The Political Economy of Tanzania: Decline and Recovery

6. Cases in Economic Reform

C h a p t e r 6 Cases in Economic Reform By the mid-1980s, it appeared that Tanzania had the major ingredients in place for sustained reform. A reform-minded president had replaced Julius Nyerere. A new economic paradigm that emphasized market forces had discredited the older idea of state-sponsored industrialization. Following on the diffusion of this paradigm in the form of the Berg Report, the donor community had come together in its insistence on policy reforms as a precondition for economic assistance. An influential segment of the country’s political leadership and many of its most prestigious economists had begun to advocate reforms both within the government and to the Tanzanian public. An overwhelming majority of Tanzanians appeared eager for reforms to take place. Some of the earliest reforms, such as the import of used clothing, were highly popular; the used clothing markets that appeared everywhere were a welcome sign of better days to come. Whatever their feelings toward Nyerere personally, Tanzanians were aware of the economic and political costs of his failed economic experiment. De facto liberalization of the economy had already taken place through the expansion of the parallel economy, which had become almost as large as or larger than the official economy. Perhaps most importantly, many members of Tanzania’s political elite had become participants in the parallel economy: their personal economic interests went toward reforms that would acknowledge and regularize their status as a rich and powerful social class. Despite these considerations, Tanzania’s reform process was unsystematic , piecemeal, and painfully slow. The question this poses is very simple: why was that so? Case studies of policy reform provide an opportunity to develop answers. This chapter examines three areas of policy change; exchange rate devaluation, trade liberalization, and divestiture of SOEs, in order Cases in Economic Reform 163 to portray some of the key dynamics of the process, four of which are especially noteworthy. The first is uncertainty of outcome. When economic reform takes place in developing countries such as Tanzania, it is neither swift nor sure nor is it a universal solvent that systematically cleanses the economy of the policy features of the old regime. Nor is there a single moment when all the major actors join in a new policy consensus that assigns pride of place to the creation of a more open economy. If a developing country’s transition to a market economy seems inevitable, that is a retrospective viewpoint. Nothing is irreversible . The political conflicts that arise are often so intense and so evenly balanced that reforms may come to a halt as political elements favorable to the older system assert themselves. The second characteristic of reform is the multitiered pattern of political forces that comes into play. In Tanzania, the levels of interaction began with the dialogue between the government and the donor community, especially the IMF and the World Bank. However, as Chapter 4 showed, it would be a mistake to view either the donors or the Tanzanian government as unitary actors. For reform to occur, both sides had to undergo an internal dynamic of change. The donors had to put internal divisions behind and present a united insistence on liberal changes. However, they could not have brought about reform without a corresponding shift of opinion among strategically placed Tanzanians. Even when both sides had become united, civil society actors could emerge to play a role on important matters. The cumulative effect of all these levels of interaction was that the dynamic of change was not swift, sure or unilinear. The third characteristic of reform in Tanzania had to do with the importance of institutions. As Tanzanians pointed out during the aid crisis of 1994/95, Tanzania was not a military dictatorship or personal autocracy that could impose its will on dissenting elements. It had a constitutional system that made for divided authority. Contrary to its persona as a country with an all-powerful executive president, Tanzania during the first half decade of reform had a system of checks and balances that divided power between its executive and legislative branches. This limited the government’s ability to act expeditiously, even when it came time to introduce needed economic changes. The idea that a ministry of finance, even with the support of the World Bank, could orchestrate the behavior of other ministries was a vast overstatement of its authority. The fourth important characteristic of economic reform concerned the [3.14.132.214] Project MUSE (2024-04-25...