The most predominant policy framework of the past two decades has been economic reforms under the structural adjustment programme, which has been imposed on Sub-Sahara Africa (SSA) by international financial institutions (IFIs). During the 1960, it was widely accepted that the major growth hindrance in Sub-Sahara Africa was capital shortage. Starting 1980’s, Tanzania like most of the SSA counties plunged into economic difficulties with balance of payments difficulties at the center. Responding to the economic stagnation, and the balance of payments difficulties, the IFIs (in particular the International Monetary Fund - IMF and The World Bank) and the Donors became very critical about Tanzania’s development policies. The country’s problem was no longer viewed as capital shortage but rather as of policy failure. Faced with a balance of payment crises, Tanzania could no longer borrow from the international finance market, the only alternative was to turn to the IFIs; the World Bank and the IMF, whereby assistance could only be granted on the condition that the country implement structural reforms. "We have to accept things that are not in our interest because there is no other way out", Pscoal Manuel Mocumbi, October 2000.

In economic terms, a structural adjustments programme means a series of changes in number of key policy parameters. Nonetheless, behind this ‘technical’ fascia that justifies policy changes by reference to ‘economic rationality’, ‘efficiency’ and fiscal prudence lies a number of unstated but contestable far-reaching social consequences.

Methodology and Hypotheses

This paper qualitatively and descriptively underscores the development challenges, describes the origins of the economic difficulties in Tanzania, and addresses the social consequences of adjustment reforms in the country. The paper hypothesizes that while the IFIs argue that the market-oriented, private sector led strategies are capable of generating sustained economic progress, the IFIs have not paid attention to the long-term elasticities. In doing so they have pressed measures that are more severe than necessary, while sacrificing the long-term to the short-term. The measures undertaken have promoted progressive inequalities, and widened poverty in the interest of immediate growth, while the agriculture export drive has resulted into falling prices and subsequently into economic losses for the majority. It is further hypothesized that, whereas the liberalization of the foreign exchange market might improve capacity utilization, especially in the manufacturing sector, through easier access to imported inputs, the overall marginal capacity utilization might be marginalized due to the inadequate demand which domestic firms might face under a liberalized regime. The rapid exposure of domestic industries to the international competition might affect the manufacturing sector negatively.

Background and Basic Features of the Tanzanian Economy

One of the difficult development challenges of Tanzania like most of other Sub-Saharan Africa (SSA) is how can she graduate from sluggish to self-sustaining growth. To attain a self-sustaining growth, a number of requisites are indispensable. To the contrary, such requisites are non-existent in Tanzania. The challenge of social and economic betterment predominantly persists. Tanzania is an agrarian developing country consisting of a large traditional rural agriculture sector and a small urban based commercial sector. The majority of its population is engaged in subsistence activities. Agriculture accounts for 50-60% of the gross domestic product (GDP), and about two thirds of exports. Thus, the prices of agricultural products in the world market play a significant role in economic development. The employed labor force, that is to say those who are in the some way connected with the market, is small, comprising only about 10% of the population. Industrialization is remote; the share of manufacturing and industry production in the total GDP has declined from 20% in the early 1970s to about 14% in the early 1990s.

The colonial rule concentrated on the development of cash/export crop production as well as on the building-up of the infrastructure for the colonial ‘export enclave’. The indigenous people were discouraged to engage in export crop production, but rather encouraged to supply their labor to the plantations. Consequently, the spread of the modern economy into the traditional economy became limited. At independence in 1961, the economy was at a very early stage of development, with limited human and physical infrastructure, less stable infrastructures, less settled administrative institutions, and weak private institutions with limited capacity.

The inherited economy was a dependent economy, whose structure relied heavily on the production and export of a few primary products to European Markets. Apart from the diamond mining, a large part of the export sector was made up of either un-processed or semi-proposed products. Industrial activities were at a very low and rudimentary level. Secondary activities, which included manufacturing, processing and construction, formed about 13%. The rest was tertiary activities. Communication systems linked a few towns to Europe and not to areas within the country. The only developed sectors equipped with infrastructure were enclaves of mineral, export crop plantation and production. The proportions of literate and educated people, was small, while the average life expectancy was low. For example, in 1965 only 40% of those with age to attend school had access toprimary education. Not to mention college graduates, who were extremely few.

Perpetuation of Colonial Legacy Through Foreign Aid

Although Tanzanian farmers were obligated to grow cash crops for European industries by the colonial rule, the agriculture infrastructure, like technology, finance, transport, marketing, storage facilities and agricultural implements was poor. The Facilities in place did not cater for the requirements of the small-scale farmers, who consisted the majority but rather in accordance with the colonial requirements, i.e., to facilitate production and transportation of minerals and crops to the Europe. Although some goods (particularly the perishables) needed proper storage, and comparative opportunities existed within the country as well as in the neighboring countries, the required infrastructure, trade, marketing and other facilities were not adequately established. At the same time irrigation was on small scale.

Few years after independence i.e., in 1967, Tanzania adopted the policy of Ujamaa and Self-reliance with the objective of enhancing equity and welfare of the majority, correspondingly, emphasis was attached to the improvement of the agriculture sector. However the country was poor, with inadequate and weak structures. To confront the task of improving not only the agriculture sector, but also the overall economy, the country had to rely on foreign resources. The country was able to mobilize external finance, the assistances, however, were not free of conditionalities to suite donors’ interests. Conditionalities such as tying aid to procurement allocated aid to the areas of donors’ preferences and in a way that perpetuated the colonial settings, while improving the level of productive forces within the existing ownership structures.

Whereas, improved welfare and standard of living for the majority required improvements in the agriculture sector, particularly small scale farming, which not only employs the majority but also comprises a large share of exports earning, aid inflows to the sector were not directed to the basic requirements that could have enhanced the sector’s performance. Aid inflows toward irrigation, technological improvements, credits, education, storage, transportation, and marketing which are the basic needs were very limited. Instead, aid was used to put in place semi-processing industries, roads and railways (e.g., the Tazara Railway), which were to ensure a continued smooth transportation of cash crops and mineral to external markets. Donors appeared to have devoted little efforts in designing forms of aid and defining areas in which the impact of aid could have been truly valuable.

On the other hand, the cash crops (raw and semi-processed) acquired very low prices in the world market; however, the finished goods, which were brought back as processed goods/finishes goods, were exorbitantly priced. It is also important to note that under the basic industry strategy (BIS) that was adopted in the 1974 a significant portion of aid was channeled import dependent investments. Although the sustenance of these import dependent investments required the availability of foreign exchange, adequate foreign exchange could not be generated domestically.

Background of Structural Adjustment Programme in Tanzania

Since independence Tanzania has undergone a process of profound social economic changes. Immediately after independence, the country pursued a market oriented development strategy. In 1967, the country adopted the Arusha Declaration policy that gave a dominant role to the state with the intention of speeding up the development process. The Arusha Declaration emphasized the provision of social services and better living conditions for the Tanzanian people. In mid 1970s, Tanzania sought industrialization as an antidote to the inherited colonial economic structure. The policy emphasis shifted from the agriculture to the manufacturing sector. In 1974, Tanzania adopted the basic industry strategy (BIS) that emphasized import substitution and simultaneous expansion of heavy producer and consumer goods industries. The industrialization policy, however, led to a good lead of capital-intensive investments that were import dependent. On the other hand, the manufactured goods were rarely competitive internationally.

The early post-independence years showed a relatively fast economic growth, later it however slowed down, and in some years the GDP growth rate was even negative. The reliance on exports of primary products, made Tanzania face highly unstable markets and particularly vulnerable to the unfavorable terms of trade and other conditions in international markets. In mid 1970s, the prices of most of the primary products fell and international terms of trade worsened. The sharp deterioration in the terms of trade, the historic high during the 1980s deepened the country’s economic difficulties.

As the country faced a situation of declining export earnings andbudgetary revenues, the government employment and expenditure had expanded. With her merge foreign exchange earnings from exports of the few primary products, and receipts from foreign aid, the country had to import almost all of her capital goods, intermediate inputs requirements, some consumer durables, and some food. As the deficits both in the trade balance and public finance became unsustainable, the country had to compress imports. The import compression resulted into a depression of investments, production and consequently into a further decline in exports earnings. In addition to the above, other external factors aggravated the situation.

Following the foreign exchange crisis the Tanzania economy was virtually brought to a stand still. On one hand, agricultural exports declined as a result of both a decline in export prices and a decline in production. On the other hand, the BIS had created a manufacturing sector, which while contributing marginally to the economy, was a heavy net user of foreign exchange. Although there was a build up of high import demand, Tanzania was forced to reduce the value of imports by 37% in three years; from US$ 1384 million in 1980 to 870 million in 1983. As a consequence of shortage of foreign exchange to import the required intermediate goods, the capacity utilization in the industrial sector declined to below 30%.

The government also faced increased payment arrears. Prior to the 1980s crisis, the country had reached a Stand-by-Arrangement with the IMF of SDR 179 million for a period of up to May 1982. Tanzania faced difficulties in meeting the conditionality and the performance criteria; subsequently the IMF drawings were suspended after the first tranche that was released in late 1980s. The loss of foreign exchange, which resulted from the suspension, was partly compensated by commercial borrowing (supplier’s credit) that amounted to US$ 165 million over the years 1980-83. These credits contributed strongly to an increase in payment arrears form US$ 302 million in 1981 to 445 million, and exceeded the total export earning by 30% in 1983. Notwithstanding the economic difficulties, bilateral donors withheld their aid inflows. The total grant to Tanzania net of technical cooperation was reduced by 45%, from US$ 485 million in 1980 to 265 million in 1985. Total aid including net concessional loans (net of technical cooperation grants) was reduced by 30% from US$ 492 million to 345.5 million in the same period. These developments affected all sectors of the economy. Agriculture and manufacturing sectors suffered severely form the failure to acquire the necessary inputs.

The intensity of the economic crisis, the inability of the national efforts to revive the economy, and the pressure from the donor community under IMF/World Bank forced Tanzania into an agreement with the International Monetary Fund (IMF) and The World Bank on a structural adjustment program. In 1986, Tanzania agreed to pursue an Economic Recovery Programme (ERP). The ERP may be interpreted not only as an attempt to solve the economic crisis, but also an attempt by the government to accommodate the demands of the IFIs in order to overcome the foreign exchange constraint.

While, the ERP emphasized that the imbalances in the economy leading to crisis were due to poor policies, there are doubts, however, if the proposed and adopted measures really address these problems, and imply fundamental changes for the betterment for the Tanzanian economy. The reforms appear have ignored some sectors of the economy where reforms seem most urgent, and have not dealt with the underlying economic hindrances. The county is yet to attain structural transformation and remains with narrow, rigid and vulnerable productive bases. The country has not been able to attract private foreign investors, but has remained heavily dependent on foreign aid.

Social Consequences of Adjustments Policies

For sustainable economic growth, a country requires both physical andhuman capital. Human resources development ensures effective and efficient utilization of capital. Human resources development is the process of increasing the knowledge, skills, and the capacity of people. Additional ways for human resources development are improvements in health of the people, the improvement of nutrition, and thus the overall quality of life. Such improvements increase the working capacity and productivity, i.e., on man-hour basis and over a working life. Both improvements in health and nutrition are related, and like education contribute to economic growth Schultz (1989).Education is one of the human resources whose distribution affects households’ income, and thus standard of living. Education assists in reducing poverty and improving health, and it promotes the only asset poor possess, labour, Isakson (1999).

Under the Arusha declaration, efforts to improve education and health services were put high on the agenda. The social sector received substantial amount of resources, both from foreign aid as well as from the government. Following the structural reforms not only the government allocations to sector declined, but there was also a shift in aid strategy towards programme support, (mostly balance of payment and commodity support). Consequently resources to the sector declined considerably. In the 1970s the government allocation to education was 20% and 13% to health as compared to 7% and 6%, respectively in the beginning of 1990s. On the other hand, foreign aid disbursement to the social sector fell to about 20% in the 1980s, from about 85% in the early years of independence and fell further to about 19% in the early 1990s, appendix 1depicts the movements. The social sector has also been negatively affected by the cost sharing system, which was introduced following the reforms. While the reforms have resulted into deterioration of income and standard of living of the majority (as it is explained further in the text), people are required to pay user fees.

The social indicators in Table 1 suggest that while in the 1970s, Tanzania had a development, which in several respects was better than the average for SSA, the situation turned around. During the 1970s Tanzania managed to achieve a very respectable enrollment rate and literacy levels as well as reduced mortality rates. However, as a consequence structural reforms, the early improvements were eroded. Many schools have fallen into decay, schools lack books and other supplies, teachers are often inadequate and sometimes unskilled, the school buildings have deteriorated. Evaluation on high education also shows that as a result of shortages of qualified teaching staffs and teaching equipment the quality of education has deteriorated. Ability to improve the situation is questionable; let alone initiating any new education projects that might be desirable.

Table 1: Selected social indicators for Tanzania and SSA, 1970 to 1994

Indicator	1970-1980			1985-1990			1990-1994
	Tanzania	SSA		Tanzania	SSA		Tanzania	SSA
Life expectancy at birth (years)	47	47		48	49		48	51
Infant mortality rate	122	127		117	118		115	107
Average daily calorie intake	2244	2107		2229	2040		2206	2120
Primary school gross enrolment rate (%)	93	70		72	68		63	69

Source: The National Accounts, and Bureau of Statistics, 1986-1996 publications.

Table 1 further indicates that, while Tanzania does well with regard to caloric intake, the achievements of the 1970s on the remaining three indicators have deteriorated. Life expectancy had hardly increased, the infant mortality has decreased more slowly than in SSA. The most dramatic changes, however is the large decline in primary school enrolment, from 93% during 1970-1980 period way above the average of SSA, to 63% in the 1990-93 period. The provision of water supply has also been deteriorating. In the early 1980s about 60% of population had access to water. In the early 1990s almost half of the system were out of order due to breakdown, incapacity of operations and lack of maintenance. Coverage is very low, only about 28% of the population. All these indicate a serious decline in the social sector. Inequality and poverty have also increased. The Gin-coefficient was estimated at 0.44 in 1976/77 it rose to 0.57 in 1971 (Word Bank, (1993)).As a consequence of poverty people (the majority of Tanzanians) are incapable of accessing education and health services, maintain or manage the facilities that provide social services on the basis of user fees.

The above-explained direct social consequences are not the only consequences of structural reforms. Linking the adjustment reforms with distributional impacts, it is observed that the majority of Tanzanian who are farmers and workers have suffered dramatic declines in living standards. The underlying focus of the reforms on export orientation has neglected the food sector. In cases where there have been improvements in food output, the improvements have been generally by accident of nature and not by the design of policy reform. Food policy have tended to be confined largely to removal of subsides. Whereas food subsidies were financed out of the recurrent budget of the government, its removal did not raise producer prices, but instead reduced the budget deficit, Campbell (1990). The reforms are designed to shift the terms of trade in favour of export crops, while nothing is done to remove the non-price constraints on expanding food production. In the final analysis, these weaknesses are reflected in spirals of inflation caused by food output lagging behind demand. As food prices rise and reduce the competitiveness of exports, the government is pressed to devalue in order to restore the differential. Yet again, the consumer price index responds to food shortage and the cycle repeats itself.

The consequences of adjustments policy and the emphasis on export drive are beyond that of supply of food. World Bank argues that liberalization and privatization of marketing will result in a more efficient marketing system; retaining smaller marketing margins and thus passing on to the producers a larger share of final prices. Combined with devaluation of the Tanzania Shilling (TShs.), this should give producers of export crops a strong incentive to increase their output, with the result that Tanzania should increase its agricultural exports and hence exploit better its comparative advantage in international trade.

So far, there is no sign that such a process is taking place. Table 2 indicates that the exports volume of Tanzania’s major exports has not been at a higher level in 1991-94 than in the crisis period 1982-85, in spite of the real devaluation of more than 80%. On the other hand, due to a dramatic price decline of 33% between 1987 and 1994 (mainly caused by coffee), the exports value in US$ terms of these crops was 28% lower in 1994 than in the crisis period 1984-85. Tanzania accounts for only small shares of total world exports of the commodities. In that case, the prices Tanzania acquires on the world market are not affected by changes in its own volume of exports, the price and income elasticity of these commodities are very low. The widespread adoption of the IMF and World Bank programmes has led to an expansion of world supply and a corresponding decline in the world prices. As an advice from IMF and The World Bank, and as aid conditionality several countries competing with Tanzania on the world market have tried to ease their balance of payment crises through export drive. That was the main reason for example of the collapse of the International Coffee Organization in 1989, and the subsequent dramatic decline of world prices of coffee, Tanzania’s major export crop. The average export price of Tanzania coffee dropped by 27% within one year from US$ 2164 per tone in 1990 to U$ 1370 in 1991. Prices for tea and cashew nuts have also declined considerably.

Table 2: The exports volume of Tanzania's major exports, 1982 to 1994
 

Year	Real exchange rate US$ /TShs1	Indices of real exchange rate  1985=100	Six Major exports crops 2				Value of manufacturing Exports as % of total Merchan- dise exports
			Export volume indices 1985=100	Export unit value indices US$ 1984=100	Export value indices US$ 1985=100	Export value as % of total Merchandise exports
1982	0.1742	98.8	136.0	92.9	126.3	61.2	10.0
1983	0.1862	105.6	112.1	83.8	93.9	60.6	9.1
1984	0.1873	106.2	102.8	88.9	91.4	64.5	11.6
1985	0.1764	100.0	100.0	100.0	100.0	69.0	8.5
1986	0.1988	112.7	83.4	87.8	73.2	68.4	11.4
1987	0.1376	78.0	92.5	105.5	97.6	75.3	11.2
1988	0.0883	50.1	99.6	75.4	75.1	57.9	18.3
1989	0.0727	41.2	103.1	81.2	83.7	60.3	19.4
1990	0.0607	34.4	100.7	78.8	79.4	56.0	24.1
1992	0.0510	28.9	112.5	66.3	74.6	50.1	26.0
1994	0.0445	25.2	102.7	80.0	71.9	58.4	18.5

Source: Bagwacha 1993, and Tanzania Economic Trends Vol. 6 Nos. 1-2, July 1993.

A combination of an emphasis on the export drive with a clear ideological prejudice on the part of the IMF and the World Bank in favour reliance on market mechanisms and promotion of the private sector has other implications on the performance and structure of the economy. The adjustment programs were designed to improve foreign exchange allocation through emphasizing and stressing the need to ensure that the enterprises with access to foreign exchange are efficient in both economic and financial terms. Stated more directly, the emphasis was on better performance by moving towards a more transparent and open to all foreign exchange allocation system, so that the more efficient users of foreign exchange may gradually out-compete the less efficient users, Edwards (1989).

Table 3: Average rates of capacity utilization in selected industries
 

Period	1970-1975	1976-1980	1981-1985	1986-1990	1991-1994
Rate of capacity utilization	61.9	60.2	51.6	51.8	49.5

Source: Computed from the National accounts, 1986 -1996 publications.

Note: This sample consists of relatively large, efficient parastatals viewed as critical by the then import licensing authorities. Typically capacity utilization is drastically low during the late 1970s and early 1980s.

Although, in general terms the above criteria for foreign exchange allocation are indisputable, the policy measures adopted in Tanzania have not been entirely complementary. From the supply side, in so far as availability of input is concerned, freer access to foreign exchange is likely to help firm to meet their essential imported input requirements and thus improve the capacity utilization. Table 3 shows that the liberalization of foreign exchange has not enabled the manufacturing sector to improve capacity utilization. Nevertheless, it is somewhat simplistic in terms of economic logic to expect that liberalization of foreign exchange allocation alone would increase substantially capacity utilization. Liberalization of foreign exchange allocation emphasizes only the supply side constrains, i.e. of imports of essential raw materials. Firms are also faced with other several difficulties. Although import liberalization eases some supply side constraints, it also exposes the firm to foreign exchange competition and usually reduces the size of its market. Malfunctioning of economic and social infrastructure is perhaps even a more serious problem. Additionally, in a backward economy like Tanzania, despite the availability of the required imported raw materials, in the short run, negative demand may become the binding constraint for many firms.

Using the change in market share we evaluate the effects of import liberalization on demand, while examining the effects of exposing domestic firms to competition. In doing so, as shown in Table 4, we find that the market share of domestic manufacturing industry has decreased quite drastically following the liberalization of imports. Moreover, the manufacturing value added in the liberalization period 1986-1994 was considerably low as compared to 1974-79, and even lower than during the crisis period 1980-85. This indicates a "Demand–squeeze" since the fall in market share is not accompanied by dramatic decline of total market size in 1986-1994 as compared to the preceding period.

Table 4: Market share of domestic manufacturing industry 1970-1994
 

Period	Market share* in %	Indices of manufacturing value added at constant 1976 (1970-73 = 100)
1970-1973	61	100
1974-1979	67	128
1980-1985	72	113
1986-1994	36	109

Although the use of price incentives created through devaluation is expected to stimulate manufactured exports and hence diversification of export, a sudden and premature exposure of domestic manufacturing firms to international competition may also cause industrial stagnation or even, in the worst case, trigger off a process of de-industrialization. And, indeed there are some early signs of such adverse developments in Tanzania. As shown in Table 4, the market share of domestic manufacturing industry fell from 72% in 1980-85 to 36% in 1986-94, while value added fell from an index of 128 in 1974-79 to 113 in the crisis years 1980-85 and further to 109 in 1986-94. Moreover, the share of manufacturing industry in total GDP at current prices continued to fall, from 7.4% in 1987 to a historical low of 3.6 percent in 1994.

In 1990 and 1991, the value of manufacturing exports as a share of the total value of merchandise exports rose above previous levels, to 24.1% and 26% respectively. However, this increase was to a large extent due to a decline of export value of traditional crops. There was a decline of 11% from 1989 to 1991 following the dramatic fall in prices, especially of coffee. In 1992 the share of manufacturing exports in total export value declined again to the level of 1988, and the value of manufacturing exports in 1992 was only US$ 60.9 million as compared to 63 million in 1988. Additionally, the produced goods faced a weak demand in the stagnating economy.

Summary and Conclusions

The results of the analysis presented in this paper are in line with the hypothesis that the reforms have resulted into deterioration of income, standard of living of the majority, and thus intensified poverty. In contrast to the hypothesis that the liberalization of the foreign exchange market is expected to improve capacity utilization through easier access to imported inputs, it has been observed that capital utilization has not increased significantly, while domestic goods have faced contracting demand. The present evidence points more to the "destructive" effects of foreign competition than to the "creative" effects on domestic industries in Tanzania.

Tanzania’s development difficulties are persistent. The country faces a limited capacity to adjust quickly, while possibilities for rapid economic restructuring are few. Tanzania is hampered by the supply constraints that go with a lack of development (structural problems). Overcoming structural difficulties require long-term investments. Yet these long-term investment processes are frequently interrupted by short-term crises caused by external shocks, and weather-induced crop failures. Tanzanian principal commodities are commodities with limited prospects in current circumstances. Neither households nor firms have as yet sufficiently created the social institutions to promote growth. It is, however, unfortunate that the adjustment reforms have not been sensitive to the situation in Tanzania. The social-economic structure and other important factors in the economy have been left aside; as if they do not carry any weight. The relationships between the short-term adjustment programme, designed to stabilize the balance of payments and the requirements of medium and long-term development have not been taken into considerations. There is no much point in improving price signals if firms capable of responding in a competitive framework cannot receive the signals.

In view of the foregoing findings, it recommended that the improvement of the productivity of the manufacturing sector be carried simultaneously with the improvement of the agriculture sector. The agriculture sector will have to produce the surplus from which industrialization will have to be financed, just as it did everywhere else in the world. The creation of the agricultural supporting infrastructures should focus on streamlining the required facilities, ancillary services and linkages in a direction that will ensure a healthy growth of both markets, i.e. the domestic market as well as for exports, while taking into consideration the welfare of the majority.

The separation between the use of price mechanism for efficiency purpose and ideological preference of free market is as well indispensable. Development in countries like Tanzania requires both the private and public sectors. The pendulum must not swing so far towards the private sector that the desirable functions of the public sector are neglected. For private activity to become more prominent of its accord, the government should provide the conditions in which private activity can flourish. Firms in Tanzania operate in a very unfavorable macro-environment. The poor social and economic infrastructure makes Tanzanian firms severely handicapped to face international competition and to create new investments. In view of their late start, it cannot be expected that they by themselves can develop the technological innovations and other competitive assets to survive and even grow in a highly competitive (world) market without government assistance. The doctrine of competition need not be interpreted in a narrow way to mean exclusively competition within the sphere of private economic activity.

While a more open orientation for an economy is desirable, the timing and sequencing of opening up must relate with care to the country’s export capacity, the state of the world market, the ability of domestic producers to benefit from foreign competition as well as the social effect and subsequent economical effects resulting from the undertaken measure. The pace of the adjustment reforms must be sensitive to the country’s capacity to adjust and to benefit from opening up the economy to international market forces. The pace should be carefully synchronized with an effective national policy, while taking protection against swings in foreign currency earnings and paying great attention to supply as opposed to demand issues. It is also important that adjustment measures be harmonized with actions to promote all necessary aspects of change. When better price incentives are set for domestic producers, attention must be paid to ensure that the non-price elements of improved production are also in place.

Emergency situations should be met from contingency funds so that essential investments can continue without interruptions. The short-term and long-term adjustments programme should be harmonized. Although the IMF and the World Bank collaborate on trade liberalization, and price reforms, the non-price elements are however, largely left to the World Bank and the government. Exchange over such matters could be instrumental in producing greater realism about the time-path of successful adjustments. There is a need of improved collaboration between the World Bank and the IMF, so as to achieve two main purposes. First, a better relationship between policy instruments and actions and secondly, a greater harmony between short-term adjustments and longer-term development.

While International institutions and donors are putting increasing pressure on governments to make use of market forces, they are the ones who are distorting the competitive process through ‘asymmetrical liberalism’. For example, the goods Europe imports from Africa free of duty are the agricultural products it cannot produce. Imports of processed products are mostly subjected to high duties, Elliesen (1999). There is no good match, for example, between trade policies urged on recipients by IFIs and other donors and their own trade policies, which greatly harm poor countries. The alternatives should be scrutinized thoroughly, and all practices that create unhealthy competition should be brought to an end.

Additionally, a due regard should be paid to the distributional effects. That is to say, adjustments to the general world economic conditions must not be made at the cost of poor people. The countries social-economical problems, and the corresponding social inequalities and vulnerability to crises of different social groups need to be considered. Poverty is not an individual problem, but a social one. Poverty can be alleviated where there is a stable social community. International Institutions must therefore, support the societies in finding a middle course between preserving social structures and broadening individual opportunities. Society’s distribution of wealth is crucial in poverty alleviation, however it is important to note that, it is not only about monetary distribution, but also equipping the poor with the means of production. In the case of Tanzania these will include access to education, health, credits, irrigation, storage, transportation and marketing facilities.

It is equally important that the reform polices to be discussed and agreed upon by both parties and be implemented based on the priority needs of the recipient. Structural reforms have been characterized by much asymmetry (both parties do not negotiate on an equal footing). IFIs have claimed to have "good intentions", but it should be realized how different the effect of "good intentions" might be. Tanzania has been inclined to accommodate the IMF/World Bank’s position. This inclination is sustained by the perception that disagreement with IMF/World Bank would induce the withdrawal of support not only by these Breton Wood Institutions, but also by the other donors. In this regard, the Tanzanian capacity to negotiate and undertake policy analysis should also be strengthened. Importance should be attached to the capacity to engage in dialogue, and to examine policy alternatives. Policy proposals and drafts for negotiations should originate from the government. The most important starting point is to ensure that the Policy Framework Paper (PFP); the basis for negotiations with the IFIs and the other donors is prepared by government. It is also indispensable for donors to strengthen their capacities to understand the institutional, economic, political and social influences in Tanzania, an understanding that lags far behind economic and technical competence of the IFIs.

Summing up, firms in Tanzania are not simply inefficient in terms of internal organization, but they also operate in a highly unfavorable macro-environment, with very poor economic and social infrastructure. Until such structural facilities are brought at least to a minimal functioning level, and an efficient maintenance of economic and social infrastructure is put in place the microeconomic preconditions for the working of a competitive market mechanism for creative destruction may just be over-simplistic and cannot be expected. The outward oriented economic strategy cannot contribute to economic growth in vacuum. A link between a liberal regime and economic success must be in place. Within this trust, adjustment measures and economic policies should aim at putting in place a clear strategy that can promote growth and balance of payments stability, while taking into consideration the welfare of the majority.
 

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Appendix 1. Sectoral disbursement of foreign aid over time
 

Year	Social Sector	Economic Sector	Production Sector	Administration Sector	Multi sector
1965-66	85	0	15	0	0
1967-68	85	0	4	11	0
1969-70	53	28	14	4	1
1971-72	57	19	20	3	1
1973-74	40	14	31	11	3
1975-76	49	3	19	4	24
1977-78	38	6	20	23	12
1979-80	25	9	30	7	28
1981-82	21	1	28	3	46
1983-84	19	3	30	6	42
1985-86	19	8	28	8	38
1987-88	19	9	22	8	42
1989-90	19	6	27	3	45
1991-92	20	13	21	5	41
1993-94	17	32	13	7	30

Source: URT, "Conference on the effectiveness of foreign aid in Tanzania", by the Planning commission, 1997.