Consumer Subsidy Cuts, Violence, and Political Stability

Abstract

Many observers have predicted that developing countries accept IMF conditions for new loans at the risk of their political stability. The Fund's conditions, which include devaluing a currency, restraining money supply, and cutting the government deficit, are seen as leading to economic austerity that in turn will provoke political instability.' We have argued that the IMF often provides resources that make adjustment easier and thus may lessen the chances of instability and that the IMF's conditions may lead to policy changes that are more likely to generate economic success than those policies many governments have been implementing.2 We, and other analysts, have argued that instability arises from many factors, not just from economic austerity. Moreover, the complicated interactions of external and internal political and economic factors are not captured by overarching frameworks such as dependency theory or world-system theory. We start with the assumption that countries must adjust to balance-of-payments imbalances and that their adjustment strategies are constrained by both international and domestic factors. At this stage of our knowledge, case studies are needed to build confidence in specific propositions about benefits and costs to different groups that follow the imposition of IMF conditions. Extensive analyses of a number of cases also throw light on the implications of specific tactics that governments employ when they implement austerity measures such as the speed and scope of adjustment and the sequences in which policies are implemented. Such studies can also illuminate which political factors seem crucial to success or failure of a government's adjustment attempts: elite unity; strength of specific constituencies such as labor unions or the armed forces; the capacity of government to implement policies in the face of oppositions.3 Here we examine an idea that seems to be especially widespread but relatively unexamined empirically. It is the view that decreases in consumer subsidies, in particular, lead to political instability in developing countries. Well-publicized violent opposition to these government actions have contributed to this view. In addition, there are reasons to think that subsidy cuts have immediate and significant effects on political stability. First, these changes affect food, fuel, and transport, basic goods that loom large in the budgets of consumers in developing countries. Second, most subsidy programs benefit urban dwellers, and the presumed volatility of urban politics leads observers to think that subsidy cuts will be destabilizing. Third, governments are directly involved in the changes and therefore may be held responsible for price rises. For many countries in Latin America and Africa, however, subsidy cuts may provoke discontent, but they do not appear to be more fundamental as a cause of instability than many other short-run factors which are at work leading to social and political instability, not to say long-run trends in society. Indeed, protests against subsidy cuts appear to be chronic