The Heritage Foundation

Backgrounder #903 on Middle East

June 18, 1992

June 18, 1992 | Backgrounder on Middle East

U.S. to Zimbabwe: No Aid Without Free Market Reforms

(Archived document, may contain errors)

903 June 18,1992 uos. To ZJMBABm NO AID WITHOUT FREEMARKET RETORMS INTRODUCTION For years American foreign aid policy unwittingly has helped to perpetuate poverty in Africa. Sbce 1960 the Uni ted States has funnelled approximately $30 billion in aid to Africa, yet the continent still suffers from mass poverty and underdevelopment. A prime example is the southern African cvuntq of Zimbabwe, known until 1980 as Rhodesia. Despite some $360 millio n in U.S. aid sin= 1980,2%nbabwe remains mired in economic disarray. This is primarily because of the misguided socialist poli cies of President Robert Mugabe, who plans to undertake a massive land confiscation and resettlement program that will harm Zimba b wes faltering economy. Yet the U.S. plans to give $37 million in development aid to Zimbabwe this year alone There is no reason why American taxpayers should be asked to subsidize such harmful economic policies. George Bush should haten to cut off this ai d unless Mugah agrees to drop his land confiscation and resettlement program fiscate, albeit bth compensation, 13.6 million acres of productive, privately owned commercial farmland. The purpose is to mettle some one million Zimbabweans cur rently living on g overnment-owned communal farmland. The stated goals of the pro gram are to duce the population of the communal farm areas and to make Zimbabwes land distribution mm equitable Forced Resettlement. There m, however, many problems with Mugabes Land Ac quisit i on Act. Land transactions will be imposed by government decxtx, and not ne ated freely bn a voluntary basis. This land distribution scheme is thus highly coercive But it also is politically motivated In addition to concerns about overpdpulation in the com munal areas and the supposed inequity of land distribution, Mugabe apparently wants to use land resettlement as a means to shore up the popularity of his Zimbabwe African National Union-Patriotic Front (ZANU-PF) party in Zimbabwes countryside.

Since Zimbab we achieved majority rule in 1980, the resettlement of Zimbabwean corn munal area families through a program in which commercial farmland is bought from willing sellqs has fallen short of ZANU-PF promised goals. Mugabe hopes that by forcing resthlement, h e can make good on his promise to put some 162,000 native Af rican families onto commercial farmland Mugabes 1992 Land Acquisition Act, passed by the Parliament in Mmh, will conZimbabwes aid donors, including the U.S tacitly a~ endorsing Zimbabwes confis z atory land resettlement program by planning to provide Zimbabwe with mund $1 bil lion in development aid in 19

92. These funds a~ part of a World Bank-approved struc tural adjusFent program, which is a package of economic reforms designed to move Zimbabwe toward a free market. Zimbabwes aid donors, including thy Bush Adminis tration, ignk the fact that confiscating massive amounts of private property contra dicts the World Banks self-proclaimed goal of using aid to encourage the growth of the free mdket in Zimbabwe.

The U.S.needs to ensure that American aid better piornotes economic development in Zimbabwe and other African countries. After years of destructive socialist policies Africans have begun to see the virtues of free markets. Progress toward free m arket economic reform in Africa, however, is tentative. If Zimbabwes ecbnomic reforms fail becausd of a misguided land resettlement program, then Americas foreign aid to Zimbabwe bill have been wasted. More important, however, the free market, which is Zi mbabwes best hope of rising out of its poverty, will be discredited in the eyes of other Africans.

To avoid these pitfalls, the Bush Administration should Denounce publicly Zimbabwes Land Acquisition Act and land resettle ment program as an attack on priva te property. Washington has com plain+ about the fairness of the compensation and appeal prodesses of the 1992 ,Land Acquisition Act. It also has criticized the land settlement program as hding agricultural production and as an obstacle to foreign investm ent.

However, U.S. objections have overlooked Zimbabwes most egregious act the massive confiscation of private property.

Eliminate bilateral development ?id and opporse multilateral develop ment aid to Zimbabwe if it proceeds with its land resettlement program.

Zimbabwe cannot move toward the free market while proceeding with its confiskatory land resettlement program. Private property rights are the bed rock of a free market economy. Thkfore, Zimbabwe does not warrant Amer ican development aid should it begin confiscating privately owned commer cial farmland.

Transfer Zimbabwes bilateral aid to Zambia if Mugabe proceeds with the land resettlement program. Neighboring Zambia will be moving te ward a market much faster than Zimdabwe if Mugabe proceeds with his land resettlement program. Zambia would warrant additional U.S. aid under these circumstances Assist fewer African countries with foreign aid and give higher priority to those that score high on the Index of Economic Freedom. The U.S.

Agency for Inte rnational Development (AD) is reviewing the process by which it dispenses fmign aid to such African countries as Zimbabwe. The sentiment seems to be building inside AID to limit the number of African coun~es receiving aid. This is a good idea. Fewer recip i ent cohtries will en able re U.S. to choose more wisely which African countries should receive aid. The best method for choosing which Mcan countries should Eceive 2 U.S. aid is by applying the Index of Economic Freedom, a quantitative gauge of a country' s progress in developing a free market economy. Developed by Senator Connie Mack of Florida, the Index of Economic Fdm should be used to ensure that all African recipients of fmerican aid are moiring rapidly toward establishing free market economies ZIMBAB W E OUT OF RHODESIA Zimbabwe was once a part of the British Empire. British explorer Cecil Rhodes ob tained in 1888 a mineral rights concession from tribal chiefs in the temtory of today's Zimbabwe Three years later, the territory was formally nained South- em Rhodesia (today's Zambia was Northern Rimdesia),falling under the administra tion of the British South Africa Company.

Following the abroga- tion of the Company's charter in 1923, South ern Rhodesia became a member of be British Empire.

After lengthy and un successful negotiations between the British government and Prime Minister Iari Smith of Economic Reform, Zimbabwe Style Talking Change, But Seizing Land I 600 Mllrr Rhodesia, Smith issued a Unilateral Declaration of Independence (UDI) from the Unit ed Kin/gdom in 19

65. Smith wanted to block greater native African participation in the povtical life of Rhodesia. Smith's Rhodesia met with world&& isolation be cause of its 'discriminatory practices against native Africans. Also a civil war broke out bet ween the government and native African guerrillas, lasting from the late 1960s until 19

79. Throughout this period, Smith claimed independence for Rhodesia, which the British and the rest of the world refused to recognize. The UDI thus began a fifteen year period of economic, diplomatic, and political isolation for Smith's Rhodesia 1 The 199 2 Foreign Aid Au

orization bill, if it had been enacted, would have required AID to &velop criteria for evaluating and comparing recipient countries' progress in adopting economic policies that foster individual economic fmedom.The Index of Economic Freedo m, cited in this bill's report, should be used by AID to develop a series of criteria, such as the prokction of praperty rights and the extent of regulations and wage and price conaols, to make this comparison for'the purpose o

further concentrating Ameri can development aid on fewer African Countries. See Thomas P. Sheehy Up From poverty: Advancing Economic Development in Zambia Heritage Foundation Backgrounder No. 884, Febuw 27,1992 3 This isblation ended in 1979 when the British bmkered the Lancaster Ho u se in&pen dence agreement between Smiths government and native African guerrillas. This agreement called for new elections, a transition period under British rule, and a new constitution implementing majority rule while protecting minority rights. British - super vised electibns held in 1980 were won by Robert Mugabes ZANU-PF party, which representedone of several guerrilla pups combating Smiths government. The new nation of Zimbabwe claimed its independence from the United Kingdbm on April 18 1980.2 Zimbabw e today is essentially a one-party state ruled by Mugabes ZANU-PF which used to be a stalwart socialist party formally committed to one-party govem ment. It now espouses free market rhetoric and accepts, at least in theory, multi-party elections. The natio n al elections held in April of 1990 left Mugabes ZANU-FT party with 147 out of 150 parliamentary seats. These elections, however, were tainted by sev eral factors, including the intimidation of opposition political parties by government se curity farcek. T o days opposition political parties, such as the Zimbabwe Unity Move ment (ZUM the National Progressive Alliance (NPA and the Reverend Ndabaningi Sitholes Zimbabwe African National Union (ZANU) are weak and poorly financed I ZIMBABWES SOCIALIST MALAISE Afte r Zhbabwes independence, Mugabe steadily increased his governments inter vention into the largely state-controlled economy inherited from Smiths regime?

Zimbabwes public sector expenditures increased from 29 percent p 53 percent of pss domestic product (GDP) between 1981 and 19

89. This money was spent on edu cation, health care, the military, and industrial and agricultural subsidies. Zimbabwe es tablished new state enterprises, such as the Nuanetsi Cattle Ranch in south central Zimbabwe, while the govern ment took on an expanded role in most of the enterprises existing at

e time of independence. The govefnment also added to the wide range of regulatory activities it assumed from the Rhodesian era. Regulatory policies now affect all aspects of Zimbabwes e conomic life, including employment, wages, investment and pricing decisions.The Employment Act of 1980, far example, requires an em ployer to obtain the governments permission before dismissing a worker.

This increased state intervention has burdened 3imb abwes economy. This year the economy will shrink by an estimated one pexent. Wle possessing one of Africas most sophisticated industrial and agricultural infrastructures, Zimbabwe nonetheless has seen itsper capita GNP decline by an average of 0.8 percent per year from 1980 to 19

89. Zimbabwes state enterprises on the whole have performed poorly, requiring massive government subsidies. Higher levels of public spending have produced large I 2 Slightly larger than Monq, Zimbabwe borders Botswana, Mozambique, South Africa, and Zambia 3 Smiths UDI regime played a heavy role in the counhys economy. This is attributable to the economic sanctions and other trade restrictions placed against Smiths me, as well as economic policies designed to benefit the countrys w hite elite 4 Southern Africas drought a factor contributing to the terrible condition of todays Zimbabwean economy 5 Accarding to the planned 1991-1992 government budget, subsidies to state enterprises are est

ated at $156 million.

The Econo4st Intelligence Unit, Zimbabwe, Malawi, No. 4,19

91. I 4 government deficits. The 1992 deficit is projected to amount to $381 mil lion, or about 7.6 percent of GNP These deficits have diverted funds from more productive private sector investmen High tax rates and re s trictive limits on the repatriation of profits have made foreign investment in Zimbabwe almost negligible6 Cor ruption, an inherent problem of state dominated economies, also is com mon among government officials.

And perhaps most damaging Zimbabwean entrepreneurship has been stifled by such government regu lations as wage and price controls.

The governments mismanaged dis tribution of foreign currency has been particularly harmful to Zimbabwes economy. Zimbabwes exporters are allowed to retain very littl e of the for eign currency they earn. Instead, for eign exchange is funneled through the government-controlled Reserve Bank of Zimbabwe to enterprises and individuals im parting goods and services. Besides pro$ucing massive red tape, this system has prove n to be economically inefficient. The reason: It depends on the government, and not the market, to determine where Zimbabwes pre

ous foreign currency can be most productively allocated7 Zim babwes important agricultural sector also has been hurt by burdensome govern ment regulation8 until reforms of the last couple of years, the prices of virtually all ag ricultural and agricultural-related products were set by the government, while the acti v ities of traders, transporters, and processors in the agricultural secd were strictly regu lated. Not surprisingly, the performance of Zimbabwes agricultural sector has been lackluster, despite receiving high levels of pubpc investment. The average annua l gmv rate of agricultural output between 1980 and 1990 was a disappointing 2.4 per cent I 6 Fomign investment in Zimbabwe from 1980 to 1990 amounted to a paltry $150 million to 180 million 7 Zimbabwe, like most African countries, is chronically short of f o reign exchange. his is a major hindrance to economic development 8 Although its contribution to the countrys GDP is approximately 11 percent, the agriculturat sector is crucial to Zimbabwes economy. About half of the countrys manufacturing sector relies u p on agricultural products, such as cotton, tobacco and hop& while the agricultural sector consumes a large percentage of Zimbabwes industrial products, such as fertilizer, chemicals, stock feeds, spare parts, and liquid fuels 9 The World Bank, World Develo p ment Report 1992, Development and the Environment (New York Oxford university pres 1992 p. 220 5 Since independence, Mugabe has claimed that his governments increased economic intervention has benefited Zimbabwes native African majority. As proof of his s u c cess he has pointed to higher spending on social services. Very few Zimbabweans however, knefited because the overall economy is in such bad shape. Economic growth, and not public spending, should be the true measure of economic progress DONOR-SUPPORTED REFORMS IN ZIMBABWE Despite Mugabes claims that his economic policies have been successful, he has been forced to adopt economic refms by the World Bank, International Monetary Fund and other international donors. Desperately wanting foreign aid, the Muga be government presented a reform plan-called the Framework for Economic Reform (1991-1995)-to its aid donm in March 19

91. This plan aims to stimulate Zimbabwes economy and create employment by liberalizing trade, deregulating the economy, ahd promoting bo th domestic and foreign investment. In short, it aims to re pair the damage done by Mugabes past socialist economic policies.

Accord& to the governments plans the budget deficit will be reduced from approx imately 10 percent to 5 percent of GNP by 19

95. This will be done by increasing charges for social services, cutting the civil service by 25 percent, and by making state enterprises profitable. The system of allocating foreign exchange also is to be re formed. Zimbabwes exporten will be allowed to ret a in mm of the foreign currency they earn. Zimbabwes five-year economic reform plan will require an estimated $16 billion in financing 12.5 billion of which is to come from within Zimbabwe. The re maining $3.5 billion will come hm foreign aid and commercial borrowing nounced that Zimbabwes bilateral and multilateral aid donm had pledged $1 billion to meet the bountrys financing needs for 19

92. These donors include Britain, France Gemany, J~pan, Norway, Sweden, the World Bank and the Africd Development Bank. Much of the $1 billion will be used to supply Zimbabwe with the foreign ex change it desperately needs. This amount includes an IMF loan for up to $484 million over the next three years as well as a $175 million World Bank loan. At the Paris meet ing, so m e of Zimbabwes donors expressed concerns about the governments planned confkation of commercial farmland, and its haxm to Zimbabwes economy After a February 1992 donor coordination meeting held in Paris, the World Bank an ZIMBABWES Lm RESETTLEMENT PROGRAM Zimbabwes commercial agricultural sector is modern and efficient. It also is crucial to Zimbabwes economy, generating 40 percent of the countrys scme foreign ex change from exports of tobacco, cotton, sugar, and other commodities. Zimbabwes to bacco indus try, for example, has taken advantage of the recent rise in tobacco prices on world markets by producing an all-time red crop of more than 160,OOO tons in 19

91. Indeed, the high productivity of the tobacco sector was the main factor that al lowed Zimbabwe to maintain its estimated 4.3 percent economic growth rate last year.

Zimbabwes approximately 4,500 large, privately owned commercial farms are situ ated upon much of Zimbabwes most fertile lands, and produce 68 percent of the countrys gpss agricultural output. Established by white settlers, all but about 500 of the farms still owned by whites. These commercial farms, on 27.5 million acres of 6 land, or approximately one-third of Zimbabwe, have been targeted by the government for confiscation and the res e ttlement of native Africans now living in government owned communal farmland Falling Short. The government began resettling native Africans on willingly sold white-owned commercial farmland immediately after independence. Hoping to in crease the pace of r e settlement, the Mugabe government in 1985 passed its first Land Acquisition Act, which included the provision that all private land for sale must be of fered first to the government. The Mugabe government since 1980 has managed to pur chase, largely with international donor assistance 8.15 million acres of commercial farmland. The extent of this resettlement, however, has fallen well short of ZANU-PF land resettlement goals stated in 19

80. Some 162,000 native African families were to have been resettled by 19

85. So far only 60,000 African families have been resettled.

The Mugabe government has stated that a second Land Acquisition Act, passed in Zimbabwe's Parliament on March 19, is needed to redress once and for all the sup posed inequities of land dis tribution in Zimbabwe." Under this law, the government plans to confiscate approximately half of Zimbabwe's commercial farmland or 13.6 million ac in order to resettle approximately one million native ~fricans his reset tlement will be done, the governmen t claims, without harming Zimbabwe's commer cial agricultural production In order not to disrupt productive commercial farmers says Minister of Land Witness Mangwende, the government is looking to acquire farm land that is underutilized or derelict. Howeve r , the government also will target farm land owned by absentee landlords, foreigners, speculators, and by people who own more farms than the government feels it is right for one person to own Damaging Consequences. There is little doubt that removing 13.6 m illion ams from the commercial agricultural sector will damage Zimbabwe's economy. The gov ernment lacks the resources required to keep the farmland it plans to confiscate com mercially productive. And 13.6 million acres is far too much land for fhe comme r cial agricultural sector to lose and still maintain its existing levels of production. The land resettlement plan, moreover, already has deterred important investment by commercial farmers increasingly insecure about the fume of their own property." Other s are leav ing the country. Fearing the confiscation of their property, several Zimbabwean com mercial fTers have purchased farms in neighboring Zambia.

The land &settlement plan also already has hurt the government's effort to attract foreign investment t o Zimbabwe. Too many other countries have attractive investment climates f& Zimbabwe to confiscate private property and win investors already leery about Zimbabwe's history of hostility toward foreign investment As a result Zimbabwe has attracted no more t han 400 million in foreign investment since it began its economic refoxm program in 1990 10 The government repealed the provision of the Zimbabwe Constitution that prohibited govemment confiscaOion of 11 This assertion is based on the author's discussions with Zimbabweans in the commercial farm and financial sectors land in 1990 7 World Bank Recommendation. Even the World Bank recognizes some of the dan gers associated with the resettlement program. Aware of the governments limited ca pabilities to enginee r a massive resettlement, the World Bank has suggested that reset tlement not be accelerated. Rather, it should be maintained at its current pace, which has been slowed by the governments refusal to buy commercial farmland offered by willing sellers. To bo l ster Zimbabwes agricultural production, employment, and ex ports, the World Bank maintains that the introduction of better technology such as ini gation and other mechanized equipment into the communal and resettlement ms should take precedence over the r esettlement of Zimbabwean peasants.

Zimbabwes current annual unemployment rate stands at 30 percent and is worsening.

Since large-scale commercial farms provide employment and livelihood for some 250,000 Zimbabwean workers and their families, confiscation of their land potentially would throw hundreds of thousands of people out of work Mugabes land resettlement scheme also would increase unemployment MUGABES ECONOMIC WAR ON THE MARKETSYSTEM Were it not for Mugabes socialist policies, the two ostensible re a sons for Zimbabwes land resettlement program would be better addressed today: Population pressms in Zimbabwes communal farm areas would be less severe and farmland would be more equally distributed among Zimbabweans if Mugabe had not con strained the free market with socialist economic policies.

Zimbabwean industrial employment in particular has been needlessly depressed by Mugabes socialist policies. If the market had been allowed to flourish, Zimbabwes in dustrial secb would hav e drawn more Zimbabweans away from the communal farm areas for jobs in the cities. Moreover, farmland in Zimbabwe would have been more widely distributed py if the government had not prohibited the subdivision of com mercial f-1and.l This prohibition has prevented potential commercial farmers from buying land from willing sellers. Despite what his governments economic reform pm gram suggests, Mugabe has not shown that he respects the free marke particularly the importance of private property.

None of &e ap proximately 60,000 Zimbabwean farmers resettled since indepen dence enjoy ownership of the land they till. Neither will Zimbabwean farmers resettled on confiscated commercial farmlands. Rather, resettled farmers will continue to de pend upon government pe r mits to cultivate what will become government-owned com mercial farmland. Moreover, the activities of the resettled farmers, including their choice of which crops to grow, probably will continue to be regulated tightly by the government, under hat of expu lsion.

Zimbabwes farmers strongly desire title to the land upon which they live and work.

Communal pea farmers are no exception. Yet the Communal Land Trust Act of 1982 vests ownership of the communal lands in Zimbabwes president, while assigning their ad ministration to district councils 12 Laws against the subdivision of farmland onginate in the Rhodesian era 8 Enhanced Production. The benefits of private land ownership for hy country are considerable. Private ownership enhances agricultural production b e cause only farm ers who feel secure in the possession of their land make the long-term investments re quired to maximize production. Moreover, private ownership of farmland is the best means of assuring that farmers conserve their land. Lacking the sense o f responsibility ownership, too many of Zimbabwes farmers overcultivate and over graze land. Under the communal grazing system with no economic incentive to limit the size of their herds, Zimbabwean cattle farmers are responsible for overgra zing and the destrucaon of a considerable amount of land. In other words, without private own ership, the kcentives for maintaining the long-term economic and environmental via bility of the land are weak.

Mugabes land resettlement program not only is bad economic policy. It also is anti democratic. It has been devised and will be implemented by a one-party state with lit tle tolerance for dissent. While the commercial farmers, aware of the governments poor human rights record, have been tempered in their opposition, they nonetheless are wary of trusting Mugabes government to administer a land resettlement program.

Their skepticism is warranted. As many as a dozen government officials allegedly have acquired commercial farms as part of the resettlement prog ram. This type of cormption will certainly get worse once the program is underway NO U.S. AID WITHOUT FREE MARKET REFORMS With the exception of a few years in the mid-l980s, America has continuously pro vided Zimbabwe with generous development aid. In fac t, the U.S. contributed approxi mately $280 million to Zimbabwe, mostly in grants, from 1980 to 19

86. This high level of aid made the U.S. Zimbabwes single largest bilateral donor to that point.This aid includeq projects to purchase farm equipment and build housing.

U.S. aid do Zimbabwe, however, was severely curtailed in 19

86. This was because of Zimbabwes anti-American votes in the United Nations over the previous couple of years as web as numemus anti-American statements. These statements included a 1986 verbal attack on Americas Angolan policy by a government miniskr on behalf of then Foreign Minister Witness Mangwende, which led former Resident Jimmy Carter to make a celebrated walkout from a U.S. Embassy reception in Harare, Zimbabwes cap ital. Bu t by 1988 the U.S. had resumed its development aid programs in Zimbabwe.

By 1991, the U.S. had given Zimbabwe approximately $360 million in kt aid.

During Mugabes July 1991 visit to Washington, President Bush praised Zim babwes structural adjustment program as the key to market-led economic prosperity.

But he also expressed concerns about Zimbabwes land resettlement plans in a private meeting with Mugabe. Since that time State Department and AID officials have ex pressed concerns about the 1992 Land Acqui sition Acts compensation and appeal pro cesses as well as the land resettlement programs impact on Zimbabwes agricultural production and ability to attract foreign investment. U.S. officials want to assure that dispossessed Zimbabwean commercial farmers w ill receive a fair compensation from the government. They also want to assure that the land resettlement program does 9 not damage Zimbabwes economy at this critical time when Harare has accepted the need for long overdue eco nomic reforms.

These are contin uing American concerns.

The U.S. will spend approxi mately 37 mil lion this year on private en& prise develop ment, family 13 U.S. Aid to Zimbabwe: Up Again After Relations Cooled in Late 80s 80 60 40 20 0 Jimmy Carter Leado to 1980 1982 1984 1988 1988 1990 lW2 Note 1992 flgure 18 prolected Source8 Geogrephlcel Olstrlbutlon of Flnenclel Flows to Developing Countrles, OECD; end from other sources. Herltage DataChart planning, housing assistance, and grain market reform programs i n Zimbabwe. Wash ington also voted this January to support Zimbabwes $175 million World Bank loan and 484 million IMF loan. At least $220 million of American aid will support drought relief efforts throughout the southern African region. The ongoing droug ht called the worst in living memory, has wiped out some 80 percent of Zimbabwes cur ient corn crop. Zimbabwe, usually self-sufficient in food production, is thus left almost completely dependent upon food imports that are largely provided by aid donors.

I t is in Americas and Zimbabwes interest that Africa reduce this dependence on for eign donors. With some 30 years of evidence available, it is clear that the fiee market is the sole means to help countries raise themselves from poverty. The U.S. and Afric a s other donors have played too great a role in perpetuating poverty with well-in tentioned yet destructive foreign aid policies. To encourage free market reforms and economic growth in Zimbabwe, the Bush Administration should 4 Denounce publicly Zimbabwes Land Acquisition Act and land resettle ment program as an attack on private property Washingtons complaints about Zimbabwes 1992 Land Acquisition Act and land re settlement program have been too tiinid. To be sure, the Bush Administration is right to be c o ncerned that these measms will weaken agricultural production, discourage foreign investment, and not properly compensate dispossessed landowners. However Washington should oppose the Land Acquisition Act and resettlement program on 13 Changes in the 1992 Land Acquisition Acts process of appe+ were made between its introduction into Parliament and its becoming law.Ihe U.S. and other donors played a role in bringing about these changes. However, there serious concerns about how the appeal process actually w i ll work, as well as significant shortcomings in the compensation process as it is written 10 more fundamental grounds: they attack private property. U.S. development aid should be used to promote the growth of free market economies, which are the best mea n s of assuring rapid economic development. The Zimbabwean governments land resettle ment program dangerously undermines the bedrock of the free market economy-pri vate property This should be sufficient reason for American policy makers to warn the Mugabe g overnment as well as Zimbabwes multilateral aid donors that if Harare wishes to receive U.S. aid, it must not confiscate private property Eliminate bilateral development aid and oppose multilateral develop ment aid to Zimbabwe if it proceeds with its land resettlement program Zimbabwes World Bank-imposed stri~ctural adjustment program is intended to bring market-driven economic prosperity to the country. Yet Zimbabwe cannot move towards the free market while proceeding with its massive, confiscatory land r e settle ment program. Even if the Mugabe government were to abide rigorously by the World Banks rules-which it is not doing-its efforts to create a free economy would be un dermined by the planned confiscation of privately held commercial farmland. Were th e government truly interested in economic prosperity it would permit commercial farm land to be sold freely to create more commercial farms and allow farmers to own the land they cultivate. Doing this also would go a long way toward addressing inequities o f Zimbabwes land distribution, one of the main justifications for Zimbabwes land re settlement program. The reason: As more land is sold freely, it will be distributed more equally among a growing class of landowners.

Unfortbnately, the U.S. tacitly is end orsing Zimbabwes confiscatory land resettle ment program. By increasing Zimbabwes bilateral development aid to approximately 37 million this year, while approving of Zimbabwes access to World Bank and IMF development aid this past January, Washington send s a signal that basic market re forms do not matter. The Bush Administration need not compromise its principles on free market reform. The U.S. has cut its aid to Zimbabwe in the past, and American in terests would not be damaged if aid ceased entirely. On l y those African countries un dergoing meaningful free market economic refom warrant American development aid. A freee market cannot emerge in Zimbabwe if it proceeds with its land resettle ment program For these reasons, Washington should eliminate its bi l ateral aid and vote against fu me IMF and World Bank loans for Zimbabwe if Mugabe continues his disastrous land resettlement program. Doing this would avoid wasting the money of American taxpay ers It also would remove the U.S. from any association with Z i mbabwes structural ad justment program, which is bound to fail if its land resettlement program proceeds Nevertheless, regardless of Zimbabwes land policies, the U.S. should provide humani tarian aid, bilaterally and through international organizations, f o r drought relief in Zimbabwe. Washingtons current effort of at least $220 million to minimize the suffer ing throughout southern Africa is entirely consistent with Americas humanitarian tra dition 11 4 Transfer Zimbabwes bilateral aid to Zambia if Mugabe proceeds with the land resettlement program Zimbabwe is but one of many countries competing for American development aid.

Several of these countries, including neighboring Zambia are moving faster than Zimbabwe bward free market economies. Zambia, in fact, is recruiting potentially dis placed Zimbabwean commercial farmers with attractive tax rates. Thus Zambia, not Zimbabwe, should be rewarded for progress toward free market reform. If Hm pro ceeds with its confiscatory land resettlement program, then the $ 37 million allocated to Zimbabwes bilateral aid account should be transferred p4that of Zambia. Zambia is slated to receive $20 million from Washington this year 4 Assist fewer African countries with foreign aid and give higher priority to those that scor e high on the Index of EconomicFreedom AID is reviewing its allocation process. In doing so, it should undertake reforms to further institution lize its trend toward concentrating American development aid on fewer countries. The Index of Economic Freedom, a quantitative index for monitor ing a countrys progress toward free market reform, should be an essential tool for as suring that AIDS priority countries are moving toward free market-led economic prosperity.

A smaller number of aid recipients should enab le the U.S. to focus more on ways to use U.S. aid to stimulate the growth of free markets. Moreover, by assisting fewer countries, the U.S. reduces the risk of aiding countries that refuse to learn from the fail ures of state-controlled economies. The U.S . for too long has wasted economic aid on states that refuse to make badly needed economic reforms. American aid should be given selectively and only to those countries progressing toward free market econo mies CONCLUSION Zimbabwe plans to confiscate 13.6 m illion &s of productive, privately owned farmland and ksettle peasants on it. This is a potentially disastrous economic idea. By undermining Zimbabwes productive commercial agricultural sector, the plan will only hurt Zimbabwes struggling economy. The dam a ge to the economy will be all the greater because the confiscated commercial farmland will be owned by the state. Mov ing toward greater economic involvement by the state will only perpetuate Zimbabwes poverty and hamper economic growth. Zimbabwes best ho p e for elimi nating its poverty is for it to allow the fiee market to produce wealth and a better living standad foi all Zimbabweans 14 See Sheey. op. cir. TJp From Poverty: Advancing Economic Development in Zambia, Heritage Foundation Buckgrounder, No. 88 4 , fok how U.S. development aid can best assist Zambia 15 me U.S. General Accounting Office reports that. The share of U.S. development assistance funds far the 23 African countries where AID has been concentrating its efforts grew hm 67 percent in fd year 1987 to 86 percent in fd year 1990, Progress in Implementing the Development Fund for &cas GAO/NSIAD-91-127, April 1991. p. 4 12 This fact is not fully appreciated by the World Bank and other international donors hat provia aid in exchange for structural c hanges in Zimbabwes economy. The World Bank, for example, is giving Zimbabwe $175 million in development aid in re wn for a reform plan liberalizing trade, deregulating the economy, and promoting 30th foreign and domestic investment. However, these donors not demanding that he Mugab? govenment abandon the practice of confiscating private property If Zimbabwe proceeds with its resettlement plan, this will sabotage the international bnor refhs and the prosperity they promise. Failure of these reforms will di scredit the free market in the eyes of all ficans.

Fostering Free Markets. The U.S. should not follow the short-sighted policies of xher donors. Rather, Washington should lead the opposition to Mugabes plan. Wash ington should publicly denounce Zimbabwes 1 992 Land Acquisition Act and land re settlement program as an attack on private property. It should eliminate bilateral aid md oppose multilateral aid if Mugabes government proceeds with its resettlement plans. U.S. bilateral development aid to Zimbabwe i s planned at $37 million far this year. If Zimbabwe proceeds with its land resettlement program, Washington should transfer its bilateral development funds from Zimbabwe to Zambia, an African country that is making progress toward a free market economy. To improve its aid policy to Af rica in genefa, the U.S. should assist fewer African countries with development aid and give higher priority to those that score high on the Index of Economic Freedom.

Doing this would ensure that American foreign aid goes only to those countries that rue moving rapidly toward a free market system.

Thomas P. Sheehy Policy Analyst 13

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