703. In the 19703, the share rose to about 14 per cent and remained stable around this figure for the rest of the decade. In fiscal 1979/80, the share increased substantially and accounted for slightly less than one-fifth (18 per cent) of the central government budget. This share was maintained for the two subsequent fiscal years but dropped precipitously in fiscal 1982/82 and 1983/84. The growth over the years in the share of subventions to Local Government has been attributed to the increasing fiscal dependence on the part of provin- cial administrations on the central government due to the inability of local revenues to match increasing local expenditures resulting from the transfers of increased responsibilities to the subnational administrations, particularly after the institution of the 1971 Local Government System. The rise in the share in the 1978/79 - 1981/82 period was due to decentralization measures which set up Regional Government in the North.16 Five Regional Government jurisdictions were created. Each jurisdiction consists of a Regional Governor, appointed by the President, and an elected Regional Assembly. Provincial administrations became part of Regional Government jurisdictions. The fiscal relationship between the center and provincial administrations was superseded by one between the center and regional governments (that is, transfers from the center go to regional governments and from these to provincial administra- tions). The establishment of Regional Government in this period resulted in 16. Alassam, N., "Regional Government in the Sudan," Eyblig_ggminigtggglgg_ggg Dgxglgpmggg, V01. 3, 1983, pp. 111-120. 182 increased transfers from the center. The increases were deemed necessary for setting up Regional Government headquarters. The share of Debt Service has grown substantially in the decade of the 19703 and early 19803. As has previously been pointed out, this resulted from the increasing reliance of the government on external borrowing to finance the importation of essential consumer and capital goods. Expenditures on Debt Service disbursements are current legal commitments on the government, result- ing from debts incurred in past years. They constitute a structural constraint on the budget. In contrast to the other expenditure categories, they do not represent an area of policy and are essentially nondiscretionary. For these reasons, this category of expenditures is dropped from the subsequent empiri- cal analysis. The share of General Administration fluctuated considerably in the period as a whole. As pointed out earlier, this area of expenditures is not, in a strict sense, a public policy area, principally because of the fact that it encompasses reserves which do not correspond to any specific public policy. This category of expenditures also includes, as noted, expenditures on the central government adminisitrative machinery, including expenditures on civil service personnel. Both items are important to the central government and in this sense compete with the other areas of expenditure for budgetary resources. Expenditures on both items are discretionary. 183 Fund Policy Programs and Social Expenditures 1. The Relative Shares of Expenditures under Fund Programs: A useful approach to the assessment of the bias, if any, of Fund programs against social expenditures is to find out how social expenditures fare rela- tive to other expenditures under these programs. The concept of relative share is heuristically useful here as it captures trades-off among different areas of expenditure. The method used to detect bias is to calculate the annual percentage changes in the shares of each expenditure area, calculate the average percent- age change or growth in the share of each area, and then compare the areas on the basis of their average growth values. As is clear from previous chapters, there are three sets of successive Fund programs years (that is, 1966/67 - 1968/69, 1972/73 - 1974/75, and 1978/79 - 1983/84). For the purpose of empiri- cal analysis here, each set is treated separately. This is intended to hightlight the effects on expenditures of nonFund factors peculiar to each one of these three periods. These factors are discussed in the previous section. Table 4.6 presents the percentage changes in the shares of each area of expenditure in each of the three periods of Fund programs. An average growth figure for each expenditure area is also calculated (this is equal to the average of the changes in the shares in each period). Table 4.7 ranks the areas on the basis of their growth, with 1 indicating the most prosperous area and 5 the least. 184 Table 4.6: Shares of Central Government Expenditure Areas under Fund Programs Program General Defence Invest- Social Subsidies Period Adminis- ment Services to Local tration Govt. 66/67 0 26 -7 0 -18 67/68 -6 4 -5 9 11 68/69 13 -4 -11 0 30 Average 2.3 8.7 -7.7 3 7.7 Growth 72/73 40 -17 7 ~17 -27 73/74 -7 -24 7 -40 125 74/75 4 -37 26 0 —17 Average 12.7 -26 13.3 ~19 27 Growth 78/79 89 -20 -30 -20 0 79/80 -22 17 11 -25 31 80/81 0 -7 3 -17 5 81/82 -21 38 -7 40 0 82/83 14 -38 13 14 -14 83/84 16 23 -9 0 -21 Average 12.7 2.2 -3.2 -1.3 0.2 Growth Source: Calculations based on information from Table 4.4. 185 Table 4.7: Expenditure Areas, Growth Ranks. ---~-~--~~~~--~~~~~~~-~---~~~~~~-~~~~~~-~~~~~~~~ ~---~~~~~---~~~~-~--~~~~~~~~~~~~~~~~-~~~~~~-~~~~ 1966/67-1968/69: Defence 1 Local Government 2 Social Services 3 General 4 Administration Investment 5 1972/73-1974/75: Local Government 1 Investment 2 General 3 Administration Social Services 4 Defence 5 1978/79-1983/84: General 1 Administration Defence 2 Local Government 3 Social Service 4 Investment 5 ~~~~~~~~~~~~~-~-~~--~~~~-~---~~~~~~-~~~~~~~~~~~~~~~~~ Source: Based on information from Table 4.6. As is clear from Tables 4.6 and 4.7, Defence prospered the most in the first period of the programs. As pointed out earlier, this is most likely due to the escalation of civil war in this period. With exception of Defence, social expenditure areas grew more than all other areas in this period. In the second period, the social expenditure area of subventions to Local Government prospered the most. However, the growth figure of this area is entirely accounted for, and therefore inflated by, the precipitous rise in the area's share in fiscal 1973/74. As noted above, this is the result of the 1971 Act’s decentralization measure which transfered educational responsibilities from the center to the provincial administrations. It is worth noting that the substantial growth in the share of Local Government in fiscal 1973/74 is matched by a sharp drop in the share of central government social service 186 expenditures in this year. The only area which experienced consistent and also the largest decline is Defence. This is most likely due to the cessation of hostilities in southern Sudan, following the resolution of the conflict in March 1972. In the third period, General Administration and Defence grew at the expense of all other areas. The figure for General Administration is considerably inflated by the 89 per cent increase in the area’s share in the first program. This large growth is the result of salary increases associated with the Job Evaluation and Classification Scheme. This Scheme was designed to put into effect the principle of "equal pay for equal work" in the public sector. It resulted in a comprehensive revision of pay scales and led to substantial salary increases, paid out as from the first of July 1978. The growth in Defence in the years between 1979/80 and 1981/82 was attributed to government efforts to enhance internal security in the face of large inflows of refugees from neighboring countries. Toward the end of 1983, civil war broke out again in southern Sudan after an eleven-year cessation of hostilities. The large increase in the share of Defence in the last program is most likely due to the outbreak of the war. In this period, the social expenditure areas grew more or declined less than the area of Investment. The overall finding that emerges from this analysis is that there is no systematic evidence that the programs are biased against social expenditures; these expenditures did not consistently decline more or grow less than other expenditures. More importantly, the relative prosperity of most areas of expenditure appears to do more with particular events than with the presence of the programs. In some cases, it was these very same expenditures that are claimed to suf- fer under Fund programs which undermined the achievement of some program 187 objectives. This is true of the area of subventions to Local Government in the periods of the 1972/73 and the three-year 1979/82 Programs. In each case, a policy change in the area contributed to undermining the attainment of program fiscal objectives. In each case, this was officially admitted. Thus, in regard to the 1972/73 Program, the Minister of Finance noted: The dependence of the public sector on bank financing was also reduced from the high level of 1971/72 but remained more than the level envisaged in the program partly due to the exceptional needs of the Southern Region following the March 1972 settlement and decentralization brought about by the Local Government Act of 1971.17 With respect to the 1979/82 Program, a Fund mission reported: Fiscal performance at times departed from program targets as a result of expenditure overruns which the authorities were unable to control and which were not envisaged during the initial for- mulation of the program. A rapid growth in the transfers to regional governments occurred following the political decision to accelerate the process of government decentralization which was deemed essential for increasing the political cohesiveness of the country. 2. Simple Empirical Regression.flodels: The objective of the regression models here is to see if the presence of Fund programs makes any difference to changes (Table 4.8; the periods in bold print are Fund program periods) in the levels of social expenditures. One way to do this is to see whether the increments/decrements in the levels of social expenditures in Fund program periods are significantly, in statsitical terms, different from those in nonprogram periods. For each of the two areas of social expenditures, the independent variable is a time period dummy variable that takes the value 1 in Fund program periods and 0 in nonprogram periods. The co-efficient for this variable tests the 17. Text of the 1974/75 Program, op. cit., p. l. 18. Sudan - Request for Stand-By Arrangement (January, 1982), op. cit., p. 14. 188 hypothesis that the changes in the level of expenditures in Fund program peri- ods are not, in statistical terms, different from those in nonprogram periods. In other words, each model tests the hypothesis that the presence of Fund program makes no difference to the changes in the level of expenditures. Table 4.8: Annual Changes in Social Expenditures, 1962 - 1984. Period Social Subventions Services to Local Government 1962/63 1.4 0.2 1963/64 0.6 -0.9 1964/65 -0.4 5.2 1965/66 0.7 1.6 1966/67 0.7 -l.6 1967/68 1.0 1.2 1968/69 2.1 4.9 1969/70 2.4 5.0 1970/71 0.5 -2.4 1971/72 0.7 0.9 1972/73 1.0 -3.0 1973/74 -6.5 22.3 1974/75 8.8 10.2 1975/76 4.9 11.7 1976/77 5.6 13.4 1977/78 14.5 14.4 1978/79 6.7 21.0 1979/80 -l.8 61.0 1980/81 4.6 59.8 1981/82 23.3 20.9 1982/83 33.7 -1.1 1983/84 19.1 -13.9 Source: Calculations based on information from Table 4.4. A. The Model for Social Service Expenditures: As noted earlier, social service expenditures are not based on entitlements and are thus not determined by demographic changes which, by afffecting the number of eligibles, determine the level and the rate of growth of 189 entitlement-based expenditures. In addition, social service expenditures are not indexed to inflation. In other words, these expenditures are essentially discretionary. In any fiscal year, the amount spent on social services is entirely subject to the discretion of officials at the Budget Administration Department of the Ministry of Finance. As can be seen from Table 4.8, there are only three instances of reduction (from previous year's level) in social service expenditures, two of which occurred in Fund Program periods. The reduction in the period of the 1973/74 Program was, as pointed out, the result of the transfer of educational responsibilities from the center to provincial administrations. A dummy vari- able is included in the model to take account of this reduction, as it is not the result of the the Program. This variable takes the value 1 for 1973/74 and 0 for all other periods. The co-efficient for this variable is expected to have a negative sign; for this should capture and indicate the reduction. There are three relatively large increases in the last three Fund program periods. This is most probably the results of budget officials taking into account the high rate of inflation reported to be more than 40 per cent in these years. In no other period was the rate of inflation more than 30 per cent. A separate dummy variable is incorporated into the model for these three unusual cases to avoid their distortion of the whole model. The model regres- sion equation was initially run without this variable. This resulted in a Durbin-Watson statistic value of 0.81 which indicates the presence of serious serial correlation. This is, in turn, indicative of model misspecification. After the inclusion of the variable, the value of the Durbin-Watson statistic rose to 1.7 which indicates the absence of serial correlation. Thus, the spe- cial treatment of these unusual cases results in a better model. 190 With these two dummy variables taking account of the changes in the level of expenditures in these four Fund program periods (that is, 1973/74, 1981/82, 1982/83, and 1983/84), the model will determine whether or not the changes in social service expenditures in the rest of Fund program periods are statisti- cally different from those in nonprogram years. B. The Medal for Subventions to Local Government: As is the case with social service expenditures, subventions to Local Government are not determined by any mechanism that automatically transmits changes in demographic or macroeconomic variables into changes in expenditure levels. How much the central government spends on Local Government is princi- pally the function of administrative discretion (that is, the discretion of budget officials) and, to some extent, of how much local expenditures are financed by local revenues. However, there is no institutional (legal) requirement on the central government to fully cover the consolidated deficit of Local Government entities. In addition, there is no formula that is used to determine how much the central government should transfer to Local Government. Technically, Budget officials decide on how much to allocate to Local Govern- ment on the basis of the consolidated estimates of expenditures and revenues of Local Government entities. However, budget officials indicate that they do not take these estimates seriously because of the propensity of these entities to submit inflated expenditure estimates. As can be seen from Table 4.8, there are six decreases in transfers to Local Government, four of which occurred in Program years. However, all the large increases (those in 1973/74 and in the 1978/79 - 1981/82 period) also took place in Program years. As has previously been indicated, these increases are the result of administrative and political decentralization measures in 191 these years. A dummy variable that takes the value 1 in decentralization years and 0 in other years is included in the model to take account of the effects of these measures. Since decentralization resulted in large increases (rela- tive to increases in all other years), this variable is expected to have a positive co-efficient. Presentation and Discussion of Results: The regression results are presented in Tables 4.9 and 4.10 for the social service expenditures and subventions models, respectively. The figures in parenthesis below the co-efficients are the standard errors of the co- efficients. Table 4.9: Summary of Regression Results Dependent Independent Co-efficient T-Ratio Sig. Level Variables Variables Constant 3.9 2.5 .02 (1.5) Changes Fund -0.2 -0.1 .9 in Social (2.2) Service DEC73 -9.2 -1.9 .06 Exps. (4.9) SP81/83 22.5 7.0 .00 (3.2) R-Square - .79 Durbin-Watson - 1.7 Table 4.10: Summary of Regression Results Dependent Independent Co-efficient T-Ratio Sig. Level Variables Variables Constant 4.9 1.4 .19 (3.6) Changes in Fund -5.4 -0.95 .35 Grants to (5.6) Local Govt. DEC. 37.5 5.6 .00 (6.7) ' R-Square - .65 Durbin-Watson - 2.05 192 Each model explains more than sixty per cent of the variation in the changes in the levels of each type of expenditures. All nonFund variables (that is, Decentralization73 and Specia181/83 in the first model and Decentralization in the second model) are in the expected direction, as indi- cated by the signs of the co-efficients. Moreover, these co-efficients are statistically different from zero (see the significance levels). The negative value of the co-efficient for 'Dec73' suggests that this measure accounted for LSd. 9.2 million in the reduction in social service expenditures in that year. Similarly, the positive value of "Dec” in the second model indicates that decentralization in 1973 and in the period 1978/79 - 1981 has the effect of increasing the amount of subventions in each of these years by an average of amount of LSd. 37.5 million. In each model, the co-efficient for Fund is negative, suggesting that smal- ler increments or larger decrements tend to occur in Fund program periods relative to nonprogram periods. However, these are by no means statistically significant. This implies that the annual changes in the level of social expenditures in these periods are not different from those in nonprogram peri- ods. A basic conclusion which can be drawn from these results is that Fund programs did make very little or no difference to government spending for the provision of social services, both at the national and local levels. There are a number of probable explanations for this finding. A principle explanation is, most probably, the fact that the programs did not require reductions in the overall level of expenditures. The programs called for restraint on the growth of rather than reductions in the overall level of expenditures. The programs also depended on revenue increases to improve the government budgetary situation. 193 Even if reductions were required, it is most unlikely that social service expenditures and subventions to Local Government would be adversely affected. There are several reasons for this. with respect to social services, expendi- tures on this area constitute such a small proportion of the total that even a large reduction would make very little difference to budgetary savings. More- over, a large reduction in this area is most unlikely. The bulk of social service expenditures is claimed by employee emoluments, so that any large reduction would entail some lay-offs. These have never been practiced in the Sudan, where employment in government is regarded as a right. In view of this, a decision by the government to lay off employees is most likely to lead to strikes which would lead to the disruption of social services, the political reverberations of which the government is unlikely to survive. In regard to the area of subventions to Local Government, there is a prin- cipal factor that makes significant reductions in this area most unlikely. Despite the fact that transfers to Local Government are large relative to other areas of central government expenditure, they have always been quite inadequate to finance the activities of Local Government jurisdictions.19 A major manifestation of this inadequacy is the existence of chronic deficien- cies in local services delivery systems. A concrete example of this is the area of local sanitation. Because of lack or severe shortages of funds to maintain existing or buy new refuse-collecting vehicles, clearance of refuse dumps (normally done on a daily basis) is often delayed for weeks. For the same reason, refuse incineration (normally done outside towns) is more often than not done near refuse dumps located in town neighborhoods. 19. On this point, see Rondinelli, op. cit, p. 604. 194 The central Ministry of Local Governments, which is known to lobby intensely for increased central transfers, brings this home to budget offi- cials in the Ministry of Finance. Provincial commissioners also play a key role in preserving and increasing the amounts of central transfers. Commis- sioners are known to spend a great deal of their time in Khartoum, lobbying for increased transfers. In 1977, Commisioners were elevated to the status of cabinet ministers. By virtue of this, commissioners have direct access to the Finance Minister and to the President and can thus bring home to these the need to maintain or increase the amounts of transfers. Fund Policy Programs and subsidies As noted above, the literature tends to see Fund programs as negatively affecting subsidies. There is some reason to expect that the relationship could also work in the opposite direction. One situation where this could hap- pen is when there is a political constraint on the government to maintain the provision of subsidies, the expenditure on which is of an open-ended nature. Expenditures of this nature are bound to be at loggerheads with a central premise on which Fund programs are predicated. The fiscal components of Fund programs are built around expenditure, revenue, and domestic credit targets and ceilings to be adhered to in the course of the program. In regard to the expenditure side of the budget, the Fund program assumes that actual expendi- tures will be in line with program budgeted expenditures. Uncontrollable in nature, open-ended expenditures clearly vitiate these notions. Thus, in a situation where there is a strong political commitment to such expenditures, one would expect these expenditures to adversely affect the fiscal targets of Fund programs. There is some evidence that this situation occurred in the Sudan in the periods of some programs. As noted in chapter one, the government monopolizes 195 the importation of sugar, petrol, and wheat flour. The government also fixes their domestic retail prices. The government has often insulated consumers from rises in the international prices of these commodities by keeping their domestic retail prices stable. In the following section, some concrete cases are described to demonstrate the effects of subsidies on Fund programs . The Case of the 1973/74 Program: The 1973/74 Program set a target of LSd. 220.0 million for central govern- ment revenues. The actual amount turned out to be LSd. 203.5 million; that is, LSd. 16.5 million below the program target.20 This shortfall was attributed to a loss in revenue from the excise duty on petrol and in sugar monopoly profits because the Government maintained unchanged their domestic selling prices after their international prices had risen. Thus, the shortfall in revenue was the result of the subsidy expenditure implicit in the revenue loss. This subsidy expenditure was officially admitted to have undermined the Program objective of controlling government expenditure and hence of reducing government's reliance on the central bank. This was acknowleged by the Minis- ter of Finance in his Letter of Intent for the succeeding program. In his Let- ter, the Minister explained why the authorities were unable to achieve program fiscal targets. He pointed out: ....Unexpected international developments and subsequent sharp rise in the world prices of Sudan's major imports (petroleum, sugar, and wheat), jeopardized the achievement of some of the objectives of the program... In a developing country like the Sudan, the large rise in the import prices of essential goods could not be immediately passed to the consumers without undesirable effects. Consequently, the government had to incur additional expenditures on subsidies for these commodities to cushion the effect on prices. These developments retarded govern- 20. Sudan - Request for Stand-By Arrangement (July 31, 1974, Table 2, p. 5), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 21, Ministry of Finance, Khartoum. 196 ment efforts to reduce its reliance on the domestic banking system in line with the program21. Eleswhere in the same Letter, the Minister reiterated the constraint on the government posed by rises in the prices of the three commodities: ..the 1973/74 program was designed to achieve a sizable surplus in the current operations of the Central Government mainly on the strength of new revenue measures..0n this basis recourse to bank financing by the Central Government and public entities was to be limited to LSd.15 million. Achievement of the program's objective in this area has been jeopardized by the decline in revenue and/or the increase in subsidies brought about by the sharp rise in the international prices of petroleum, sugar and wheat as we have not found it always possible to pass the increased prices to the con- sumer. The Case of the 1974/75 Program: Despite the fact that subsidy expenditures in fiscal 1973/74 undermined that year's program, the program for 1974/75 allowed LSd. 23 million in sub- sidies for fiscal 1974/75. This subsidy amount represents 11.3 per cent of Central Government expenditures budgeted at LSd. 256 million (Table 4.2). This contrasts with the commonly held view that Fund policies show little appreciation of the political and social circumstances of the countries which undertake Fund-supported stabilization programs.23 However, the Fund mission which helped with the formulation of the program indicated clearly that the effectiveness of the program would hinge crucially on the ability of the authorities to limit expenditure on subsidies to the budgeted amount. In this respect, the mission pointed out, in its appraisal of the program which was submitted to the IMF Executive Board: 21. Letter (dated July 18, 1974) addressed to the IMF Managing Director, Mr. Witteveen, ibid. 22. Ibid., p. 3. 23. On th criticisms of Fund policy conditionality, see Graham Bird, "Rela- tionships, Resorce Uses and the Conditionality Debate," in Tony Killick (ed.), op. cit., p. 168. 197 The effectiveness of the program will crucially depend on the ability of the Government to contain the subsidies as well as increases in other expenditures, particularly those related to transfers to the local governments, within the budgeted levels.24 The government was, however, unable to contain expenditures on sub- sidies. This also militated against the program achieving some of its fiscal objectives. As is clear from Table 4.11, the bulk of the overall expenditure overrun (LSd. 8 million) was accounted for by the subsidy overexpenditure which amounted to LSd. 6.8 million (that is, of the total expenditure overrun). This expenditure overrun also con- tributed to the deviation of domestic credit to the government sector from the program target. The program had envisaged LSd. 11 million in domestic credit to the government sector. Actual credit extended to this sector turned out to be LSd. 24.5 million. Table 4.11: Government Budget for the 1974/75 Program Program Actual Expenditures 256.0 264.0 of which: Subsidies 23.0 29.8 ~~~-~~~-~~~Q~~~~~~~~~~~~~~~~~§~~~~~~~O~~~~~~ Sources: Sudan - Request for Stand-By Arrangement (July 31, 1974), ibid., p. 5 and 1975 Article XIV Consultation (September 4, 1975, Table 1), Documents of the International Monetary Fund, No. 0 - l, 316, Vol. 21, Ministry of Finance, Khartoum. The Case of the 1979/82 Program: 85 per cent 24. Sudan — Request for Stand-By Arrangement (July 31, 1974), op. cit., p. 19. 198 In its two budgets covering the period 1979/82, this three-year program allocated no funds for subsidies. However, following the second oil shock in 1979 and rises in the world prices of sugar, the government was believed to have incurred substantial outlays on supporting the domestic retail prices of petrol and sugar. The amounts of the outlays incurred were not known. However, a Fund mission which had reviewed per- formance under the program indicated that unbudgeted subsidy outlays contributed to the deviations of fiscal outcomes from program's targets. In this connection, the mission noted in its report to the IMF Executive Board: ...increases in the international prices of petroleum products and sugar also contributed to deviation from program targets...lncreases in the international prices of petroleum and sugar compounded the balance of payments difficulties but also had adverse effects on budgetary performance and credit policy. This resulted from domestic price policies which sought to insulate the prices of basic consumer commodities such as wheat, petroleum products, and sugar from international price changes. With govern- ment monopolies on trade in these commodities, increases in import prices were not always passed on to the consumer and this resulted in either an outright budgetary cost or a deficit in the accounts of the importing public agency which was financed by credit exten- sion from the central bank.2 These three cases demonstrate that the political commitment to the provi- sion of subsidies (that is, maintaining domestic retail prices in the face of external price increases) was a contributing factor (the principal one in the cases of the 1973/74 and 1974/75 Programs) to undermining program fiscal effectiveness. The point raised in chapter one that subsidies principally benefit the residents of Khartoum, Khartoum North, and Omdurman most probably explains the inability of the government to contain expenditures on them. It was the resi- 25. Sudan - Request for Stand-By Arrangement (January 1982), op. cit., p. 14. 199 dents of the three towns (in particular, the civil servants who set the prece- dent of overthrowing government through mass political action, notably the general strike) who were responsible for this constraint on the government. There is no direct concrete evidence of this (probably, such evidence does not obtain). There are, however, further indications that the civil servants most of whom reside in Khartoum were and still are a constraint on the implementa- tion of austerity measures. It was the civil servants who were always selected for partial compensation when the government had no options but to reduce or remove subsidies because of the application of Fund policy conditions. This was done in a number of cases, particularly where subsidy reduction/removal is involved. The following cases document the application of Fund policy condi- tions on subsidies. This is then followed by describing and documenting com- pensation to civil servants in these cases. The Effects of the 1981/82 and the 1982/83 Programs on subsidies: Increases in the retail prices of the subsidized items were undertaken to eliminate subsidies which had emerged from the November 1981 exchange rate unification (which, as noted earlier, resulted in the devaluation of the offi- cial rate by 80 per cent) and the November 1982 official devaluation of the Sudanese pound. Because devaluation increases the costs of imports expressed in domestic currency, subsidies emerged following each official devaluation. The Case of the 1981/82 Program: The price increases were explicitly referred to in the Letter of Intent sent by the Minister of Finance to the IMF Managing Director requesting a Fund Stand-By Arrangement in support of the Program. Thus, the text of the Letter reads, in regard to these price increases, "...the retail prices of petroleum products were raised by an average of 39 per cent so as to eliminate the sub- 200 sidy arising from the exchange rate unification...Effective January 1, 1982, the domestic retail price of sugar was increased by 62.5 per cent..." 26 That these price increases were Fund policy conditions (in this case ”precondi- tions") was evidenced by the fact that they were implemented prior to the approval by the Fund in February 1982 of the Stand-By Arrangement in support of the Program. A Fund policy condition, a ”performance criterion”, was applied to a government policy intention to eliminate the subsidy on wheat in the cource of the Stand-By Arrangement. As stated in the text of the Program, this policy intention reads, in the words of the Finance Minister, In a subsequent stage of corrective action and in line with our announced policy of removing subsidies, we will increase the price of bread at least 33 percent by April 1, 1982 and eliminate any remaining subsidy on wheat and wheat flour by August 31, 1982...27 In the approved Stand-By Arrangement, this policy intention was made a "per- formance criterion". This part of the Stand-By reads: Sudan will not make purchases under this Stand-By Arrangement...if the intention to reduce the subsidy on wheat by April 1 and to eliminate it by August 31, 1982 is not implemented... 26. Statement of Economic and Financial Policies of the Government of Sudan (January 1982), op. cit., p. 5. 27. Ibid., p. 5. 28. Sudan - Stand-By Arrangement (February 22, 1982, p. 3), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 23, Ministry of Finance, Khartoum. The policy intention was implemented when the retail price of bread was increased by 33 and 25 per cent on April 1, and July 8, 1982, respectively. In reference to the second price increase, a Fund report noted, "On the basis of import and domestic producer prices prevailing in mid-1982 and the unified exchange rate, this price increase has eliminated the remain- ing subsidy on wheat and wheat flour." Sudan - Staff Report for the 1982 Arti- cle IV Consultation (August 23, 1982), op. cit., p. 7. 201 The Case of the 1982/83 Program: As was the case with the 1982/83 Program, increases in the retail prices of the subsidized commodities were carried out to eliminate subsidies which had arisen from devaluation of the Sudanese pound on November 15, 1982. The part of the text of the Program indicating price increases reads: In the area of central government finance, revenue generating measures...have been implemented. These measures include... increasing the prices of petroleum products as of January 3, 1983 to eliminate the budgetary subsidy arising from the exchange rate depreciation... This price increase was also a "precondition"; it was carried out prior to the Fund's approval in February of the Stand-By Arrangement in support of the Program. The text of the Program also contained a policy intention to eliminate the subsidy on wheat in the course of the Stand-By Arrangement. This part of the text reads: In a subsequent stage of corrective action, we will eliminate any remaigéng subsidy on wheat...before the expiry of the Stand- By... As was the case with the 1982/83 Program, this policy intention was also made a "performance criterion" in the text of the approved Stand-By Arrangement. This part of the text states: Sudan will not make purchases under this Stand-By Arrange- ment...during any period within 14 days from the date of expira- 29. Statement of the Government of Sudan on Its Economic and Financial Policies (January 5, 1983), op. cit., p. 4. 30. Ibid., p. 4. 202 tion of this Stand-By Arrangement, in which the intention to eliminate the subsidy referred to is not carried out...3 In nearly all cases where subsidies were reduced or removed, the civil ser- vants were granted either salary increases, increases in existing allowances, or some tax relief. Thus, following an increase in the retail price of petrol (May 30, 1974) as part of the 1974/75 Program, the civil servants were granted a 15 per cent salary increase effective July 1, 1974. In this respect, a Fund mission reported, “The salary and wage revision, which averages 15 per cent throughout the public sector, was considered unavoidable by the authorities.."32. It has earlier been pointed out that the Job Evaluation and Classification Scheme led to substantial increases in salaries in the public sector in the period 1978/79 - 1979/80. This period coincided with major austerity measures (including reductions in subsidies) contained in the programs undertaken in this period. In the case of the 1981/82 Program, the Minister of Finance Letter of Intent section on the budget points out: ...in current expenditures, selective reductions were effected..., however, these would be partially offset by increases in transportation allowances granted to civil servants. Another measure taken in this context was increasing the individual tax-payer exemption allowance "in order to mitigate partially the effects of higher prices on incomes"34The tax referred to also applies to the incomes of public- sector employees. 31. Sudan - Stand-By Arrangement (February 21, 1983, p. 3), Documents of the International Monetary Fund, File No. 0 - 1, 316, Vol. 24, Ministry of Finance, Khartoum. 32. Sudan - Request for Stand-By Arrangement (July 31, 1974), op. cit., p. 10. 33. Statement of Economic and Financial Policies of the Government of Sudan (January 1982), op. cit., p. 23. 34. Ibid., P. 23. 203 In regard to the 1982/83 Program, the part of the Minister's Letter of Intent dealing with compensation to civil servants reads: In view of the price impact of the adjustment package and to reduce the extent of erosion of real incomes in the public sector, we have decided to provide financial compensation to government employees amounting to LSd. 30 million...35. The overall finding which emerges from the preceding empirical analyses is that Fund programs had, apart from some increases in the retail prices of sub- sidized items, very little or no adverse impact on social expenditures. In addition, it was these very same expenditures which undermined or contributed to undermining the fiscal effectiveness of some of these programs. This finding suggests that the view that Fund programs are detrimental to social expenditures does not, at least in the Sudanese context, hold. Because this argument views these programs solely from the perspective of economic efficiency, it fails to consider political rationality and the constraints it places on the application of economic efficiency. This view therefore fails to consider the socio-political context in which Fund programs are undertaken and thus provides a distorted lens through which to view empirical reality. The argumemt that social sectors are well protected is much more realistic inas- much as it implicitly recognizes the presence of contextual factors shielding social expenditures from budgetary austerity measures. 35. Statement of the Government of Sudan on Its Economic and Financial Policies (January 1983), op. cit., p. 11. CHAPTER.V FUND PROGRAMS AND POLITICAL PROTEST Literature Review: A common strand discernable in the small but growing body of literature on the politics of economic stabilization is that these programs are politically risky; they involve costs to those undertaking them. The premise underpinning this line of argument is that the economic austerities characteristic of these programs alienate some segments of the society by cutting into living standards. This, in turn, fosters public and organized group reactions. According to this strand of literature, the socio-economic groups that bear the brunt of economic stabilization are urban marginals and the working class.1For these groups, economic stabilization entails erosion of real incomes and unemployment, the result of which is a reduction in economic wel- fare.2 This premise underlies a number of empirical studies as well as studies proposing conceptual schema for the analysis of the politics of economic sta- bilization. Richard Cooper's study attempts to associate devaluation (a common element in structurally-oriented economic stabilization programs) with 1. Wilfred David, op. cit., p. 109. 2. Stephen Haggard, ”The Politics of Adjustment: Lessons from the IMF's Extended Fund Facility," 1ntgrngtign§1_grggniz§tign, Vol. 39, No. 3, Summer 1985, p. 51. 204 205 political change crudely measured as the fall of governments or of finance ministers within the year of the implementation of this austerity measure.3 Using indicators of political repression and of market-oriented policies, John Sheahan attempts an empirical correlation between political repression and economic efficiency policies undertaken in Latin America in the past two decades. Writing in 1980, he concludes, "in the last 15 years the intensity of political repression in many Latin American countries has increased greatly."4 "In the same period", he adds, ”for the region as a whole but in particular for many of the countries in which repression has been the worst, the applica- tion of market principles to improve efficiency has increased greatly".5 Sheahan's study also assumes that the economic austerities attendant on the application of market principles engender political protest; political repres- sion in his study is the policy response to political protest. The assumption also underscores a number of empirical studies attempting to answer the question as to which regime type, authoritarian or democratic, is essential for the successful implementation of economic stabilization programs. A widely cited study is Skidmore's empirical analysis of the politics of economic stabilization in the ABM countries; that is, Argentina, Brazil, and Mexico. According to Skidmore, economic stabilization experiments during the 19503 and 19608 in the ABM countries demonstrate that: ..governments in competitive political systems find it extremely difficult to reduce inflation, once it has exceeded 20 per cent, and they have paid very high political costs for their efforts; no 3. Richard Cooper, "An Assessment of Currency Devaluation in Developing Countries " in G Ranis (ed ). WW. Yale University Press, New Haven, 1971, pp. 501- 507. 4. John Sheahan, "Market- oriented Economic Policies and Political Repression in Latin America.“ W. Vol. 28. No. 2. 1980, p. 290. 5. Ibid., p. 290. 206 such government has proved able to pursue successful anti- inflation efforts; all the cases of successful stabilization have been carried out by authoritarian (or one-party) governments; and even authoritarian governments must have a high degree of internal consensus to carry through a successful stabilization. The argument underscoring these conclusions is that economic stabilization policies constitute - in so far they cut into living standards - such a "political liability as to erode more public support than any freely elected government could afford to lose.'7ln the light of his empirical analysis and findings, Skidmore advances the proposition that authoritarianism is a nec- cesary, albeit an insufficient, condition for the successful implementation of stabilization programs.8 This proposition is implicit in Robert Kaufman's more recent study on eco- nomic stabilization in the ABM countries. The study concludes that "authoritarian regimes in the ABM countries are, in fact, so far the only ones in which stabilization programs have actually restored some degree of price and exchange equilibrium and a resumption of economic growth."9 Empirical analyses have of late called into question the validity of this proposition. In this regard, the most systematic analysis is Karen Remmer's empirical study on the politics of International-Monetary-Fund-supported eco- nomic stabilization programs in Latin America in the 1954- 1984 period.10 6. Thomas Skidmore, ”The Politics of Economic Stabilization in Postwar Latin America, " in James, M. (ed. ), o a Am_rig§, University of Pittsburgh, Pittsburgh, 1977, p. 149. 7. Ibid. , p. 180. 8. Ibid., p. 181. 9. Robert Kaufman, "Democratic and Authoritarian Responses to the Debt Issue: Argentina, Brazil, and Mexico," 1ntgrnggigngl_gzg§giz§§ign, Vol. 39, No. 3, Summer 1985, p. 475. 10. Remmer used regime type as the independent variable and program imple- mentation (measured in terms of domestic credit and other fiscal performance indicators) as the dependent variable; see Karen Remmer, ”The Politcis of Eco- nomic Stabilization: IMF Standby Programs in Latin America, 1954 - 1984," 929- W. October 1986. PP- 1-24- 207 Remmer's findings are that regime type makes little difference to successful program implementation; that authoritarian regimes are no more likely to initiate stabilization programs nor to survive their political reverberations; and that to the "limited extent that regime differences are significant, the edge appears to be with democracies."11 Stephan Haggard's study, which is based on an examination of thirty cases of economic stabilization programs supported by the three-year Extended Facility of the International Monetary Fund, also presents some evidence, though anecdotal, against the link between regime type and successful imple- mentation of economic stabilization programs.12 The political capacity to adjust, according to Haggard, depends more on administrative constraints, the availability of nonFund or nonconditional resources, and the existence of a ”stabilizing carde", the core of which is a "cohesive group of sympathetic economic technocrats" than on regime type.13 The importance of nonregime variables is also highlighted by Joan Nelson's conceptual framework for the analysis of the politics of economic stabiliza- tion programs. Nelson's conceptual scheme is based on case studies of stabi- lization experiments in five poor and heavily trade-dependent countries. These are Ghana in the late 19603 and early 19703; Jamaica, Kenya, Sri Lanka, and Zambia in the late 19703 and early 19803.14 The framework focuses on program political sustainability defined as the "odds that it will not be abandoned or seriously diluted in mid-course because 11. Ibid., p. 20. 12. Stabilization Programs broke down under both authoritarian regimes (cases discussed are the Sudan and Guyana) and democratic regimes (cases analysed are Jamaica and Sri Lanka); Stephen Haggard, op. cit., pp. 513-525. 13. Ibid., pp. 530-532. 14. Joan Nelson, ”The Political Economy of Stabilization: Commitment, Capa- city, and Public Response," Hg;l§_flgyglgpmgn§, Vol. 12, No. 10, pp. 983-1006. 208 of leaders' political concerns or popular pressure“.15 According to Nelson, program political sustainability is the function of the strength of political leaders' commitment to the program, the government capacity to implement the program and manage political responses, and the political responses the program evokes from influential groups.15Nelson maintains that political com- mitment and political responses are variables that can be manipulated to main- tain and enhance program political sustainability. Political commitment, according to Nelson, can be manipulated by strategms (the so-called political insurance) that would specify conditions, on the part of international credi- tors, under which additional resources might be made available in support of politically risky programs.17 Manipulation of political responses consists, Nelson points out, in the use of tactics which encompass, inter alia, politi- cal containment of public and organized protest and partial compensation to specfic groups.18 The issue of program political sustainability is also the central focus in a recent case study. Thomas Callaghy's study examined the politics of major economic adjustment reform initiatives in the African context, with particular focus on the experiences of Ghana, Zambia, and Nigeria.19 The study does not test any hypothesis nor does it provide a conceptual scheme for the analysis of the political sustainability of macroeconomic policy reforms. Rather, it analyses the sustainability of such reforms against domestic political con- 15. Ibid., p. 983. , p. 985. . ., p. 986. 18. Ibid., p. 997-999. 19. Thomas Callaghy, "The Politics of Economic Stabilization and Structural Change in Africa: Ghana, Zambia, and Nigeria,” (a preliminary draft), Depart- ment of Political Science and Research Institute on International Change, Columbia University, October 1987. 209 straints on the one hand and the policy reform requirements of international creditors (the IMF, the World Bank, and bilateral aid donors) on the other. Domestic political leaders are depicted as being buffeted between the compet- ing claims of domestic constraints (opposition from organized groups and the public) and theinternational creditors. The author is of the opinion that reform efforts were sustained in Ghana and Nigeria but not in Zambia, which has traditionaly had a much greater reigme stability than the two other countries. The reason for this, according to him, is that domestic opposition to the economic reforms in Zambia was more deep-rooted, stronger, and more pervasive.20 The author then contends these three cases question the conven- tional wisdom that regime stability is an asset to the sustainability of eco- nomic reforms. Conceptually, the common strand or line of thought that pervades the reviewed literature is that the austerities associated with the initiation and implementation of economic stabilization programs generate political protest or pressure which could lead to the following consequences: the abandonment or serious dilution of the stabilization programs, authoritarian or repressive policy responses to manage political protest, and political change, including the fall of governments or of specific government leaders. A major problem with this conceptualization is that it does not distinguish between economic austerity which gives rise to stabilization programs in the first place and policy austerity measures. Clearly, the literature associates political protest with the initiation or implementation of policy austerity measures . 20. In Zambia, IMF-supported adjustment reforms (notably, exchange rate liber- alization and increases in the retail prices of maize) were abandoned follow- ing riots in the capital and open criticisms and threats from organized groups and from some leaders in the ruling party; see pp. 35-42. 210 In the context of economic stabilization programs, economic austerity refers to the excess of resource uses over available resources or, to use familiar macro-economic concepts, the excess of expenditures (private and government consumption and investment) over income or simply the excess of aggregate demand over aggregate supply. This excess manifests itself in inter- nal (fiscal) resource imbalances and an external imbalance (that is, a balance of payments deficit), shortage of foreign exchange, and a high inflation rate. This list does not exhaust the manifestations of an excess of aggregate demand over aggregate supply. However, in the context of economic stabilization, it comprehends the principal manifestations of such an excess. At this juncture, it is useful to clarify the relationship between economic austeriy and economic hardship or hardships. As explained above, economic austerity is a macro-concept describing a state of economic affairs essen- tially characterized by the excess of resource uses over resource availabilities. In common usage, economic hardship refers to a situation or situations where individuals as consumers suffer losses in economic welfare or living standards. It is, thus, a phenomenon that obtains at the micro or con- sumer level. More importantly, it results from economic austerity. Many people may disagree on what counts as economic hardship. However, few will disagree that a rise in the general price level and hence decline in real incomes, deterioration in social services, unemployment, shortages in basic consumption goods do not count as instances of economic hardship. All of these, particularly inflation, are clearly related to the excess of aggregate demand over aggregate supply (the economy's total output). The key point here is that given this situation of demand exceeding supply in the aggregate (which is indicative of economic austerity). economic 211 hardship is either already there or is about to set in, irrespective of whether or not there is a remedial policy response; that is, an economic sta- bilization program. A point that repeatedly arises in the literature is that the economic situation immediately prior to the beginning of an economic sta- bilization program is an ”unsustainable situation” in that available resources can only provide for so much of resource end uses, since the latter exceeds the former. Given this unsustainable situation, the need for a specific remedial policy action (that is, an economic stabilization program) arises because of an over- lap of practical and efficiency considerations. The situation of resource uses exceeding resources available can, in theory, be sustained without any adjust- ment policies to remedy the resource imbalance if external financing (borrow- ing) is always readily available. In practice, this is not true because offi- cial multi-lateral creditors such as the IMF and the World Bank extend credits on condition that economic adjustment policies be implemented. Moreover, bilateral official (governments) and private (international banks) creditors also often require the so-called "seal of approval” or a prior agreement with the multi-lateral creditors (in particular the IMF) on economic stabilization measures before they extend loans.21 Another alternative to economic stabi- lization is to suppress domestic demand through, among other things, the imposition of commercial (trade) and financial (foreign exchange) restric- tions. This alternative is, however, inefficient because it worsens domestic inflation and leads, therefore, to further appreciation of the exchange rate and, consequently, to worsening the balance of payments crisis. Essentially, 21. The "seal of Approval“ is also referred to as the "seal of good housekeep- ing"; see Sachs, J., Conditionality and the Debt Crisis: Some Thoughts for the World Bank (unpublished draft paper), Harvard University, January 1985, p. 12. 212 it puts off solving the problem rather than solves it. A third alternative is policy inaction. In this case, the resource imbalance is sustained for some time until external reserves are run down. In practice, a developing country like the Sudan will have exhausted all alternatives before resorting to the IMF and by the time this happens economic hardships have already set in or are about to. In any concrete analysis, this is, of course, an empirical question. The key point here is that Fund-supported stabilization programs are undertaken in this kind of situation. Another important point is that these programs have a basic feature that has some bearing on economic hardship. This feature is the demand-sided approach to economic stabilization. A typical sta- bilization program supported by the Fund's one-year Stand-By Arrangement is a financial program that aims at managing domestic demand either by restraining or curtailing it.22 It is for this reason that these programs are referred to as demand management, restraint, deflation, compression, or curtailment programs.23 Typical demand management policy measures may include, according to a long-time Director of the Fund's Fiscal Affairs Department, reductions in government expenditures, increases in taxes on incomes and goods, increases in the prices of key goods (subsidized consumer commodities) and services, 22. Economic adjustment needs not necessarily come from the demand side of the economy if the time dimension is not important. Since, however, increasing supply or output takes time due to, inter alia, various constraints (resource, institutional, and logistical) and to the medium or long term gestation nature of new agricultural and industrial investments, a short-run remedial policy response must necessarily focus on the demand side. 23. In the literature, these terms are used interchangeably; see Manuel Guitian, op. cit., pp. 5 and 38 and Sidney Dell, ”Stabilization: The Political Economy of Overkill,” in John Williamson, op. cit., pp. 39-43. 213 increases in the interest and exchange rates, and restrictions on domestic credit extension.24 To return to the point of economic hardships seen as losses in consumer welfare, many of these measures adversely effect such welfare. Increases in direct taxes (taxes on incomes) reduce disposable incomes. Increases in the prices of goods and services and devaluation reduce real incomes. If one assumes that increased economic hardship leads to political protest (this assumption is implicit in the literature just reviewed), it will be erroneous to attribute the political protest incidents that occur in the period of an economic stabilization program solely to the implementation of the program's policy austerity measures.25 One needs to separate, and control for, the economic hardship attendant on the onset of economic austerity, which gives rise to the stabilization program in the first place, from the economic hardships that are due to the implementation of program austerity measures. This task is intrinsically difficult due to a number of questions that need to be answered prior to assessing the extent to which the political protests that occur in the period of an economic stabilization program are due to the program's austerity measures. The first has to do with what indicates economic hardship in empirical reality. In other words, is there a common quantitative measure for economic hardship? Supposing that there is one such measure, how can one control for 24. Richard Goode. Q2rsrnmsnt_Einanse_in_Dezelenins_§suntries. the Brookings Institution, Washington, D.C., 1984, pp. 272-278 (particularly, p. 273). Also, see Johnson, 0. and Salop, J., "Distributional Aspects of Stabilization Programs in Developing Countries," IME_§§§££_£gpg;§, Vol. 27, No. 1, March 1980, pp. 1-23 (in particular, pp. 8-15). 25. Econonmic decline and scarcity (which are indications of economic austerity) are also seen to lead to political pressures and conflict; see Ted Gurr, ”On the Political Consequences of Scarcity and Economic Decline,” Inter- natienel_§£u§ies_guartsrlx. V01. 29. 1985. pp. 51-75- 214 the economic hardship that is not due to the program? The economic variable that immediately comes to mind is inflation. Yet; this is quite inadequate or not comprehensive enough because some policy austerity measures are not reflected in the rate of inflation. One such measure is an increase in the income tax (the Personal Income Tax in the Sudan). Such an increase reduces disposable income but does not necessarily affect real income which has to do with inflation. More important is the problem of identifying the increments of economic hardship generated by program austerity measures once a measure for economic hardship has been found. If, for instance, the rate of inflation is the measure, how does one know what percentage of an observed increase in the rate of inflation following the implementation of austerity measures is due to this implementation and what percentage of that increase is due to economic austerity that is already there or to the inflationary pressures of drought conditions? The problem of measurement aside, there is also a conceptual problem. Any attempt at relating political protest to the economic hardship effects of the implementation of austerity measures assumes that people protest only after they begin to feel the economic hardship effects of austerity measures. However, this assumption is not entirely realistic simply because people may also protest when austerity measures are announced, before they even begin to feel their economic hardship effects. There is a time lapse between the announcement of some measures and their actual economic hardship effects. In the case of the Sudan, such measures include increases in water and elec- tricity rates (often included in stabilization programs) and increases in the rate of the Personal Income Tax. Both water and electricity rates and income taxes are collected at the end of the month. There are at least two cases 215 where measures of this nature were announced and where people protested immediately after the announcement. These cases as well as other are discussed in the descriptive section of this chapter. One approach that directly relates political protest to policy austerity measures and that does not have the indicated measurement and conceptual prob- lems is to ask whether policy austerity measures precipitate political protest. This approach takes into account both the announcement of measures and their immediate economic hardship effects, if any. The approach does not assume that people protest when they begin to feel the economic hardship effects of austerity measures. It simply asks the question as to whether or not the announcement/implementation (hereafter implementation) of austerity measures lead immediately to protests. There is some empirical evidence that Fund or Fund-type policy austerity measures precipitate protests. In Egypt, increases in the retail prices of rice, sugar, tea, petrol, and butane gas to meet IMF policy conditions for credit resulted in widespread rioting, as a result of which 70 people were killed and 600 injured.26The retail price increases were announced on January 17, 1977. The following day, rioting broke out in Cairo and Alexandria and continued for two days. The price increases were frozen. In Algeria, an increase in the retail price of petrol and other consumer goods led to five-day rioting in which 250 people were killed and 1000 injured.27 The retail price increases were not reported to be part of Fund policy conditions. The prices were announced on the third of October 1988. Rioting began the following day. 26. Africa Researcch Bulletin: Political, Social and Cultural Series, No. 1, Vol. 14, February, 1977, pp. 4290. 27. The New Times, October 16, 1988, p. 6. 216 In Venezuela, an increase in the retail price of gasoline led to rioting in Caracas (the capital) and six other cities, resulting in the death and injury of 80 and 800 people, respectively.28 The gasoline price increase was one of the IMF policy conditions for credits. The price increase was announced and went into effect on Sunday, February 26, 1989. Riots broke out the following day.29 Henry Bienen and Mark Gersovitz also make reference to a number of cases where the reduction in subsidies within the framework of Fund programs precipitated anomic protests.3o These cases illustrate the basic idea of austerity measures as being a precipitating factor in the occurrence of political protests. The view of austerity measures as a precipitating factor is also implicit in the international Brandt Commission's criticism of Fund's measures and the time framework within which they are taken. Thus, the Commission notes: ...The Fund's insistence on drastic measures, often within the time framework of only one year, has tended to impose unnecessary and unacceptable political burdens on the poorest (that is, countries), on occasion leading to "IMF riots" and even to the downfall of governments...31 In examining the extent to which Fund Programs are associated with politi- cal protest in the Sudanese context, Fund policy austerity measures are viewed here as a precipitating factor. Given this, one research question is which measures lead to protests and which ones do not. Because different measures are announced and implemented at the same time, the research task is to find 28. The New York Times, March 2, 1989, p. 1. 29. The New York Times, February 28, 1989, p. 10. 30. Op. cit., pp. 732-733. 31. Brandt Commission (1980), North-South: A Program for Survival, MIT Press, Cambridge, p. 216. 217 out which policy measure in a mix of different policy measures lead to protest or to more protest. Another research objective is to describe what actually took place in terms of protests in the period immediately following the implementation of austerity measures. This description is useful in that it supplements the analysis in step one and lends further empirical support, if any, to the find- ing in step one. Furthermore, it describes the policy responses to the protests and their political fallouts. In the following setion, what constitutes Fund policy austerity measures and political protest is discussed. This is followed by a description of data collection procedures, sources, and nature. 1. Policy Austerity Measures: Policy austerity measures include those that subsume under demand manage- ment. As noted earlier, these include, inter alia, increases in taxes on goods, incomes, and services; devaluations; and increases in the retail prices of subsidized consumer items and in the interest rate. These measures are identified as Fund policy austerity measures because they subsume under the two dimensions of Fund policy conditionality; that is to say, "preconditions" and "performance criteria". Since "preconditions” are those policy measures to be implemented before the IMF approves some "Arrange- ment" in support of an economic stabilization program, they are not written into the texts of "Letters of Intent". For the 1966 - 1984 period, "precondi- tions" are principally devaluations, tax increases, increases in utility rates, and increases in the administratively fixed retail prices of subsidized consumer commodities. The latter includes sugar, petrol, bread, milk powder, and pharmaceuticals. 218 These policy measures are considered here ”preconditions” because, first, they were implemented immediately prior to the Fund's approval of a Stand-by or Extended Arrangement; and, second and more important, they were included as part of the stabilization programs supported by the Fund; Letters of Intent and Fund mission reports made explicit reference to them as essential com- ponents of programs' policy packages. Policy measures designated as "perform- ance criteria” (that is, policy intentions that must be implemented, once an "Arrangement" is in place, before an outstanding credit installment can be drawn from the Fund) are written into the texts of programs and of Stand-by Arrangements. 2. Political Protest: An abstract concept, political protest is normally defined in terms of its empirical referent. Thus, Charles Taylor and David Jodice use, in the World Handbook of Political and Social Indicators, political strikes, political demonstrations, and riots as empirical measures for political protest.32 Ekkart Zimmermann refers to political protest as comprising such ”events or chain of events as political demonstrations, anti-government riots, political strikes, and political clashes".33 The World Handbook of Political and Social Indicators defines a political demonstration as a "nonviolent gathering of people organized for the announced purpose of protesting against a regime or government or one or more of its leaders, or against its ideology, policy, intended policy, or lack of policy; 32- Charles Taylor and David Jodice. WWW Indigggggg, Vol. 2 (Political Protest and Government Change), Yale University Press, New Haven, 1983, p. 16. 33. Ekkart Zimmermann, ”Macro-Political Research on Political Protest," in Ted Gurr (ed.), Hgngbggk 9f Politigal anfligt Ihegzy and Research, MacMillan Pub- lishers, London, 1982, p. 168. 219 or against its previous action or intended action".34 A political strike, according to the Handbook, is a "work stoppage by a body of industrial or service workers or a stoppage of normal academic life by students to protest a regime and its leaders' policies or actions”.35 The Handbook excludes from this definition ”strikes that were primarily directed at economic goals (higher wages, better working conditions, shorter hours)...even if the employer was a public enterprise." 36 A riot, according to the Handbook, is a "demonstration or disturbance that becomes violent."37 The protest incidents used in this chapter are in line with these defini- tions of political protest indicators. Data: Mature, Collection, and Sources: 1. Policy Austerity Measures: Data on policy austerity measures were collected for program years for the 1966 - 1984 period. These data were compiled from "Letters of Intent", which contain the texts of Fund-supported economic stabilization programs. These documents comprehend measures that have already been taken in addition to policy intentions to be implemented during the economic adjustment period. To check for the implementation of policy intentions, IMF mission reports and IMF staff reports on periodic consultations with Sudanese authorities were examined. Comprehensive in nature, these documents provide periodic reviews on fiscal, financial (monetary), and economic performance. These reports also contain discussions on policy implementation. IMF documents and IMF-related documents were obtained from the Office of the Minister of Finance. Data on austerity measures are listed in Appendix C. 34. Charles Taylor and David Jodice, op. cit., p. 19. 35. Ibid., p. 21. 36. Ibid., p. 21. 37. Ibid., p. 29. 220 2. Political Protest Indicators: (A) Data Sources and Collection Procedure: Data on demonstrations, riots and strikes for the 1966 - 1984 period were collected from three national newspapers (the only ones in the country), obtained from the National Record Office in Khartoum, the Sudanese Capital. The Newspapers are Al-Ayam, Al-Sahafa, and Al-Midan. The last newspaper is the organ of the Sudanese Communist Party. Al-Ayam and Al-Sahafa are dailies whereas Al-Midan is published three or four times a week. All three newspapers are published only in Arabic. Data from Al-Midan cover the period between 1966 and 1969. There is no information on the circulation of these papers. However, Al- Ayam and Al-Sahafa are much wider in circulation than Al-Midan, which is mainly confined to Khartoum and neighboring urban centers. The two other news- papers are distributed to all urban centers in the Sudan. Al-Ayam and Al-Sahafa are much larger than Al-Midan; they usually range between six and eight pages whereas Al-Midan normally has two pages. In terms of political orientation, Al-Midan evidently reflects the position of the Sudanese Communist Party. This position has usually been one of opposi- tion and ideologically-based criticism of government policies. From 1969 to 1985, Al-Ayam and Al-Sahafa came under state control, following a military take-over which lasted until April 1985. In 1972, when the Sudanese Socialist Union was established as the ruling and only political party in the country, Al-Ayam and Al-Sahafa became its two organs. Between 1965 and 1969, the two nespapers were independent papers. Thus, for most of the period covered, Al- Ayam and Al-Sahafa's account of events reflects the government and its ruling party's version of events. 221 Three research assistants, all recent university graduates, were hired for collecting the data. These research assistants spent a period of one and a half months (from mid April to the end of May, 1988) to collect the data for the period of the study. Prior to the commencement of data collection, the three research assistants were told to follow these instructions: 1. Report any incident of demonstration, general strike, march, riot, or strike. 2. Record the date of the incident, the issue at stake, the target of the protest, and the demands, if any, of the protesters. 3. Identify the group or groups involved in the protest inc- ident. 4. Record the urban center in which the incident took place. 5. Report damage, if any. The research assistants were also told to record data as from the first of January 1966 and up to the end of December 1984. Each was assigned a separate newspaper. The research assistants recorded a sum total of 232 incidents of demonstra- tions, riots, and strikes. To check for the reliability of the data compiled, I carried out an inter-source reliabilty check. The results of this test are as follows: in 221 (95 per cent) of the cases reported, Al-Ayam and Al-Sahafa reported the same incident in terms of its nature, the groups involved, and the reasons behind the protest. Al-Midan reported 56 cases of protest inci- dents. In 54 (96 per cent) of these cases, Al-Midan and Al-Ayam reported the same incident on all the aforementioned counts. In 52 (93 per cent) of the cases, Al-Midan and Al-Sahafa reported the same information on the incidents. 222 The high percentage of agreement between Al-Ayam and Al-Sahafa is probably due to the fact that both were government's papers for 15 of the 19 years between 1966 ~ 1984. Since they report the government's version of events, they should technically report the same thing. I also checked African Diary (Recorder), and Africa Research Bulletin: Political, Social and Cultural Series for the period. African Recorder and Africa Research Bulletin reported only protests that occurred in 1979, 1981, and 1982. The same protests they reported were also reported by Al-Ayam and Al-Sahafa. (B) Nature of the Data Collected: As noted above, there are 232 protest incidents over the 1966 - 1984 period. Of these incidents, 69 are demonstrations, 151 strikes, and 12 are riots. Of the sum total of incidents, 85 (26 per cent) are not related to eco- nomic issues. These are 60 strikes and 25 demonstrations. Nearly all of these strikes (55 cases) involved disputes between local management and employees. These strikes were not targeted at the government. All of the 25 demonstra- tions had to do with political issues such as the war in southern Sudan, the Israeli-Arab war of 1967 and 1973, and the 1979 Camp David Accords. For the purpose of this chapter, these are not relevant and are, therefore, dropped from the dataset. The following data description is limited to the remaining protests; that is, those related to economic issues. There are three cases (August 1979, January 1982, and January 1984) where demonstrations and riots occurred on the same day or within three days in Khartoum (Sudan's official capital) Khartoum North, and Omdurman. The three urban centers are referred to as the "Triangular Capital" and are very close to one another. Khartoum is located at the confluence of the Blue and white 223 Niles and is separated from Omdurman by the White Nile and from Khartoum North by the Blue Nile. Khartoum North and Omdurman are separated by the River Nile, north of Khartoum. The three towns are interlinked by four bridges. The three urban centers are treated here as separate or distinct geographi- cal locations. Accordingly, a protest incident that occurred on the same day in each of the three towns is counted as three separate incidents. In these three cases protests also occurred in other urban centers a few days (maximum four days) after protests occurred in Khartoum, Khartoum North, or Omdurman. These protests are also counted as separate incidents. Table 5.1 presents the protest incidents occurring in the 1966 - 1984 period. Table 5.1: Protest Incidents, 1966 - 1984. Year Demonstrations Riots Strikes 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 H Nwmommbbmwommbw 10 Oka‘U‘OQNNOOP-‘U'OOCHONO‘ NNJ-‘OOWOOOOHHOOOOOOO J.‘ b H N O H Total Source: Appendix D. 224 Demonstrations and.Riots: In none of the 44 cases of demonstrations is the number of participants reported. Verbal descriptions such as "several” and ”many" are also not reported. In this regard, demonstrations are either described as "student demonstrations", ”demonstrations by unemployed graduates", or demonstrations by the residents of the urban centers in which the incidents took place. Police arrests are reported in only two cases. In regard to riots, the number of participants is also not reported, nor are verbal descriptions used. Riots are described as either "student riots" or ”riots by unemployed graduates". Furthermore, the number of units of property destroyed, people injured, or killed are reported in only two cases (1979 and 1982). In all other cases of riots, the sources (the newspapers) referred to the incidents just as "Shahkab" which means in Arabic riot or riots, without any reference to damage, the number of participants, or arrests. Strikes: In each of the 91 cases here, the trade union staging the strike is identified, as are the demands behind the strikes. However, in only 2 cases is the duration of the strike reported. As will be discussed in the descrip- tive account, these cases have to do with strikes by the principal trade unions in the Sudan; that is, the Gezira Tenants Union and the Sudan Railway Workers Union. Strikes by these unions are serious. In the case of the Gezira Tenants Union, a strike adversely affects the production of Sudan's principal foreign-exchange-earning crop; namely cotton. The Sudan railways are the prin- cipal artery of the economy. In particular, the railway system transports petrol and other imported essential consumer items from Port Sudan on the Red Sea to Khartoum and to other urban centers. 225 For these reasons, strikes by these two unions usually lead to a quick response from the government. Strikes by other unions continue more often than not for extended time periods before the government responds. For instance, in 1981 the Judges Union went on strike for three months before the government took action. 7 Fund Policy Programs and Political Protest A first step in examining the extent to which Fund austerity measures lead to political protests is to find out what happens in the few days following the implementation of such measures. Limiting the protest effects to what hap- pens in the few days after measures are implemented is desirable in that the longer is the time distance between the implementation of measures and protests, the more untenable becomes any empirical association between the measures and the protests. This is also consistent with the idea of Fund policy austerity measures being a precipitating factor. It seems reasonable to see what happens within the week of measure imple- mentation. The choice of one week is not altogether arbitrary; a period of one week takes into account those spontaneous, anomic protests (that is, mass demonstrations and riots) that occur immediately and those protests that need to be prepared for, such as strikes or demonstrations by organized groups (that is, trade unions). Table 5.2 presents a list of the protests occurring after measure imple- mentation and identifies the week in which they occurred following this imple- mentation. This distribution is also presented graphically in Figure 5.1. 226 Table 5.2: Distribution of Protests by Week of Occurrence Week Number Week Number of of Protests Protests l 43 15 7 2 5 l6 3 3 11 17 4 4 5 l8 2 5 6 19 2 6 6 20 3 7 1 21 2 8 2 22 2 9 4 23 1 10 1 24 l 11 2 25 1 12 2 26 2 13 4 27 l 14 2 28 1 29 - 52 12 Total 94 Total 44 Total Number of protests 138 Source: Appendices C and D. 227 Figure 5.1: Distribution of the Nuflaer of Protests by Week of Occurrence 228 x002, Tm 8de @WAWU @ V MJ W W W WWWNWOWQN 33 ea bk vs be W~ CON 0, o A 0 h. V M; W N siseimd lo JeunnN 229 As is clear from Table 5.2 and Figure 5.1, the first week of austerity measure implementation claims the largest number of protests occurring in a week's period. Some insight into these protests can be gained by comparing the position of each week's number of protest incidents relative to the rest of the distribution; as they stand, the data do not describe the relative posi- tion of each week's protests within the distribution. One way to explore this is to standardize each week's protest incidents. Standardization measures the protests on the same unit and thus permits com- parisons among them. For each week's protests, a standard score (Z score) is calculated. The standard score for each observation (that is, each week's num- ber of protests) is obtained by subtracting the value of each observation from the mean of the distribution and dividing the difference by the standard deviation of the distribution.38 As noted, the standard score describes the location of a case in a distrib- ution. Specifically, it indicates how many units of standard deviation above or below the mean an observation falls. A positve value of the standard score indicates that the observation in question is above the mean; a negative value indicates that it is below the mean. Table 5.3 presents the standard score for each week's protests (the mean and standard deviation of the distribution of the protests are, respectively, 4.76 and 7.88). 38. Frederick Herzon and Michael Hooper, n od 0 to Stat st 8 or the Sggigl Sgiences, Crowell Company, New York, 1976, pp. 157-153. 230 Table 5.3: Standard Scores of the Number of Protest Incidence by Week of Occurrence Week Standard Score Week Standard Score 1 4.9 15 .28 2 03 16 - 22 3 79 17 - l 4 03 18 - 35 5 l6 l9 - 35 6 16 20 - 22 7 - 48 21 - 35 8 - 35 22 - 35 9 -.l 23 -.48 10 -.48 24 -.48 ll -.35 25 -.48 12 -.35 26 -.35 13 -.1 27 -.48 14 -.35 28 -.48 The Table reveals an interesting pattern of protest incidence. In the few weeks (weeks one to six) following the implementation of austerity measures, protest incidents are above the mean protest incident; except for week 15 and weeks 29 - 52, each one of the other weeks (21 cases or 72 per cent of all cases) has a number of protests below the average. The Table also indicates that in most cases the number of protests per week decreases below the mean as time elapses after measure implementation. The Table also reveals an ”exaggerated" protest incidence in the first week of austerity measure implementation. The protests occurring in this week is far above normal or average protest incidence; the protest incidence in this week is nearly five units of standard deviation above average protest inci- dents (it is worth noting that one unit of standard deviation is equal, roughly, to eight protest incidents above/below the mean). This can be con- trasted to the other weeks in which protest incidence is also above the mean. 231 Each one of these weeks has its standard score less than one unit of standard deviation above the mean. This implies that the protests in each one of these weeks is only slightly above the average but well below the protests in the first week. The relatively high protest incidence of the first week strengthens the case for viewing Fund policy austerities as precipitating protests. Given this, the question then arises as to what specific measures that prompt protests. Policy Austerity Type and Level of Protest Incidence: An austerity measure is identified as either subsidy reduction/removal, devaluation, or tax increase. These three types of austerity measure exhaust all austerity measures listed in Appendix C. Increases in the retail prices of petrol, sugar, pharmaceuticals, milk powder, and bread are included under sub- sidy reduction/removal because these are the subsidized consumer items in the Sudan. Increases in taxes on goods, services, and income subsume under the category of tax increase. Official devaluations of the Sudanese pound are listed under devaluation. Table 5.4 lists the programs and their austerity measures together with the number of protests occurring within the week of measure implementation. 232 Table 5.4: Austerity Measures and Protest Incidents in Program Periods Program, Austerity Measures Number of Protests Period Subsidy Dev. Tax in the Week of Measure Reduction/ Increase Implementation Removal 1966/67 0 0 3 3 1967/68 0 0 l 0 1968/69 0 0 2 0 1972/73 0 0 1 0 1973/74 2 0 l 7 1974/75 2 0 2 4 1978/79 0 l l 2 1979/80 2 l 2 8 1980/81 1 0 3 3 1981/82 6 l 0 10 1982/83 2 l 2 6 Total: 15 4 18 43 Sources: Appendices C and D. An interesting and appropriate way to find out what policy austerity mix is associated with what degree of political protest is to devise a scheme that indicates the relative severity or intensity of political protest. A first step in this direction involves, as suggested by Taylor and Jodice, the assignment of ordinally-based weights to certain protest attributes. These include the number of people participating in the protest, the duration of the protest, the damage in life and properity resulting from the protest, and the geographical spread of the protest.39 The next step is to construct a com- posite index (involving the different protest types) that can be used to indi- cate the degree of severity or intensity of political protest. The idea is simple and appealing. However, for the purpose of analysis here it is not possible to construct such an index nor even to devise a scale that 39. Op. cit., pp. 56-60. 233 goes from, for instance, extremely severe, to severe, and to moderately severe protest. The principal reason is the quality of the data. As has previously been noted, the duration of almost all strikes, damage resulting from riots, the number of participants in demonstrations and riots are not reported. In regard to the last attribute and as noted earlier, even verbal descriptions such as "several“ or "many" are not reported. In this regard and as pointed out earlier, demonstrations and riots are just reported as "student demonstra- tions", "student riots", "demonstrations by urban residents", "demonstration by unemployed graduates”, or ”riots by unemployed graduates“. These descrip- tions do not provide some hints as to the number of protest participants. Moreover, it will necessarily be arbitrary to guess a number even if such hints do exist. For these reasons, protest incidence rather than its severity is used here. The level of protest incidence is nominally measured as either high or low. Evidently, this scheme does not distinguish among the different protest types as it treats any type as a mere protest incident. High protest incidence is defined as above the mean protest incident (the mean number of protests is roughly equal to 4, Table 5.4); low protest incidence is defined as below the mean. Programs whose number of protest incidents is above the mean include the 1973/74, the first year of the three-year 1979/82 Program (as noted in a previous chapter, the Program was abandoned in its third year and replaced by a one-year program covering 1981/82) the 1981/82, and the 1982/83 Programs (Table 5.4). These are thus high-incidence protest programs. Each of the remaining programs (that is, the programs of the 19603, the 1972/73, 1974/75, and the 1978 programs and the second-year of the three-year Program) has a 234 number of protests less than the mean. These programs are therefore low- incidence protest programs (Table 5.4). Policy austerity measures of the same type in each one of these two groups of programs are added together. For instance, all instances of tax increase in those programs with high protest incidence are added together. Similarly, all instances of devaluation across this group of programs are added together. Presentation and Discussion of Results: Table 5.5 lists the policy types contained in each set of programs grouped on the basis of the two-dimensional level of protest incidence. The unparenthesized figure against each policy type indicates the total number of measures related to the policy type in the program group; the figure in parenthesis refers to the percentage of these measures relative to the total number of measures of all policy types contained in the program group. For instance, the number of measures on subsidy reduction/removal in the group of programs with high protest incidence is 12. This accounts for 60 per cent of the total number of measures included in this group of programs. 235 Table 5.5: Policy Austerity Type by Level of Protest Incidence Protest Incidence High-Protest Low-Protest Incidence Incidence Programs Programs Subsidy 12(60) 3(18) Reduction/ Policy Removal Austerity Type Devaluation 3(15) 1(6) Tax Increase 5(25) 13(76) Total 20(100) 17(100) Source: Table 5.4. More than half of the policy measures contained in programs with high level of protest incidence are subsidy reduction/removal measures which represent 60 per cent of all measures contained in this group of programs. In contrast, measures related to tax increase and devaluation account for 25 and 15 per cent, respectively. In Low-protest-incidence programs, tax increase measures account, both in absolute and relative terms, for more than three-quarters of all measures whereas subsidy reduction/removal and devaluation measures account for 18 and 6 per cent, respectively. High-protest-incidence programs contain more measures on subsidy reduc- tion/elimination than on tax increase relative to low-incidence-protest programs. Conversely, low-protest incidence programs have more measures on taxes than on subsidy reduction/removal. This finding suggests that the dif- ference in protest incidence across programs is most probably explicable in terms of the variation in policy type combination or mix. Evidently, programs with subsidy reduction/removal measures accounting for the bulk of measures 236 are associated with more protest incidence than those programs in which tax increase measures account for the bulk of measures. Although the number of policy measures related to high-protest incidence programs is only slightlly above the number of policy measures in low protest-incidence programs (20 measures or 54 per cent of all measures compared to 17 measures or 46 per cent of all measures), the former group of programs accounts for a dis- proportionately larger number of protests. Thus, high-protest incidence programs have a total of 31 incidents (that is, 72 per cent of all protests; see Table 5.4) whereas low-protest incidence programs have 12 incidents (or 28 per of the protests). This reinforces the basic finding above as it suggests that it is not so much the number of measures as of their nature or type that appears to make a difference in the level of protest incidence. Simple Empirical Regression.Model: The objective of the regression model suggested here is to see if the basic finding reported above (that is, subsidy reductions/removals are associated with greater protest incidence than are tax increases and/or devaluations) has any claim to statistical significance. One way to examine this is to test the hypothesis that the protests occurring after the reduction/removal of sub- sidies is not statistically different from those occurring after tax increases and/or devaluations. In this regression model, the dependent variable is the number of protest incidents occurring within the week of austerity measure implementation. The independent variable is a dummy variable coded 1 for austerity measure imple- mentation cases involving subsidy reduction/removal and 0 for cases where the austerity measures implemented include tax increases and/or devaluations. In those cases where the measures implemented include both subsidy reduc- 237 tion/removal and tax increase and/or devaluation measures, the case is coded 1 if most of the measures are subsidy reductions or removals. Conversely, if most of the measures are tax increases and/or devaluations, the implementation case is coded 0. The following regression model is estimated: PRIN - b1 + b2 SUIMCA + Ut Where: PRIN - Protest incidence SUIMCA - Subsidy implementation case Ut - Error term When estimated, the co-efficient for the intercept or the constant term (that is, b1) indicates the protest incidence associated with tax increases and/or devaluations or the protest incidence when SUIMCA is 0. The co- efficient for SUIMCA indicates the protest incidence associated with subsidy reduction/removal measures. This co-efficient tests the hypothesis that b2 is 0, which means that there is no difference between protest incidence associ- ated with tax increase and/or devaluation measures and protest incidence asso- ciated with subsidy reduction/removal measures. Table 5.6 lists the austerity measure implementation cases for each one of the eleven program years together with the types of measures implemented and the number of protests following each implementation case. The total number of implementation cases is smaller than the number of measures listed in Table 5.4 above because some measures were implemented on the same day as an austerity package. This means that an austerity package containing measures implemnted at the same time is treated here as one implementation case. Some program years have more than one implementation case because some programs have austerity measures implemented at different points of time in the course 238 of the program period. In Table 5.6, each implementation case is represented by the date of measure implementation. Also in the Table, SR, TI, and D stand for a subsidy reduction or removal, a tax increase, and a devaluation, respec- tively. The number of implementation cases (22) is a fairly sufficient number of observations (this is, data points) for a regression analysis. 239 Table 5.6: Austerity Measure Implementation Cases and Protest Incidents in Program.Periods Program Implementation Measure(s) Protest Period Case Implemented Incidents 1966/67 Sept. 28, 1966 T18 3 1967/68 Oct. 4, 1967 TI 0 1968/69 July 1, 1968 T18 0 1972/73 March 11,’ 1972 n 0 1973/74 May 16, 1973 SRs/TI 7 1974/75 May 30, 1974 SR 3 July 1, 1974 TIs 1 Dec. 30, 1974 SR 0 1978/79 June 8, 1978 D 1 1979/80 July 1, 1979 TIs 0 July 14, 1979 TI 1 August 5, 1979 SRs 7 Sept. 16, 1979 D 0 1980/81 March 12, 1981 TIs/SR 3 1981/82 Nov. 9, 1981 D 0 Jan. 1, 1982 SRs 7 April 1, 1982 SR 1 July 8, 1982 SR 2 1982/83 Nov. 15, 1982 D 0 Jan. 3, 1983 SR 4 May 11, 1983 TI 0 Jan. 3, 1984 SR 2 Sources: Appendices C and D. 240 Presentation and Discussion of Results: The regression results are presented in Table 5.7. The figures in parenthesis under the values of the co-efficients are the standard errors of the co-efficients. Table 5.7: Summary of Regression Results Dependent Independent Co-efficient T-Ratio Sig Level Variable Variables Constant 0.5 .9 4 PRIN (.54) SUIMCA 3.1 3.9 .0009 (.8) R-Square - .43 Durbin-Watson - 2.04 As is clear from Table 5.7, the model explains a slightly less than half of the variation in protest incidence, the R-square being .43. Taking into con- sideration that there is only one independent variable, the model explains a fairly sufficient portion of protest incidence (the larger is the number of the independent variables in a regression model, the larger is the value of the R-square and hence the larger is the variation in the dependent variable explained by the model). More important, the co-efficient for SUIMCA is dif- ferent from zero at .0009 significance level. On the hand, the co-efficient for the intercept or the constant term is statistically insignificant; the standard error of the co-efficient is larger than the co-efficient itself. These results suggest that subsidy reduction/removal measures are associ- ated with protest incidence (3 protests on average per an implementation case) whereas tax increase and/or devaluation measures are not (an implementation 241 case involving these measures accounts on average for 0.5 protest or, practi- cally, zero protest). This finding is consistent with and confirms the basic finding in the previous section. Given that increases in the retail prices of subsidized items are, in essence, tax increases (technically, a subsidy is negative tax or a revenue loss), the question arises as to why increases in one type of taxes should lead to more protests than increases in other taxes. In theory, there should not be any difference, as both subsidy reduction or removal and other tax increases advesrsely affect income, disposable or real. A probable answer to this question lies in the nature of subsidies. Because subsidies are government-provided goods or regular handouts from the government, people tend to build expectations around them as rights. Such expectations are likely to be reinforced by the fact that subsidized items are also basic consumption goods or daily life necessities to most people; the mere fact that they are singled out for subsidization implies that they are essential consumer goods. Viewed from this perspective, the reduction or elimination of a subsidy amounts to a government action that deprives people of what they regard they are entitled to as a basic necessity. In this sense, it should in theory be associated with more emotion than an ordinary tax increase. Program.Austerity Measures and Protest Incidence: A.Descriptive Account. In this descriptive account, programs are divided into those that princi- pally involve tax increases and/or devaluations and those that involve subsidy reductions. This is intended to concretize the basic finding suggested above. As shown in Table 5.4, the programs which principally include tax increase 242 and/or devaluation measures are the three programs in the 19603 and the 1972/73 and 1978/79 Programs. Of the six programs containing subsidy reduc- tions (Table 5.4), the 1973/74, the 1979/80, and the 1981/82 Programs are described. Excluded from this description are the 1974/75 and the 1982/83 which also included subsidy reductions. The reason for this is that there are no details on the protest incidents that followed the reductions in subsidies. Riots are just reported to have occurred, without any other additional information. A. Tax Increase/Devaluation Programs: There were only two programs with principally tax increases or devaluation austerity measures whose implementation precipitated protests. These were the 1966/67 and the 1978/79 Programs. The other programs which include the 1967/68, 1968/69, and the 1972/73 contained tax increases that did not precipitate any protests. Therefore, description here is limited to the 1966/67 and the 1978/79 Programs. The 1966/67 Program: The 1966/67 Program included three austerity measures. These were a 5 per cent surcharge imposed on all imports, increases in the consumption taxes on cigarettes and liquor, and a lowering of the exemption limit under the Per- sonal Income Tax on salaries from the level of LSd. 1,350 to LSd. 600. All measures went into effect on the same day they were announced by the Minister of Finance in his budget speech which was delivered in Parliament not in June, as is customary, but on September 27, 1966. Four protest demonstrations were staged in denunciation of these measures. The first demonstration was staged by the Sudan Workers Trade Union Federation (SWTUF) in Khartoum on September 28. On the second of October, private-sector- 243 employment-based unions demonstrated in khartoum to protest increases in import duties arising from the import surcharge. The following day, the Sudan Railway Workers Trade Union staged a demonstration in Atbara. The last demonstration took place on October 6 and was staged by a local trade union in Khartoum. In this demonstration, demonstrators were chanting slogans against the tax increases and against the World Bank, which had nothing to do with the austerity measures. This was no information as to the scale of these protests which seem to be peaceful marches; no violence was reported. The 1978/79 Program: The only measure related to this program was the first official devaluation of the Sudanese pound. On June 8, 1978, the pound was devalued by 15 per cent with respect to the US dollar. The first group to protest the measure was the Sudan Railway Workers Trade Union. On June 9, the railwaymen staged a demonstration in Atbara. The Union also threatened future strikes if further austerity measures were implemented. Apart from this protest incident, the policy measure did not precipitate any other protest. None of the protests precipitated by the austerity measures of these two programs led to response on the part of the government or to any immediate political fallout. B. Subsidy Reduction/Removal Programs: (I) The 1973/74 Program: This program's austerity measures included a 14 per cent increase in the domestic retail price of sugar, a 17 per cent increase in the excise tax on petroleum products (including gasoline), and increases in the excise tax and 244 import duty on cigarettes. The measures were announced on May 16, 1973 and went into effect immediately."0 These retail price increases prompted immediate reactions from the resi- dents of Khartoum. On the day following the price increases, a demonstration was staged in Khartoum. Five people were reported injured when police opened fire on some demonstrators who had thrown stones and a petrol-bomb at a group of policemen. The Khartoum incident of May 17 was followed, three days later, by two demonstrations in Medani (the third largest town in the country) in central Sudan and a demonstration in the Red Sea town of Port Sudan. The demonstrators were reported to be shouting slogans denouncing the Khartuom incident. On May 19 and 23, three unions in Khartoum went on a one-day strike, in protest of the Khartoum shootings. These protests evoked responses from the government. On May 20, the Presi- dent of the Republic repealed the sugar price increase. At the end of June, he issued the so-called State Security Law. Chapter four of the Law banned the "possession of arms for political purposes, public gatherings, strikes or resignations harming the national economy, and the formation of associations aimed at harming national unity.”1 (II) The 1979/80 Program: The austerity measures of this program were implemented at various points of time in the course of the year. The first measure taken was the imposition (by a Presidential Decree) of water and land charges on all crops in the 40. Sudan - Request for Stand-By Arrangement (July 31, 1973, p. 8), Documents of the International Monetary Fund, File No. 0-1, 316, Vol. 20, Ministry of Finance, Khartoum. 41. Sudan - Quarterly Economic Review (Second Quarter, 1973, p. 15), Economist Intelligence Unit. 245 Gezira Scheme. As noted in a previous chapter, this was part of the restruc- turing of financial relationships in the Scheme to reorient farmers' incen- tives toward the production of cotton. The Decree was issued some time at the end of March. The one-hundred-thousand-member Gezira Tenants Union threatened to go on strike at the start of the planting season in July if the charges were col- lected. On July 14, the Union carried out its threat. The strike continued for four weeks.42 In this time period, the Vice-President, the Minister of Agriculture, and the Chief of the State Security Organ.were all involved in intensive government efforts to persuade the Union to end its strike. The strike was called off only after the tenants were promised that the charges would not be collected and after the Vice-President promised them financial concessions. On the first of July 1979, a 5 per cent defence surcharge on all imports was imposed. Water and Electricity rates were also increased, by 20 per cent. Both measures went immediately into effect. No Protests followed the imple- mentation of these measures. On August 5, the domestic retail prices of sugar and gasoline were increased by 33 and 66 per cent, respectively. The following day, public transport expenses went up by an average of 60 per cent.43Demonstrations broke out the same day in the town of Khartoum North (across the Blue Nile from Khartoum) and Omdurman (across the White Nile from Khartoum) and continued for the following three days. The demonstrators, reported mainly to be junior secondary schoolboys, seemed to be intent on destroying property; they attacked petrol stations, 42. Sudanow, Vol. 4, No. 9, September 1979, pp. 19-20. 43. Ibid., p. 21. 246 spilled gasoline around the premises, and set fire to the stations and buses parked nearby. On the first day of the demonstrations, the Commissioner of Khartoum ordered the closure of all junior and high secondary schools in Khartoum North, Omdurman, and Khartoum. On the same day, the President of the Republic ordered a ”military alert" all over the Sudan. The three-day Khartoum demonstrations were followed by a demonstration in Medani and in Port Sudan on the ninth and eleventh of August, respectively. On the eleventh of August also, the tough and militant Sudan Railway Workers Trade Union went on a five-day strike. The forty-five-thousand-member Union demanded salary increases and the rescinding of the price increases. The Union also threatened to go on an extended strike if their demands were not met. In response to these protests in a televized "Face the Nation speech" on August 13, President Nimeiri accused communists of "hiding behind the schoolbys”.44 The President also rescinded the gasoline price increase and promised changes in the cabinet and in the Sudanese Socialist Union.45 On the same day, the President, who was also the Chairman of the Sudanese Socialist Union, dismissed Abul Gasim Mohammed Ibrahim as Vice-President and Secretary- General of the Sudanese Socialist Union. No official reason was given for the dismissal, but the official Sudanow attributed the action to, inter alia, Abul Gasim's handling of the two strikes by the railwaymen and the Gezira tenants. Abul Gasim's offer of financial concessions to the railwaymen and tenants in an effort to end the strikes was seen as contrary to the government's policy of stabilization.“6 Abu Gasim was one of the Free Offiers, who took over power 44. Ibid., p. 21. 45. Ibid., p. 21. 46. Ibid., p. 10. 247 in 1969. He was well-known in the Sudan for his revolutionary enthusiasm and populism. On August 18, 1979, the President dismissed six ministers from his cabinet. Among those dismissed were the Finance Minister and the President's advisor on economics."7 Although official reasons for cabinet changes are normally not given in the Sudan, it appears, in this case, that the dismissals of the Finance Minister and the President's advisor on economics had to do with the price increases and the protests they evoked. On the same day, the President also reduced the number of the SSU Political Bureau members from 27 to 17. A day after the outbreak of the protests, the President publicly criticized his political party for the first time. The President's criticism came in a joint meeting of the Party's Political Bureau and General Secritariat and the Government. In his criticism, the President asked: How do we explain the failure of the SSU as the political organ to combat the causes of the people's sufferings, either by helping to organize distribution or curbing consumption, uncovering the network of hoarders, co-operating with the special organs in exposing the centers of hoarding and the means by which goods are being smuggled out of the country?4 On September 16, 1979 the Sudanese pound was officially devalued by 25 per cent. The devaluation was not followed by official retail price increases. No immediate protest was reported. In July 1980 (no specific date reported), the Sudan Railway Workers Trade Union initiated its extended strike. The Union leaders threatened that the strike would be effective until their demand for salary increases was met. 47. Ibid., pp. 10-11. 48. Quoted in Khalid, op. cit., p. 195. 248 In response to the strike, the President of the Republic first amended labor laws making strikes a “treasonable act punishable by death”.49 He then issued an order that all mediation efforts (which had started earlier) between the Union and the Government be stopped, abolished the Union, and arrested its leadership. The railwaymen went back to work only after the President issued another order that all railway workers be evicted from government houses within twenty-four hours. (III) The 1981/82 Program: The program became formally effective with the approval by the Fund on Feb- ruary 21, 1982 of a one-year Stand-By Arrangement in support of the Program. However, the principal policy measure; namely, unification of the parallel and official exchange rates was implemented on November 9, 1981. As noted in a previous chapter, this resulted in the devaluation of the Sudanese pound by 80 per cent. On the same day, the budgetary cost (estimated at LSd.15 million annually) of subsidizing the retail price of pharmaceuticals and milk powder was eliminated by allowing the prices of these commodities to rise by the "full extent of the exchange rate adjustment”. In addition, the retail prices of petroleum products were raised by an average of 39 per cent to eliminate the subsidy emerging from the devaluation. The devaluation was announced by the President of the Republic in a state- Inent delivered in a meeting of the executive, political, and popular leadership of the country. The President also announced that "Transport and Inileage allowances for government workers and public sector employees are to ‘be appropriately amended to correspond to the increased public transport and jpetrol prices” and that the "Personal Income Tax exemption level is to be ‘49. Ibid., p. 211. 249 raised from one thousand pounds to LSd.1200 such that all employees...are to benefit from the tax relief“.50 The effects of the measures were felt immediately. Thus, the price of petrol increased by up to 40 per cent at filling stations at 7 p.m. on the same day of the price increase announcement. On the following day, transport allowances were increased between 66.6 and 88.8 per cent and the mileage allowance between 11 and 19 percent. It was also reported that a few days later bus fares went up by 25 per cent and the prices of imported goods such as cigarettes and liquor also increased. These measures did not immediately precipitate protests. However, in the period between November 9 and 23, 5 public-sector trade unions went on strike demanding salary increases, claiming that the devaluation would erode their incomes. On January 1, 1982, the domestic retail price of sugar was raised by more than 60 per cent. In reference to this, the Finance Minister noted, in the text of the program, "Effective January 1, 1982, the domestic retail price of sugar was increased by 62.5 per cent, to 26 pt per pound, with the intention of generating LSd. 80 million annually."51 The price increase prompted immediate reactions from the residents of Khartoum. Demonstrations started on the same day the price increase was announced and continued intermittently till the seventh of January in Kharoum, Khartoum, and Omdurman. The demonstrations were initiated by schoolboys from 'various junior and high secondary schools in Khartoum and Omdurman. In the 50. Quoted in Ali Abdel Gadir, op. cit., p. 54. 51. Statement of Economic and Financial Policies of the Government of Sudan (January 1982), op. cit., p. 3. 250 first two days following the price measure, demonstrators set fire on some shops and destroyed four buses and eight cars. On January 7, Khartoum university students staged a demonstration in Khartoum. The students were shouting slogans against the Government, the IMF, and the World Bank. The following day, all universities in the Capital area (the University of Khartoum, Cairo University Khartoum Branch, Khartoum Polytechnic, and the Islamic University in the near-by city of Omdurman) were closed. Between 200 and 300 members of the Sudanese army were moved into the campus of the University of khartoum. Moreover, six machine gun-equipped armed personnel carriers were deployed at the entrances to the university.52 The official casuality figures were one demonstrator dead and two injured. According to the Commissioner of Khartoum, these casualities were the result of police opening fire on a crowd of demonstrators throwing stones and petrol- bombs at a police car. It was also reported that seven policemen were injured. Police arrested 85 demonstrators, 40 of whom were schoolboys.53 In the period between January 19 and 23, three trade unions went on strike, demanding the repeal of the price increase and denouncing the gover- ment's treatment of the schoolboys. Demonstrations also spread to other four urban centers where students and schoolboys initiated the protests. No loss in life and property was reported in these cases. These protests brought about a rift between the President and some leaders of the Sudanese Socialist Union and led for the first time to the dissolution by the President of the principal policy-making organs of the party. Some SSU leaders openly criticised the price measure and complained that they should have been consulted. In reaction to this, the President told an SSU plenary 52. African Recorder, Vol XXI, No. 6, March, 1982, p. 5870. 53. Ibid., p. 5870. 251 session held (January 17, 1982) to discuss the country's economic and politi- cal problems that "there would be new increases in sugar, wheat and petrol prices during the next 18 months."54 The President also told his audience that ”there would be no corresponding increases in salaries and wages..'.551n reference to the complaint by the SSU people, the President stated, ”I have my own advisors, comprising my presidential aides and ministers, and any one else, especially the SSU people should not claim the right to be consulted."56 Adding that "SSU officails have nothing to do with the Executive body", the President declared that he would "instruct his ministers not to respond to any questions by the SSU officials." In concluding his statement, the President told the SSU leaders, ”This is my position. If you want it, I will continue in office for the remaining year of my tenure. If not, then I will say farewell and I have no more to say, nor am I prepared to here anything else."57 Following the admonitory nature of his remarks to the SSU leadership, the President announced on January 25, 1982 the dissolution of the Central Commit- tee and the Political Bureau of the Sudanese Socialist Union. The party remained without a politburo and a central committee until the government was overthrown and the party abolished in April 1985.58Both the Central Committee and the Politburo are known to have populist-oriented members who were opposed to unpopular austerity measures. The dissolution of these two organs by the President was most probably the result of his greater commitment to economic stabilization than to populism. 54. Africa Research Bulletin: Political, Social and Cultural Series, Vol. 19, No. 1, January 1982, p. 6322. 55. Ibid., p. 6322. 56. Quoted from Sudan News Agency, Ibid., p. 6322. 57. Quoted from Sudan News Agency, Ibid., p. 6322. 58. Khalid, op. cit. pp. 226-229. 252 As is clear from this descriptive account, increases in the retail prices of subsidized consumer items usually precipitated protests unlike the case with tax increases or devaluations. It is also clear that subsidy reductions in the programs of the late 19703 and early 19803 led not only to protests but also to more severe protests, if protest severity is judged by the damage reported, the georaphical spread of the protests, and by the political fall- outs of the protests. This suggests that the context or time period might have played a key factor in accounting for the severity of these protests . Unlike earlier periods, the late 19703 and early 1980s witnessed the emergence of an external debt crisis. As noted in chapter two, this manifested itself in the emergence and build-up of external debt arrears which is an indication of severe foreign exchange shortages. As a result, this period also witnessed frequent interruptions in the flow of essential imports, including food items. This period also witnessed a phenomenon which was unknown in earlier peri- ods. This was the hoarding of consumer goods by wholesale and retail traders with a view to creating artificial scarcities and hence price increases. In the early 19803, the prices of many consumer goods were rising so fast that the government established in late 1981 Price Courts in Khartoum, Omdurman, and Khartoum North to try horders and retail traders who overcharge their customers.59 Trials in these courts resulted in the floggings, in public, of retail traders and in the confiscation of consumer goods from wholesalers, but they also led to the widening of an already existing black market in many con- sumer goods. In less than a year, the Price Courts were abolished. 59. Sudanow, Vol. 10, No. 4, April 1985, p. 12. 253 The period also saw an unprecedented deterioration in public services. In khartoum and its two twin cities, electric power to residential areas and even to productive units was cut frequently in one day. In other urban centers, power failure extended for days and months. Describing the state of public services in Khartoum in 1980, Khalid.wrote, ”Blacks-outs and electricity cuts had become the rule rather than the exception. The water people drank was often muddy and sometimes infested with bacteria. Sreets were torn up and sewage was leaking into a smelly atmosphere..."60 It seems that because of these hardships, the public mood in this period must have been strongly against any more additional hardships. Most probably, this accounts for the greater scale of protests following the reduction or removal of subsidies in this period. Further evidence that the context makes a difference in the scale of protests resulting from measures adversely affecting subsidies are the protests precipitated by official increases in the retail prices of bread and petrol in late March 1985. The price increases were effected in a last move by the government to carry out Fund policy ”preconditions" for a stand-by arrangement. The arrangement was deemed essential for facilitating the flow of foreign credits and grants interrupted by Sudan's inability to meet debt servicing obligations on previously rescheduled debt arrears to creditors and aid donors. The interrup- tion of the flow of foreign credits and aid led to a stringent foreign exchange situation which resulted in the curtailment of imports, including essential consumer goods. 60. 0p. cit., p. 251. 254 Earlier, a stand-by arrangement was approved (in principle on April 30, 1984 and became effective on June 25, 1984) in support of a stabilization program for fiscal 1984/85. However, a few days after it was effective, the arrangement became inoperative because the Sudan began for the first time to incur debt arrears to the IMF itself. Early in December 1984, a technical Fund mission visited the Sudan at the request of the authorities to help in the formulation of an economic adjust- ment program. The mission recommended a comprehensive adjustment program, the principal feature of which was ”immediate unification of the prevailing exchange rates at a realistic level, accompanied by the introduction of a mechanism for frequent rate changes...“ and ”immediate and full transmission of the effects of the proposed exchange reform into domestic prices."61 After a delay of nearly two months, the Sudanese pound was officially devalued (February 12, 1985) by 93 per cent, from LSd. l - US$ 0.77 to LSd. l - US$ 0.4. The devaluation led to the emergence of subsidies on wheat flour, petrol, and sugar because the importation of all three items was to be effected at the new more depreciated official exchange rate. On March 28, 1985, the domestic retail prices of petrol and bread were increased by 70 and 30 per cent, respectively. On the same day, bus fares increased by an average of 70 per cent. Public reactions to the price increases were immediate and unprecedented. On the same day, demonstrations started in Khartoum, Khartoum North, and Omdurman and continued for eleven days. The demonstrations were intiated by students of Khartoum Polytechnic. In the early days of the demonstrations, 61. Statement by the Staff Representative on Sudan Executive Board Meeting (December 19, 1984, p. 1), Documents of the International Monetary Fund, File No. l - 0, 316, Vol. 27, Ministry of Finance, Khartoum. 255 demonstrators were chanting slogans against the IMF. In late demonstrations, they were calling for the transfer of power to civilians. The President, who had already left for the United States, indicated (when he arrived in Washington) that he was confident that the army would crush the popular uprising. On April 4, a general political strike (this was the second one since Sudan gained independence in 1956) was declared. On April 7, demonstrators stormed Kober Prison (Sudan's political detainees are kept here) in Khartoum North and freed some detainees. The following day, the General Command of the Sudanese army arrested government ministers and put them in preventive custody and issued a statement to the effect that it would meet the people's demand for the transfer of power. The following day, a massive demonstration (the number of participants was reported to be one million) took place in Khartoum. The next day, the General Command issued a statement that it had taken over power and that it would transfer that power to civilians after a one-year transitional period. This halted the demonstrations and the general political strike. In the course of the demonstrations in Khartoum, demonstrations were also going on in major urban centers all over the Sudan. These protests were by far the most extensive since Sudan gained independ- ence. Although they were precipitated by the petrol and bread retail price increases, these alone do not account for their scale; petrol, bread, sugar price increases were also increased in earlier periods but they did not evoke protests on this scale. The difference between the scale of these protests and those of earlier protests is most probably due to some special factors that were unique to this period. Chief among these features was the cumulative effects of a three-year drought which struck Sudan in 1982. In the 1982/83, 1983/84 and 1984/85 256 agricultural seasons, real value added in the agricutural sector fell by 10.8, 5.1 and 6.7 per cent, respectively.62 Because the agricultural sector is the major contributor to GDP, the latter declined by 3.6, 1.3, and 3 per cent in 1982/83, 1983/84 and 1984/85, respectively.63 In the 1982/83 agricultural sea- son alone, the output of sorghum (sorghum is Sudan's principal staple crop and is grown in rain-fed agricultural areas) fell by 45 per cent.64 The drought led to a famine (which was also unique to this period) in 1984/1985. The prob- lem was compounded by a stupendous inflow of refugees from neighboring countries. In these regards, a 1985 International Labour Organization Report pointed: A specific feature of the famine in the Sudan is that it reflected a drastic decline in the total food availability...As a result of the drought, rain-fed agricultural output fell by 58 per cent from 1981/82 to l984/85...The sharp decline in output in an essentially subsistence and traditionally based agrarian system meant that output was grossly insufficient to sustain normal consumption levels. This led to famine and starvation on a large scale as well as massive displacment of people as they migrateed in search of food and water. The situation reached crisis point last year as the 1984 rains failed again and supplies hit a critical low. The situation has been aggravated by the influx of refugees... estimated at 1.5 million, from neighbouring Ethiopia, Uganda and Chad which had also been seriously hit by drought.65 In addition to exacerbating food shortages brought about by interruptions in the flow of imports due to foreign exchange shortages, the drought also led to massive internal migrations of people to urban centers (including Khartoum) 62. Sudan - 1984 Article IV Consultation (August- September 1984, Minutes of Meeting, p. 1), Documents of the International Monetary Fund, File No.1 - 0, 316, Vol. 27, Ministry of Finance, Khartoum. 63. Ibid. , p. 1. 64. Staff Report for the 1983 Article IV Consultation and Review Under the Stand-by Arrangement (August 16, 1983, p. 5), Documents of the International Monetary Fund, File No. l - 0, 316, Vol. 26, Ministry of Finance, Khartoum. 65. After the Famine: A Programme of Action to Strengthen the Survival Strategies of Affeted Populations, b , International Labour Office, Geneva, 1986, p. 18. 257 from drought-stricken areas. Inflows of people into Khartoum put pressure on an already precarious supply of public services and also contributed to a gen- eral atmosphere of insecurity; armed robberies flourished in this period. The period preceding the petrol and bread price increases was also charac- terized by unparalleled political repression. This followed the declaration of a state of emergency and martial law and the establishment of special emergency courts. In these courts, people were tried according to "Sharia" or Islamic Law, which was also unique to this period (application of Sharia started in September 1983). "Hoodoo" or punishments in Sharia include stoning to death those convicted of adultery, amputating the right hands of those con- victed of stealing, and eighty lashes for those convicted of drinking alcohol and of fornication. The state of emergency followed a wave of strikes in the public sector. Between March 4 and April 29, 1984, nine strikes were staged. The common demand behind the strikes was salary increases.66 The most serious strike was the Sudan Doctors Union strike. On March 25, the doctors went on strike and threatened to resign, in the mass, if they were not granted a pay raise and increased allowances. The President of the Republic rejected the demand, and all doctors resigned. The President issued an ultimatum, threatening the doc- tors that if they failed to return to work in seventy-two hours he would have them prosecuted for "high treason”.67 The doctors rejected the ultimatum. On orders from the President, the Doctors Union was disolved and seventeen of its 66. In an attempt to break the strikes, the President issued a decree on April 2 forming a wage commission to revise labor wages and conditions; Quarterly Economic Review (Second Quarter, p. 14), Country Report (Sudan), Economist Intelligence Unit, 1984 . 67. Mansour Khalid, op. cit., pp. 265-266. 258 leaders arrested. In sympathy with thhe doctors, two other unions (the Engineers and the Accountants Unions) threatened to strike. The confrontation with the doctors ended when the President freed and met with their leaders and told them that they were free to resume their trade union activities and promised to meet their demands. The doctors' confronta- tion with the authorities was followed by more strikes, the last one occurring on April 29, 1984. The following day, the President declared a state of emergency and martial law. In his statement announcing martial law, President Nimeiri declared, "in order to protect the faith and the fatherland from schemes of schemers and the mischief of Satan,...I have issued Presidential Decree number 258 (1984) announcing the imposition of martial law throughout the country..' 68 "At the time when work has become a religious duty," the President continued, ”Satan and his aides were active, leading to a series of strikes which went against the simplest of religious tenets."69 In his state- ment, the President also banned "public meetings, demonstrations and strikes"70 The next day, he issued orders investing the military with special policing powers, including the right to "search private homes, control of pub- lic transport, censorship, and the imposition of curfews".71 The police and army were also to "generally act in whatever way they saw fit"72 The pinch of martial law was felt immediatly in Khartoum. Thus, in the first five days, 440 people were arrested.73 By the middle of June (that is, one and a half months 68. Quoted in Khalid, Ibid., p. 267. 69. Quoted in Khalid, Ibid., p. 267. 70. Africa Research Bulletin: Political, Social and Cultural Series, Vol. 21, No. 4, May 15, 1984, p. 7223. 71. Ibid. , p. 7223. 72. Sudan - Quarterly Economic Review (Third Quarter, 1984, p. 6), Economist Intelligence Unit, Country Report. 73. Sudan - Quarterly Economic Review (Fourth Quarter, 1984, p. 12)), Econo- mist Intelligence Unit, Country Report. 259 after the imposition of martial law), 871 people were tried in emergency courts in Khartoum, Khartoum North, and Omdurman. Of these, only 134 people were vindicated.74 When martial law was suspended on September 29, 1984, 58 convicted thieves had their right hands amputated. Twelve of these had their left feet amputated in cross- or second-hand amputations. These figures account for only those amputations done through surgical operation. Amputa- tions were also reported to have been carried out by prison warders because doctors refused to collaborate. At the beginning of November, it was announced that over 11,000 cases were still pending in Khartoum as a result of the state of emergency.75 In the course of the state of emergency, curfews were imposed on a daily basis in Khartoum and orders were issued to the police and army to shoot any one violating the curfews. The government also introduced what it called ”suspected intended adultery“. According to this, any male and female seen talking to each other or walking together may be arrested under suspicion of ”intended adultery". The notion is novel to sharia law, which stipulates that a person shall be prosecuted for adultery only if three people witnessed him or her in the actual act of committing it. Numerous arrests of both married and unmarried couples were reported made under ”suspected intended adultery”.76 There are some indications that martial law was designed to scare people (particularly in Khartoum) and pre-empt public reactions in the face of an acute economic crisis. First, the nine emergency courts were set up and 74. Khalid, op. cit., p. 270. 75. Sudan - Quarterly Economic Review (Fourth Quarter, 1984, pp. 6-7), Econo- mist Intelligence Unit. 76. Africa Research Bulletin: Political, Social and Cultural Series, No. 10, Vol. 21, October 1984, p. 7416. 260 Operated only in Khartoum and its adjacent twin cities of Khartoum North and Omdurman. Second, the sentences of the emergency courts were broadcast daily in radio and television prime time. In fact, a prominent place was reserved for emergency court trials in Al-Ayam and Al-Sahafa dailies. The state of emergency achieved its purpose of halting the wave of strikes begun in March; between April 30 and September 29, not a single incident of protest was reported. The state of emergency also led to the coalescence of long-divided opposition groups based outside the Sudan. The oppostion groups coalesced into a clandestine Khartoum-based group known as Allied National Salvation Forces.77The group was believed to have played a key role in organizing for the general political strike. The period preceding the retail price increases also witnessed the resur- rection of an eleven-year-dead war. War broke out again in southern Sudan. The war began in the form of a mutiny in the sourthern Sudanese town of Bar where southern members of the national army defected in May 1983.78 After the appli- cation of ”Sharia Law" in September 1983, hostilities escalated when an insurgent guerrilla army known as the Sudan People's Liberation Army was set up, with the objective of overthrowing the government in Khartoum. There are also some signs that the war was adding to the unpopularity of the regime. One of these was a policy statement issued by the Republicans. These are a religious group which has been advocating an anti-Sharia, progres- sive interpretation of Islam. The leader of the group, Mahmoud Mohammad Taha, has a sizable number of disciples and supporters in Khartoum, particularly in 77. Africa Research Bulletin: Political, Social and Cultural Series, Vol. 21, No. 10, October 30, 1984, p. 7416. 78. The defection and subsequent rebellion was triggered by the President's decision to divide the self-governing Southern Region into three regions; Khalid, op. cit., p. 284. 261 intellectual circles. In their statement (issued on December 25, 1984), the Republicans called for the repeal of the Sharia laws and a halt to the war in southern Sudan. A part of their statement reads, "These laws have jeopardized the unity of the country and divided the people in the North and South by provoking religious sensitivity which is one of the fundamental factors that aggravated the southern problem...'79The Republicans called for civil dis- obediance (which in the Sudan means a general political strike) to bring down the regime if it refused to meet their demands. President Nimeiri accused the seventy-sixoyear-old Republican leader of sedition and apostasy and had him executed after a hasty trial. This incident was protested inside the Sudan and abroad. The US State Department denounced the execution as a violation of human rights. The execution was also condemned in the British Parliament. Le Monde, the French newspaper, also condemned the action and called Taha the Ghandi of Africa.80 ‘ Because all of these factors are unique to this period, they probably explain why the reductions in the subsidies were followed by relatively large scale political protest which led to the fall of President Nimeiri's sixteen- year-old regime. It appears that, prior to the increases in the petrol and bread retail prices, unique economic and political factors interacted to seriously erode the legitimacy of Nimeiri's regime and in shaping public mood and hence future reactions to any unpopluar austerity measure from an already unpopular regime. It has been suggested that the change of regime in April 1985 is precisely the result of the previous government's relationship with the IMF, as 79. Quoted in Khalid, Ibid., p. 390. 80. Ibid., p. 393. 262 manifested in the official petrol and bread retail price increases.81 Because of the complexity of the situation, any single-factor explanation of the change of regime is an oversimplification of a very complex reality. Most probably, the political change would have occurred even in the absence of a precipitating factor; the situation prior to the fall of Nimeiri's regime was economically unsustainable. Moreover, the regime probably had already alienated the public by its violent campaign of political repression. The main conclusion that can be drawn from the preceding empirical analysis and descriptive account is that the reduction or removal of a subsidy leads, abstracting from situational economic and noneconomic factors, to protest because subsidies are likely to be regarded as rights and also because they involve consumer goods that are basic. However, the severity (however this is measured) of political protest precipitated by subsidy reduction or removal is likely to be determined by the extent to which the public has already been alienated by period-specific political factors and/or by the economic hardship effects of period-specific economic and/or environmental factors. There is nothing puzzling about why the reduction of a subsidy should lead to political protest, small or large scale, severe or not. Much depends on the severity of the economic situation and on the legitimacy of the regime. In this sense, the reduction of a subsidy is not different from any unpopluar policy action. The difference that the reduction of subsidies may make stems from the fact that subsidized goods are daily necessities. 81. See Afred Taban, "Scapegoat or Saviour? Should we be grateful for the recent IMF policy towards Sudan?," Sgdanow, Vol. 10, No. 4, April 1985, p. 12; and Thomas Callaghy, "The Politics of Economic Stabilization in Africa," in Nelson, J., e P o c St b n e v on ie , (unpublished Research Project), Overseas Development Council, Washington, D.C., November 1985, pp. 14-15. SUMMARY AND CONCLUSIONS The ten Fund-supported economic stabilization programs undertaken by the Sudan in the period between 1966 and 1984 have the common objective of improv- ing the external payments position. The programs are, however, quite different in their basic policy frameworks and balance of payments outcomes. The programs of the 19608 and the first half of the 19703 were basically demand management programs that sought to improve the payments situation by restraining domestic credit, particularly to the public sector. The only exception is the 1972/73 Program, the basic policy framework of which also included a de facto devaluation. None of the policy programs in these two periods resulted in the improve- ment in the external payments situation, mainly because of the adverse impingement of exogenous factors. However, the counterfactual test indicates that the payments position would have been worse in the absence of the programs. The presence of the programs appears to have made some difference in terms of positive confidence effects; the balance of payments outcomes would have been worse without the programs. The programs of the late 19703 and early 19808 combined demand management with structural adjustment. The latter was manifested in major reforms in the exchange rate structure and in institutional changes in the structure of financial relationships in cotton-producing public irrigation schemes. These reforms were designed to increase the production and export of cotton and to induce the flow of remittances by expatriate workers. A major achievement 263 264 associated with these programs was the reversal of a five-year downward trend in cotton productivity and output. It also appears that the exchange rate reforms had positive effects on the flow of remittances. However, these improvements did not bring about a fundamental improvement in the external payments situation; the current account and the balance of payments deficits remained large. In addition, the Sudan continued to accumu- late external debt payments arrears. This does not, however, mean that the programs were not effective; for the counterfactual test suggests that the deficits would have been larger without the programs. This means that the programs had the effect of containing otherwise increasing deficits (in some cases, the deficits were reduced). This effect should be expected because agreements with the Fund led to various debt reschedulings (which are, in essence, loans) and to balance of payments assistance from creditors and aid donor groups. These capital inflows would have stayed abroad if the Sudan had had no arrangements with the Fund. This is tantamount to saying that the programs had the effect of restoring foreign confidence in domestic economic policies. Such confidence had been impaired by Sudan's inability to meet debt servicing obligations. The capital inflows are the concrete manifestations of some measure of restored confidence. The principal reason why the programs did not effect a fundamental improve- ment is clearly Sudan's external debt crisis. The magnitude of the crisis defies any short-term improvements such as those associated with the programs. As to the effects of Fund programs on other areas, the claim that these programs have adverse effects on social expenditures is not empirically sup- ported by the experience of the Sudan. One can not, of course, conclude from this experience that Fund programs do not have adverse effects on social 265 expenditures. Further research in this area is clearly needed. That claim fails to take account of the context in which Fund programs are undertaken. In regard to the politics of economic stabilization, the experience of the Sudan with Fund programs demonstrates that these programs do lead to protests. These are principally the result of increases in the retail prices of sub- sidized consumer goods. If one abstracts from the situation in which such increases are undertaken, one reason why they lead to political protests is likely to be that subsidized goods are basic daily necessities. The severity of the protests, and perhaps even their mere precipitation, is likely to be determined by the extent to which the public has already been alienated by economic and/or political factors. The severity of economic austerity and the degree of regime popularity or legitimacy are likely to be important factors. More empirical research is needed to see if these factors, and perhaps others, make any difference to the severity of protests precipitated by subsidy reduc- tion/removal. In the context of Fund programs, subsidies on imported consumer goods pose a dilemma; they have the potential of undermining the government or the Fund program. The experience of the Sudan demonstrates both. The government inability to pass increases in the external prices of sugar and petrol to the consumer resulted in increased expenditures and/or bank borrowing which undermined or contributed to undermining three programs. On the other hand, increases in the retail prices of petrol and bread precipitated protests that led to the fall of a regime in 1985. Although in this case other factors were involved, the retail price increases played the key role of initiating the protests. . A final point to note is that the Sudanese experience indicates that the capacity to adjust depends on various factors that are independent of regime 266 type. A principal factor in this regard is administrative capacity. The external debt problem was largely the result of a fundamental deficiency in the central government fiscal management apparatus. The Sudan has never had an effective debt management mechanism. In fact, when most of Sudan's external debt was incurred there was no central government entity that was responsible for assessing the appropriateness of borrowing terms and for authorizing bor- rowing. Another factor that is also independent of regime type and that has a direct effect on program implementation is the institutional relationship between domestic credit users (principally, the central government) and the central bank. The effectiveness of the central bank to control domestic credit hinges largely on whether or not it has the power to pursue credit policies independently of the government's budgetary deficits. This question is impor- tant because if the bank is not autonomous, as is the case in the Sudan, domestic credit becomes more of a source of accommodationg the budgetary deficits of public-sector entities rather than of an effective tool of macro- economic management which is essential for the implementation of Fund- supported economic stabilization programs. This is the case in the Sudan where half of the arrangements with the Fund broke down because domestic credit to the government exceeded program targets. The credit outcomes might have proba- bly been different had the Bank of Sudan had the power to turn down requests of public-sector entities (particularly, the central government) for credit. Pitched at a macro level of analysis, the authoritarian/democratic regime dichotomy fails to take into account these micro-level constraints on the capacity of governments to implement economic stabilization policies. The proposition that authoritarianism is a necessary condition for the successful 267 implementation of stabilization programs is predicated on the premise that the need for popular consent by democratic regimes acts as a constraint on the implementation of unpopular austerity measures. Because authoritarian regimes are based on coercion rather than consent, they are better suited, it is argued, to successfully implementing austerity measures. This may be true of those austerity measures whose implementation is not a continuous process but a once-and-for-all phenomenon such as a devaluation or an increase in the retail price of a subsidized consumer item. However, successful or effective implementation of the budgetary and credit aspects of stabilization programs is processual and are likely to depend, in the main, on the capacities of fis- cal management systems and on the extent to which institutional arrangements constrain key implementing agencies such as the central bank. The proposition does not differentiate between the different policy measures contained in the economic stabilization program. The successful implementation of some measures such as those in the area of domestic credit are independent of regime type. This study has not tested the proposition. The reason is not only that the number of cases are too small for a meaningful test (only the 1966/67 and the 1967/68 Programs were implemented by a democratic regime; all other programs were implemented by the one-party authoritarian regime of the May Revolution) but also that a simple factual comparison (as done in the literature) between program implementation under authoritarian regime(s) and program implementa- tion under democratic regime(s) is not sufficient. One needs to conduct a counterfactual test which seeks to answer questions such as given that a certain program was implemented by an authoritarian regime, would it have been implemented by a democratic regime? However, such a test is intrinsically dif- 268 ficult and its utility is likely to be limited by the many simplifying assump- tions that have to be made. Nonetheless, it is the best way to find out which regime type excels at implementing economic stabilization programs because it controls for nonregime variables. APPENDICES APPENDIX.A DETERMINANTS OF EXTERNAL PAYMENTS BALANCES 1. Domestic Credit: Domestic credit is measured as the rate of growth of credit extended over the fiscal year. The rate of growth is calculated by subtracting net claims of the domestic banking system on the private and public sectors outstanding at the beginning of the fiscal year from the net claims outstanding at the end of the fiscal year divided by the net claims outstanding at the beginning of the fiscal year. The result is then multiplied by 100 to express the change in percentage form. For Fund program periods, the rates of growth are available in Fund mission reports. For nonprogram periods, the rates of growth were cal- culated (using the above procedure) from data available in Bank of Sudan sec- tion on "Monetary Survey". In Table 6.1, nonprogram periods are in parentheses. 269 270 Table 6.1: Program and.Actual Domestic Credit Growth Rates, 1963 - 1984. Period Program Actual (1963/64) 19 (1964/65) -3.1 (1965/66) 20.7 1966/67 17.1 18.9 1967/68 10.7 5.3 1968/69 5.0 29.0 (1969/70) . 21.1 (1970/71) 16.4 (1971/72) 23.2 1972/73 14 23.2 1973/74 11 30.4 1974/75 11 33.8 (1975/76) 43.1 (1976/77) 25.0 (1977/78) 18.6 1978/79 32 1979/80 22 22 1980/81 33.4 56 1981/82 33 27 1982/83 44 40 1983/84 18 14.1 Sources: Various Fund Reports and calculat ions based on Bank of Sudan "Monetary Survey" data. 271 2. Exchange Rates: Real exchange rates are calculated on the basis of the Purchasing Power Parity formula, as mentioned in Chapter III. The Formula is as follows: Domestic Inflation Real Exchange - X Nominal Exchange Rate Foreign Inflation Rate. For domestic inflation, the Khartoum Consumer Price Index (the only avail- able measure of inflation in the Sudan) is used; the US Wholesale Price Index is used for foreign inflation. To insure comparabilty, IMF price indices are used here. These use the same base year for all countries. In years of devaluations, the price indices are those of the quarter immediately preceding the devaluation. Because devaluations increase prices, it will be wrong to use post-devaluation prices to calculate pre-devaluation real exchange rates. The nominal exchange rates after June 1978 are effective (weighted by some items in the current account) ones. These nominal effective rates were calcu- lated by Fund staff. The rates before 1978 are nominal averaged rates (average of the official rate which was, up to June 1978, LSd. 1 - US$ 2.87156, and of the de facto rate, in effect since March 1972, of LSd. 1 - US$ 2.5). In Table 6.2, the parenthesized rates under "Nominal” and "Real" are the devaluation-adjusted rates. In the calculation of real rates, the nominal devaluation-adjusted rates are not adjusted for domestic and foreign inflation since adjustment by devaluation is supposed to bring the nominal rates into line with domestic and foreign inflation. In other words, the nominal devaluation-adjusted rate is also the real rate. 272 Table 6.2: Sudan and'US Price Indices, meinal and Real Exchange Rates, 1971 - 1984. Price Indeces Exchange Rates Sudan US (LSd. per 1 US$) (CPI) (WPI) Nominal Real 1971/72 122 121.05 .348 .35 1972/73 92.8 99.25 (.374) (.374) 1973/74 72.35 84.25 .374 .32 1974/75 90.35 95.75 .374 .35 1975/76 100.85 102.3 .374 .37 1976/77 110.2 107.8 .374 .38 1977/78 119.9 113.2 .374 .396 1978/79 145.6 123.95 (.47) ( 47) 1979/80 201.7 143.05 (.60) (.60) 1980/81 270.75 161.4 .64 (.64) 1981/82 239.5 140.5 (.90) (.90) 1982/83 187.65 112.25 (1.30) (1.3) 1983/84 239.5 114.05 1.30 (1.3) Sources: The Consumer and the Wholesale Price Indices for the period 1963/64 - 1969/70 were obtained from the August 1970 issue of International Financial Statistics, pp. 286-287 and 330-331; those for 1970/71 — 1972/73 from the April 1973 issue, pp. 326-327 and 368-369; those for 1974/75 - 1979/80 from the September 1980 issue, pp. 356- 357 and 404-405; and those for 1980/81 - 1983/84 from the. December 1981 issue, p. 364 and from the March 1986 issue, pp. 448 and 505. Nominal exchange rates are from "Sudan: Chronology of Major Changes Since June 1978 in Effective Nominal Exchange Rates" (pp. 50-51), Documents of the Inte- rnational Monetary Fund, File No. 0 -1, 316, Vol. 24, Mini- stry of Finance, Khartoum. 273 3. Terms of Trade: The terms of trade is equal to the ratio of export prices to import prices. The price figures represent index prices. The base year for the prices between 1963/64 and 1966/67 is 1963. For all other values, the base year is 1970. Table 6.3: Export Prices, Import Prices, and Terms of Trade, 1963 - 1984. Export Import Terms of Changes in Prices Prices Trade Terms of Trade 1963/64 103.5 95 108.9 0 1964/65 112 85.5 131 22.1 1965/66 108.5 84.5 128.4 -2.6 1966/67 101.7 100.8 100.9 -27.5 1967/68 87.5 90.1 97.1 -3.8 1968/69 93 91.3 101.9 4.8 1969/70 99 ' 97.8 101.2 -0.7 1970/71 101.5 103.7 97.9 -3.3 1971/72 107 111.8 95.6 ~2.3 1972/73 117.6 127.6 92.2 -3.4 1973/74 171 184.4 92.7 0.5 1974/75 196.9 254.5 77.4 -15.3 1975/76 177.4 280.4 63.2 -14.2 1976/77 198.4 278.9 71.1 7.9 1977/78 236.8 302.6 78.3 7.2 1978/79 282.6 365.7 79.2 0.9 1979/80 338.1 445.4 75.9 -3.3 1980/81 392.1 511.2 76.7 0.8 1981/82 531.4 624 85.2 8.5 1982/83 774.6 100.9 76.9 -8.3 1983/84 809.2 1017.5 79.5 2.6 Sources: The prices for the years between 1963/64 and 1966/67 and those for the years between 1967/68 and 1971/72 were obtained form the August 1970 and the December 1974 issues of International Financial Statistics, pp. 286 and 332, respectively. For the remaining years, the prices were obtained from the National Economic Conference (march, 1986), Publication (in Arabic) of the Department Statistics, Khartoum, 1986, p. 15. 274 4. Foreign Interest Rates: The foreign interest rates used here are, as noted earlier, the London Inter-Bank Offer Rate on one-year US dollar deposits. The rates are adjusted by an index of cotton prices expressed in US dollars. In the construction of the index, 1978/79 is used as the base period. This year is chosen because its price is the median price for the period. It is thus representative of all other prices. The indexed prices are then used for the calculation of the real interest rates. These are obtained by dividing the nominal rates by the indexed prices expressed as percentages. Table 6.4: Index of Cotton Prices and Foreign Nominal and Real Interest Rates, 1972 - 1984. Cotton Index of Cotton Foreign Interest Rates Prices Prices (LIBOR on one-year US$ (US cents (1978/79- 100) deposits) per pound)- Nominal Real 1972/73 100.1 69 5.46 7.9 1973/74 127.2 88 9.24 10.5 1974/75 122.8 85 11.01 12.9 1975/76 138.8 96 6.99 7.3 1976/77 153.5 106 5.58 5.3 1977/78 142 98 6.0 6.1 1978/79 144.2 100 9.3 9.3 1979/80 168.4 116.8 11.71 10.0 1980/81 180.9 125 13.44 10.7 1981/82 159.7 110.7 16.05 14.5 1982/83 152.1 105 13.55 12.9 1983/84 162.5 112.7 10.18 9 Sources: Cotton prices are available from World Bank Commodity Trade and Price Trends (Third Edition, 1986). LIBORs were obtained from various International Financial Statistics issues. APPENDIX B EXTERNAL PAXMENTS BALANCES This Appendix presents the current account and the balance of payments balances for the period 1963/64 - 1983/84. The current account balance is measured as the balance on the merchandise trade account plus the balance on the invisible trade account. The balance of payments is measured in terms of the basic balance which is equal to the balance on the current account plus net capital inflow. In Table 7.1, all balances except the parenthesized ones represent current account and balance of payments deficits; the figures in parentheses are sur- pluses. The balances are in millions of Sudanese pounds. 275 276 Table Table 7.1: Current Account and Balance of Payments Balances, 1963 - 1984. Current Balance of Account Payments 1963/64 36.5 3.7 1964/65 20.9 9.3 1965/66 19.0 7.0 1966/67 17.5 6.4 1967/68 18.4 6.9 1968/69 11.9 8.0 1969/70 4.1 (1.3) 1970/71 23.1 23.4 1971/72 29.2 24.3 1972/73 (1.3) 0.0 1973/74 30.5 15.2 1974/75 160.3 51.2 1975/76 107.6 86.9 1976/77 15.1 1.1 1977/78 42.8 15.0 1978/79 77.9 (2.4) 1979/80 133.8 39.0 1980/81 182.9 123.0 1981/82 429.0 272.9 1982/83 234.3 170.2 1983/84 120.5 40.8 Sources: Balances for the period 1963/64 - 1970/71 are from the Bank of Sudan Annual Report (1966, 1968, and 1973, issues, pp. 100-101, 88, and 88); those for 1971/72 - 1975/76 from the 1976 issue, p. 131; these for 1976/77 - 1979/80 from the 1980 issue, p. 141; and those for 1980/81 - 1983/84 from the 1985 issue, p. 131. APPENDIX C CHRONOLOGY OF FUND POLICY AUSTERITY MEASURES Table 8.1: Chronology of Fund Austerity Measures, 1966 - 1984. Year Austerity Measure Implementation Date 1966 1. Uniform surcharge Sept. 28 on all imports 2. Lowering the exemption Sept. 28 level of the Personal Income Tax 3. Increases in taxes on Sept. 28 cigarette and liquor 1967 1. Increase in water and electricity rates Oct. 4 1968 1. Increase in the uniform July 1 surcharge on all imports 2. Increase in the rates of July 1 the Personal Income Tax 1972 1. Application of a 15 per March 11 ' cent tax on foreign exchange payments 1973 1. Increase in the retail May 16 price of sugar 2. Increase in the retail May 16 price of petrol 3. Increase in taxes on May 16 cigarette 1974 1. Increase in the retail May 30 price of petrol 2. Increases in taxes on July 1 tea and coffee 3. Imposition of an ad July 1 valorem (development) tax on all imports 4. Increase in the retail Dec. 30 price of sugar 277 278 Table 8.1 (cont'd.) Year Austerity Measure Implementation Date 1978 . Official devaluation June 8 of the Sudanese pound by 15 per cent 1979 . Imposition of water Late March and land charges in the Gezira Scheme . Increase in water and July 1 electricity rates . Imposition of a 5 per cent July 1 defence surcharge on all imports . Increase in the retail Aug. 5 price of sugar . Increase in the retail Aug. 5 price of petrol . Official devaluation of Sudanese pound by 25 Sept. 16 per cent 1981 . Increase in the retail March 12 price of petrol . Increases in taxes on March 12 cigarette and liquor . Doubling of the defence March 12 surcharge . Increase in water and March 12 electricity rates . Official devaluation Nov. 9 of the Sudanese pound by 80 per cent . Elimination of subsidies Nov. 9 on milk powder and pharmaceuticals 1982 . Increase in the retail Jan. 1 price of sugar . Increase in the retail Jan. 1 price of petrol . Increase in the retail April 1 price of bread . Increase in the retail July 8 price of bread . Official devaluation of the Sudanese pound by 44 per cent 279 Table 8.1 (cont'd.) Year Austerity Measure Implementation Date 6. Increase in the tax on cigarettes 1983 1. Increase in the retail price of petrol 2. increases in water and electricity rates 1984 1. Increase in the retail price of bread Nov. 15 Jan. 3 May 11 Jan. 3 Sources: Compiled from texts of stabilization programs (Letters of Intent) and "Articles of Consultation'I reports, Documents of the International Monetary Fund, Files No. l - 0, 316, Vols. 13 through 27, Ministry of Finance, Khartoum, Sudan. APPENDIX D CHRONOLOGY OP PROTEST INCIDENTS Table 9.1: Chronology of Protest Incidents, 1966 - 1984. Year Protest Incident Date of Incident Type Number 1966 Strike 3 April 10, 19; May 11 Demonstration 6 July 2, 17; Sept. 28; Oct. 3, 4, 6. 1967 Strike 4 Jan. 15 (2 strikes) March 4, 20 Demonstration 2 Nov. 19; Dec 3 1968 Strike 6 Jan. 17, 20, 29 Aug. 2; Sept. 1; Oct. 9 1969 Strike 2 July 29; Aug. 8. Demonstration 1 May 2. 1970 Strike 0 Demonstration 0 1971 Strike 1 Aug. 6. 1972 Strike 6 July 4, 11 (2 strikes) Aug. 6, 31. 1973 Strike 4 May 19 (2 strikes), 23; July 2. Demonstration 6 May 17 (2 demonstrations), May 20 (3 demonstrations); Dec. 3 1974 Strike 4 June 6; July 7, 10; Aug.3 Demonstration 1 May 30. Riot 1 June 2. 1975 Strike 2 Jan. 9; March 2 1976 Strike 2 Sept. 6; Nov. 17 280 281 Table 9.1 (cont'd.) Year Protest Incident Incident Date Type Number 1977 Demonstration 2 Oct. 2; Dec. 20 1978 Strike 5 July 15, 16, 19, 20; Dec. 19 Demonstration 2 June 9; Dec. 2 1979 Strike 13 Feb. 6, March 13, 22; July 14; Aug. 7, 11, 20, 22 (3 Strikes), 27; Oct. 22, 27. Demonstration 9 Aug. 8, 9 (2 demonstr ations), 10, 11; Sept. 30, Oct. 2, Dec. 1 , 12. Riot 3 Aug. 6, 7; Dec. 20. 1980 Strike 2 Jan. 13; March 14. 1981 Strike 10 March 15 (2 strikes), 17; April 1, 17; Nov. 21, 25, 29, 30; Dec. 19. Demonstration 5 July 3, 9, 17; Aug, 1, 3. 1982 Strike 4 Jan. 19, 23; May 1, Demonstration 6 Jan.l - 7 Riot 4 Jan. 1 - 2; April 1; July 8 -9. 1983 Strike 11 Jan. 7, 17; Feb. 4, 15; April 3, 16 ; Aug. 3, 10 Sept. 9, Nov. 5, l2. Demonstration 4 Jan. 5 - 6; Oct. 2, 4 Riot 2 Jan. 3 - 4; Dec. 20. 1984 Strike 11 Jan. 11; Feb. 2; March, 4, 6, 7, 25; April 2, 16, 17, 20, 29. Riot 2 Jan. 3 - 4. J a. Sources: Compiled from National Newspapers (Al-Ayam, A-Midan, Al-Sahafa) Otained from the National Record Office in Khartoum, the Sudanese Capital. LI ST OF REFERENCES LIST OF REFERENCES After the Famine, Report of the ILO Identification and Programming Mission to the Republic of the Sudan (September 1985), Igternational Labour foige, Geneva, 1986. Alassam, M., ”Regional Government in the Sudan," ggblig_Agministgggign_§nd Dexelmenf. Vol. 3. 1983. Ali, A. A., "The Devaluation Debate: A Documentary Approach," in Ali, A. A. (ed.), Ir dn 0103-. a ' _=_ ' _ssa on he a 51°" 9 1' gas, Khartoum University Press, Khartoum, 1985. Ali, A. A. and Hussain, M. N., ”The IMF and the Economic Anarchy in the Sudanese Experience with the Foreign Exchange Black Market,” in Esderts, H. J. and Abdalla, M. J.(eds.), Mggzggggngmig Policies anfgreggg (in Arabic), Development Studies and Research Centre (University of Khartoum), Khartoum, 1986. Bates, R., Markets ggd Stgtgs in Irgpical Africa, University of California Press, Berkeley, 1981. "Economic Reforms in Africa,“ 0 0 Co ' nc , Center for Research on Eco- nomic Development (University of Michigan, Ann Arbor), December 1988. Bechtold, P. K., u a ' a amenta d Emgrggnt_5£119§n_flggign, Praeger Publishers, New York, 1976. Bienen, H. and Gersovitz, M., "Economic Stabilization, Conditionality, and Political Stability," Intergatignal Organization, Vol. 34, No., 4, Autumn, 1985. Bird, G., “Relationships, Resource Uses and the Conditionality Debate," in Killick, T. (ed.), c mi tabil World, St. Martin's Press, New York, 1984. Brown, R., ”International Responses to Sudan's Economic Crisis: 1978 to the April 1985 Coup d'Etat,” Dgyglgpmgn;_ggg_§hgggg, Vol. 17, No. 3, July 1986. Callaghy, T., "The Politics of Economic Stabilization in Africa," in Nelson, J., l!‘ '0 0 on“. a0 _: 0! :10 S _:. .11311‘ 9"V‘ 0- 9' Qggntxigg, (unpublished research project), Overseas Development Council, Washington, D.C., November, 1985. 282 283 Callaghy, T., ”The Politics of Economic Stabilization and Structural Change in Africa: Ghana, Zambia, and Nigeria," (unpublished Paper), Department of Political Science and Research Institute of International Change (Columbia University). October 1987. Chandavarkar. A. 6.. Warm! Agrlyirigg, International Monetary Fund, Washington, D.C., 1984. Cline, W., ”Economic Stabilization in Peru, 1975 - 78,” in Cline W. and Weintraub, S. (eds.), , the Brookings Institution, Washington, D. C., 1981. '-----, "IMF Stabilization Programs: in Theory and Pratice,” in Williamson, J., (ed.) 1M£_§gngirign§11ry, Institute for International Economics, Washing- ton, D.C., 1983. Cooper, R., "An Assessment of Currency Devaluation in Developing Countries," In Rania. 0.. (ed.) WM. Yale University Press, New Haven, 1971. David, W. M o a a ono cs of Sta lization Structural Adjustment, and Economic Develgpmegr, Praeger Publishers, New York, 1985. Dell, 8., "Stabilization: The Political Economy of Overkill," in Williamson, J.(ed.) IME Qggditignality, Institute for International Economics, Washington, D.C., 1983. Dell, S. and Lawrence, R., Ihg Balangg 9f Egymggrg AQIESEEQDE Process in Qevglgping Qggntrieg, Pergamon Press, New York, 1980. Donovan, D. J., "Real Responses Associated with Exchange Rate Action in Selected Upper Credit Tranche Stabilization Programs,” IM£_§r§fr_£gpgr§, Vol. 28, No. 4, December 1981. , ”Macroeconomic Performance and Adjustment Under Fund-supported Programs: The Experience of the Seventies,” 1fl£_§r§££_£§pgr§, Vol. 29, No. 2., June 1982. Economic Memorandum on Sudan, Report No. l273a-Su, Egr1g_fi§gk, Washington, D.C., September 1976. Economic Memorandum on Sudan, Report No. 2652-Su, Wgrld Bank, Washington, D.C., October 1979. Faini. R. (et. 81.). BMW. (Policy. Planning, and Research Working Papers), World Bank, Washington, D.C., April 1989. Gist, J., "Increment and Base in the Congressional Appropriations Process," WW. Vol. XXI. No. 2. May. 1977- 284 Goldstein, M. and Montiel, P., "Evaluating Fund Stabilization Programs with Multicountry Data: Some Methodological Pitfalls,“ 1M£_§r§£f_2§pgr§, Vol. 33, No. 2, 1986. Geode. R.. W. the Brookings Institu- tion, Washington, D.C., 1984. Greene, J., ”The External Debt Problem of Sub-Saharan Africa,” IMF Working Erpgr, IMF, Washington, D.C., March 1989. Guitian, M., C ndi nalit ' vo u o o inci les and a t ces, International Monetary Fund, Washington, D.C., 1981. Gurr, T., 'On the Political Consequences of Scarcity and Economic Decline,” WWW. V01. 29. 1985- Haggard, 8., “The Politics of Adjustment: Lessons from the IMF's Extended Fund Facility," nternationa Or anizatio , Vol. 39, No. 3, Summer, 1985. Herzon, F. and Hopper, M., ntroductio to Stati c o e Soc al Sciences, Crowell Company, New York, 1976. Hicks, N. and Kubisch, A., “Cutting Government Expenditures in LDCs," nce gng_ngyglgpm§nr, Vol. 2, No. 3, September 1984. Holt, P. and Daly, M., Ihg_filgrgry_g£_rhg_§hg§h, Weidenfeld and Nicolson, London, 1979. Hussain, M. N., “IMF Economics in the Sudan: A Preliminary Evaluation," in Ali, A. A. (ed.), e uda 0 on Dis ' ss ode , Khartoum University Press, Khartoum, 1985. , "Devaluation, Export Profitability and the Balance of Payments," in Ali, A. A. (ed.), The Sudan Economy in Qigarry; Essays oh the IME Mgdel, Khartoum University Press, Khartoum, 1985. Johnson, 0. and Salop, J., ”Distributional Aspects of Stabilization Programs in Developing Countries,“ 1h£_§rgff_£gpgr§, Vol. 27, No. 1, March 1980. Kaufman, R., "Democratic and Authoritarian Responses to the Debt Issue," WW. V01. 39. No. 3.. Summer 1985- Kelly, M., ”Fiscal Adjustment and Fund-Supported Programs, 1971 - 80," IMF §r§f£_£gpgr§, Vol. 29, December 1982. Khalid. H. . WWW. Routledge and Regan Paul. London, 1985. Khan, M. S. and Knight, M. D., "Determinants of Current Account Balances of Non-oil Developing Countries in the 19703: An Empirical Analysis," 1ME_§rgff {hygr§, Vol. 30, No. 4, 1983. 285 Killick, T., "The Impact of Fund Stabilisation Programmes,“ in Killick, T.(ed.) l9; hn': 0 09°“ :0 J 09' In: L e!' 1‘ I! - .0 o, St. Martin's Press, New York, 1984. Killick, T. and Sharpley, J., ”Extent, Causes and Consequences of Dise- quilibria.” in Killick. T.(ed.) WM gnd_rhg_Ih1rd_flgrld, St. Martin's Press, New York, 1984. Loxley, J., ' ; ' ' z‘ r ‘£' ' " OQHi! ‘ Wants. the North - Sout Institute, Ottawa, 1984. Maciejewski, E., ”Real Effective Exchange Rate Indices: A Re-examination of the Major Conceptual and Methodological Issues," 1M£_Sr§ff_£gpgr§, Vol. 30, No. 3, September 1983 . Mahgoub, M. A., Dghggracy oh Irigl, Ander Deutsch, London, 1974. Mahhouk, A. and Drees, F., ”Domestic Policies and Payments Problems of the Sudan, 1947-62," IMF Staff Eaperg, Vol. XI, No. 1, March 1964. Nashashibi, K., ”A Supply Framework for Exchange Reform in Developing Countries: The Experience of Sudan,” IME Srgff Esperg, Vol. 27, No. 1, March 1980. Nelson, J., "The Political Economy of Stabilization: Commitment, Capacity, and Public Response, ng1g_hgyglgpmghr, Vol. 12, No. 10, 1985. Norris, M. W., "Local Governments and Decentralization in the Sudan,” Sghrhgl WWW. Vol. 3. No. 3. July/September 1933- Officer, L., ”The Purchasing Power Parity Theory of Exchange Rates: A Review Article," IME Staff Eaperg, Vol. XXIII, No.1, March 1976. Payer, C., Ihe Debf Irap; Ihe LME Eng rhg Ihirg Wgrlg, Monthly Review Press, London, 1974. Pindyck, R. and Rubinfeld, D., co e ec sts, McGraw-Hill Book, New York, 1981. Please, 8., "The World Bank: Lending for Structural Adjustment," in Feinberg, R. et. a1.(eds.), Adjustmehr Crisir in rhg Ihfrg Egrlg, Overseas Development Council, Washington, D.C., 1984. Reichmann, T. M., ”The Fund's Conditional Assistance and the Problems of Adjustment,” Einahgg hhd pgvelgphehr, Vol. 15, No. 4, December 1978. Reichmann, T. M. and Stillson, R. T., "Experience with Programs of Balance of Payments Adjustment: Stand-By Arrangements in the Higher Tranches," IME Staff Paperg, Vol. 25, No. 2, June 1978. 286 Remmer, K., "The Politics of Economic Stabilization: IMF Stand-By Programs in Latin America, 1954 - 1984,” Qghpgrgrjyg_flglir1g§, October 1986. Rondinelli, D., "Decentralization and Development: Sudan's Experience with Devolution." WW. Vol. 19. No. 4. December. 1981. Sachs, J., ”Conditionality and the Debt Crisis: Some Thoughts for the World Bank,” (unpublished paper), Harvard University, January 1985. Sandbrook, R., "The State and Economic Stagnation in Tropical Africa," World Qevglgpmghf, Vol. 14, No. 3, 1986. Schick, A., "Incremental Budgeting in a Decremental Age,” c e es, Vol. 16, No. 1, September 1983. Sharpley, J., ”The Potential of Domestic Stabilization Measures," in Killick, T. (ed.), e uest o Economi tab at o ' e MF d d Wo 1d, St. Martin's Press, London, 1984. Sheahan, J., ”Market—oriented Economic Policies and Political Repression in Latin America,” Economig Qevelgpmenf ahg ghlrurgl Change, Vol. 28, No. 2, 1980. Skidmore, T., "The Politics of Economic Stabilization in Postwar Latin Anerica." in James. M.. (ed.) WW Ahgrigh, University of Pittsburgh, Pittsburgh, 1977. Stewart, F., "Should Conditionality Change?,' in Havnovik, K. J., (ed.) Ihg' :10 1' s d sank if .' CO“ 0,: no; {,0 § V'QQ: _Ve, Scandinavian Institute of African Studies, Uppsala, 1987. Sudan - Pricing Policies and Structural Balances (A World Bank Country study), Worlg Sghh, Washington, D.C., 1985. Taban, A., "Scapegoat or Saviour? Should we be grateful for the recent IMF Policy towards Sudan?,” Sudanow, Vol. 10, No. 4, April 1985. Tanzi, V., "Fiscal Deficits and Balance of Payments Disequilibrium in IMF Adjustment Program.” in Mun. J. (ed.). WW- haffghgl Eihancing, International Monetary Fund, Washington, D.C., 1984. Taylor, C. and Jodice, D., Wgrlg Mahdbogh 2f Eglirfggl ghg Sggfgl Ihgiggtors, Vol. 2, Yale University Press, New Haven, 1983. Umbadda, 8., Im o olic the da ' ~ 9 , Monograph Series No. 17, Development Studies and Research Centre, University of Khartoum, Khartoum, 1984. Umbadda, S. and Shaael Din, E., "IMF Stabilization Policies: The Experience of the Sudan." in A11. A. A. (ed.). WWW IME Model in rhg Shgah, Khartoum University Press, Khartoum, 1985. 287 Zimmermann, E., ”Macro-Political Research on Political Protest," in Gurr, T., (ed.) WWW. Machillan Pub- lishers, London, 1982.