CONSUMER SUBSIDY CUTS, VIOLENCE AND POLITICAL STABILITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000304180001-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: January 7, 2010
• Sequence Number: 1
• Publication Date: December 1, 1984
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Confidential
Consumer Subsidy
Cuts, Violence and
Political Stability
A Research Paper
Confidential
GI M 85-10082
December 1984
E C'r'y'
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85TO1058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
CONSUMER SUBSIDY CUTS, VIOLENCE, AND POLITICAL STABILITY
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Summary
Third World regimes facing balance of payments difficulties
have largely steered away from reducing subsidies on food, fuel,
and transportation. Well aware of the experiences in Egypt,
Sudan, and several other countries where subsidy cuts have led to
substantial violence, Third World leaders fear that opponents
will take advantage of subsidy cuts to foment riots and otherwise
organize against them. Political observers, for their part, are
concerned that austerity measures followed by sharp outbreaks of
violence will lead to a general loss of legitimacy, embarrassment
on the international stage, and to specific desertions of major
elements of regime constituency: police or army, civil service,
or parts of the labor movement.
Our study of the repercussions of subsidy cuts in over 30
Third World countries demonstrates that such fears were largely
unsubstantiated. In almost all cases the civil service and armed
forces have stayed solidly behind those regimes that faced
violence, and the subsidy cuts have not otherwise significantly
damaged the regimes in power.
Large scale violence
in reaction to subsidy cuts--defined
within this study as causing the deaths of at least 30 people and
significant physical destruction--hats occurred in nine cases
(Table 1). There are over 25 instances, however, where subsidy
cuts resulted in a far lowdr level of violence. Subsidy cut
protests, in fact, appear chronic in the developing world and
dissent based on them is not more significant than opposition to
government based on other economic sources of protest.
GI M 85-10082 2
CONFIDENTIAL NOFORN
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
RESPONSES TO CONSUMER SUBSIDY REDUCTIONS, 1976 TO 1984
Major Violence
Minor Violence
No Violence
(More than 30 killed in riots)
(Less than 10 kill
ed
in riots)
(No deaths)
Dominican Republic--1984
Bolivia--1981
Ghana--1984
Egypt--1977
Colombia--1978, 19
80
Mexico--1984
Liberia--1979
Costa Rica--1976
Sri Lanka--1977
Morocco--1981, 1984
Cuba--1979
Tanzania--1984
Peru--1978
Dominican Republic
--1
980
Turkey-1984
Sudan--1979, 1982
Ecuador--1978, 197
9,
1981
Zambia--1976
Tunisia--1983-84
Guatemala--1978
Guyana--1981
Zimbabwe--1983
Honduras--1978, 19
80
India--1979, 1980, 1981
Iran--1978
Jamaica--1979
Mexico--1978
Panama--1976, 1979
Pakistan--1979, 1981
Peru--1976, 1977, 1978, 1980, 1981
Sri Lanka--1978, 1981
United Arab Emirates--1980
Venezuela--1976, 1980
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
With the possible exceptions of Peru and Liberia, subsidy
protests have not been especially consequential for political
stability.
o The violent protests and riots have been overwhelmingly
spontaneous and thus hard to sustain.
o There is no evidence of an articulated agenda among
rioters beyond annulling the price increases; nor is
there evidence of a leadership that puts forward
spokesmen linked to the rioters.
o Opponents of the regime have been unable to strengthen
their organizations during or after the riots. Indeed,
governments have used the occasion to crack down on
regime opponents by arresting trade union or party
leaders. The highest level leaders have sometimes used
the occasion of riots to eliminate their opponents
within the elite and to consolidate their power.
o Governments have taken advantage of their ability to
rescind the subsidy cuts to diffuse the opposition. In
many cases, they implemented new, more moderate price
increases within several months without any
corresponding violent reaction.
o Governments can mollify protestors by enacting
compensating tax cuts, wage increases, or scapegoating
select government officials.
A comparison of cases where ten or fewer people were killed
in protests following subsidy cuts and cases where major violence
erupted shows similarity in (1) the number and duration of
protests following the subsidy cuts and (2) the short and medium
term impact of violence on stability. Nonetheless, the number
killed during consumer subsidy riots affects the potential
system, in that high level,government decisionmakers usually are
involved in responding to the protests and recriminations against
other members of the elite often occur. There is no evidence,
however, that higher numbers of deaths create more public
alienation from the rulers than do smaller incidents.
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
There are also several cases where subsidies have been
removed or lessened without violent reactions: Sri Lanka under
Jayawardene in the late 1970s; Turkey under Turgut Ozul in 1984;
Zimbabwe under Robert Mugabe in late 1983; and Zambia under
Kenneth Kaunda in 1976. These cases share a striking number of
characteristics: elite unity, legitimate governments with a
popular leader, weak political opposition, critical issues that
deflect attention away from price rises for foodstuffs, and an
improving economy or one so desperate that the subsidy cuts were
not perceived as consequential. Perhaps most important, in each
case the regime prepared public opinion and shifted the debate
from questions of equity to the need to lay the groundwork for
longterm economic growth and prosperity.
III ,, Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Introduction
This study explores the links between subsidy cuts and
political-stability. There are many reasons to believe that such
cuts would have an immediate and significant effect on regime
legitimacy. The changes affect food, fuel, and transport--basic
goods that loom large in the budgets of consumers in developing
countries. Secondly, governments are directly involved in these
changes and therefore may be held responsible for these price
rises. Thirdly, since most subsidy programs benefit urban
dwellers the presumed volatility of urban politics leads many
observers to think that subsidy cuts will be destabilizing.
Specifically, they argue that groups with grievances against the
government such as students, labor unions, and political parties
or movements may provoke or try to take advantage of turmoil
generated by subsidy cuts.
In this paper we assess these arguments by examining
prominent cases where subsidy cuts have provoked major violence,
low-level violence, or no violence at all. Our aim is to
understand why violence sometimes occurs and what it means for
political instability. We specifically explore those
circumstances whereby subsidy cuts are most likely to provoke
violence as well as those factors that have proved most effective
in mitigating the political fallout of subsidy cuts.
Violence and Subsidy Cuts
The vast majority of violent reactions to subsidy cuts
involve three types of purchases: food, bus fares, and petroleum
11! "1 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
products. It is hard to say whether the prevalence of violent
reactions reflects the frequency of changes in these prices or
the salience of the goods themselves.
In Latin America, protests frequently center on fuel
products and transport costs. These protests usually are
entwined with endemic labor strife, whereas riots over food price
increases in North Africa seem more spontaneous. The difference
exists in part because Latin American countries are more
urbanized and industrialized. Moreover, many Latin American
countries do not have extensive food subsidy systems. There are
few examples of violence from South Asia and Sub-Saharan Africa
largely because most countries in these regions have resisted
tampering with food subsidies.
In the more trade unionized countries of Latin America,
protests against subsidy. cuts appear to be more entwined with
general wage demands, protests against increases in cost of
living, and the nature of government authority. The prominent
role of students in Latin American disturbances suggests the
salience of protest against general government authority,
although student violence also has been present in Tunisia,
Morocco, and Sudan.
Large Scale Violence: The Nine Prominent Cases
Major violence--which'we define as involving the death of 30
or more people and significant physical destruction--has not been
a frequent outcome after economic subsidies have been lowered or
removed. In the nine major cases we studied, however, there is a
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
sharply with the other concessionary actions. Here again, the
regime leadership probably has found a suitable occasion to
advance its interest over those of its opponents within the
government.
Although these episodes of violent reactions to subsidy cuts
have not been important determinants of fundamental political
change in the overwhelming number of cases, no regime can be
indifferent to subsidy riots. No regime wants to face down
rioters, but violence in the wake of subsidy cuts often reveals
bitter opposition to a regime. At the minimum, the breakdown of
order is an international embarrassment. The physical
destruction is costly. No regime can be sure it will surmount
short run difficulties. Nor can it be certain that its rule will
not be weakened. Leaders are risk averse.
Small Scale Violence: The Most Frequent Pattern
Many countries have experienced small scale violence--but no
major flare-up of violence--as a result of subsidy cuts (See
Table 1). In comparison to instances of major violent reactions
to cuts in food subsidies, the smaller scale cases generally
involved cuts in all three types of goods, including foodstuffs,
transport costs, and fuel products.'
In several of these countries--Colombia, Ecuador, and India,
for example--multiple episodes of smaller scale violence have
formed a pattern of chronic violent reaction to subsidy cuts and
price increases. These episodes generally have been dispersed
with other economically motivated disturbances such as strikes by
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
In some cases, however, more moderate price increases were
implemented within several months without provoking a
correspondingly violent reaction. In Egypt, there was great
sensitivity to holding food prices constant after the 1977
violence. By 1982, 34 percent of the total budget went for
subsidies. But in April 1978, severe seasonal shortages drove up
prices for non-subsidized foods at a rate faster than those
imposed by the government 15 months earlier. Yet there were no
demonstrations, perhaps because the price increases were not
attributed to the government.
Governments have tried to mollify protestors by announcing
wage increases along with the initial retreat on price
increases. This approach, however, can backfire. When the Sadat
government tried to cushion the effects of subsidy cuts on public
servants by giving them pay raises, it may have triggered
violence in the streets of Cairo and Alexandria because this
action was seen cynically as an attempt at appeasement. Rulers
have also tried to appease protestors by dismissing important
members of the government. Such officials usually have been
responsible for economic or security matters. Individuals who
lost their posts may also have been in conflict with the ruler or
other important government officials. Thus, the protests in
effect provided a convenient excuse for their removal.
In most cases, the authorities have reacted by arresting
large numbers of opposition politicians, union leaders, and
student activists. Many of those arrested have been tried,
convicted, and imprisoned, and their treatment has contrasted
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
unions (Morocco, 1981), or even business organizations (Dominican
Republic). These groups may or may not have intended that their
demonstrations become violent, and in some cases their leaders
apologized for the outcome. Indeed, the leaders of these
organizations had reason to fear violent outcomes because the
authorities often responded by arresting them. Looting and
violence usually were sparked by some seemingly haphazard
incident often involving students or even school children as in
Morocco in 1981.
Regardless of the duration and spatial dispersion of the
violence, none of these episodes was part of a sustained series
of protests. There is no evidence of an articulated agenda among
the rioters beyond annulling the price increases, nor is there
evidence of a leadership that put forward spokesmen or was linked
to rioters. However, while organized groups may have jumped on
the opposition bandwagon and have helped to sustain it in some
cases, the time of riots and the lack of agenda other than the
demand to have the subsidy cuts rescinded indicate that organized
elements were not behind the outbreaks of violence.
While these episodes have not been an important determinant
of fundamental political change, they have had important short
run effects. In all cases except Peru, price increases were
either cancelled or reduced sharply during or just after the
protest. The ruler personally made this announcement, whereas
other government officials often had announced the price
increases. The weakness of the regime sometimes was demonstrated
when ministers were "thrown to the wolves" and the cuts rescinded.
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
COMMODITY PRICE INCREASES AND INFLATION RATES
IN COUNTRIES WHERE MAJOR VIOLENCE HAS ERUPTED
FOLLOWING THE IMPOSITION OF SUBSIDY CUTS, 1976-1984
Period
of
Protest
Dominican Republic 4/23/84 to
4/25/84
Egypt
1/18/77 to
1/19/77
4/14/79
6/20/81 to
6/21/81
1/4/84 to
1/22/84
5/15/78 to
5/20/78
8/5/79 to
8/19/79
1/3/82 to
1/5/82
12/29/83 to
1/5/84
Ciamiodities Affected
Proposed Charges*
beans and bread: 100%
some other foods: over 50%
sane flour and flour
products: 50-67%
cooking gas: 46%
petrol: 26-31%
cooking gas, flour,
butter, milk, sugar: 40%
white sugar: 17%
edibile oil: 30%
white flour: 34%
butter: 67%
flour, bread,
dairy products,
cooking oils: 40-130%
petrol: 67%
bus fares: 50%
petrol: 66%
sugar: 63%
bread and flour: 110%
*Proposed changes, not necessarily implemented.
Inflation
Rate**
**The increase in the consumer price level is from the end of the year preceding the
episode to the end of the year of the episode except for the Dominican Republic,
Morocco (1984), and Tunisia, which are calculated between 84-1, 83-IV, and 94-I and the
preceding four quarters. Data is from the IM F, International Financial Statistics.
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
certain chronicity: large scale violence often followed a
smaller outburst. Opposition to the cuts also persisted months
or years-after the subsidy cuts were announced. When examining
these cases of major violence, it is useful to organize the
analysis into phases: (1) from the change in the subsidies to
the outbreak of violence, (2) the period of violence, and, (3)
after the restoration of order.
In all nine cases, protests followed increases in
government-controlled prices of basic foodstuffs. Flour, bread,
rice and/or beans figured in most cases; sugar in the Sudan.
There was considerable variation in the interval between the
announcement of a price increase and the onset of violence. In
six cases this lag was less than five days. This supports the
notion that the violence has an important spontaneous element,
although opponents of the government may have been able to
anticipate the formal announcement to varying degrees. In nearly
all these cases, the increase in prices was large and discrete,
rather than phased, and at a rate well above the annual rate of
inflation (Table 2).
In some cases, governments tried for tactical cleverness,
but without success. For example, some decided not to increase
the price of the poorer quality basic foodstuffs, but riots still
occurred. Students often were prominent participants in these
episodes, and the authorities frequently responded by closing
schools and universities.
Violence often was initiated by organized protest by
students (Sudan, 1979), an opposition political party (Liberia),
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
public sector employees for higher wages or strikes to demand
overall wage compensation for inflation.
Some countries that have not had significant protests set
off by subsidy cuts have experienced a number of violent student
and/or workers' demonstrations over cost of living and wage
demands or over service provision. This has been true for
Argentina, Brazil, Chile, Ghana, Indonesia, Nepal, and Nigeria.
While in some of these countries violence was mostly a
spontaneous reaction to subsidy cuts, in other countries protests
against subsidy cuts were difficult to separate from general
protests, especially economic protests over interest group
demands.
Subsidy protests have not been particularly consequential
for political stability in most of these countries. Two possible
exceptions are Peru and Jamaica. In Peru, the military regime
was weakened by chronic protests over subsidy cuts, but these
coincided with general wage demands and dislike of what appeared
to be an increasingly ineffective military regime. In 1979 in
Jamaica, a rightwing opposition party seems to have successfully
exploited discontent over subsidy cuts to create problems for the
government it soon replaced, following an electoral campaign
keyed to the general issue of economic mismanagement.
No Violence: Seven Success Stories
There are numerous cases where subsidies have been removed
or lessened without violent reactions occurring. Although each
case is unique, many of the countries that were able to avoid
violent reactions shared a common set of conditions (Table 3).
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
CONDITIONS AND IMPACT OF RESPONSES TO SUBSIDY CUTS
major Violence Minor Violence No Violence
CONDITIONS Foodstuffs
Involved Always Sametimes Sometimes
Presence of
Legitimate &
Functioning Sometimes, But Usually
Opposition Usually Very Limited Sometimes (Not in Ghana)
Legitimacy
& Degree of
Popularity
at Time of Relatively Low,
Subsidy Qits Sane Range Wide Range Relatively High
Goverrinent's
Highest Level
Involved at
Announcement of
Subsidy Qits Rarely Rarely Usually
IMPACT Government's
Highest Level
Involved
During & After
Riots Always Sometimes
Recriminations
at Government's
Highest Level
after Riots Usually
Significant
Affect on Jamaica
Regime Peru (One Year Later) (Through
Stability Liberia Perhaps Elections)
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Sri Lanka provides a prominent example of a government's
ability to cut subsidies without provoking major upheavals.
Specifically, the regime abolished food subsidies beginning
January 1978 for about the upper half of the population. This,
in turn, was followed in September 1979 by a shift from subsidies
to a food stamp program for the poorer half of the population.
Sri Lanka's alteration of its subsidy system was part of a wide-
ranging package that included a major devaluation and trade
liberalization. The post-1977 story tells us that:
o Public opinion was prepared for reform since economic
stagnation had existed under the Bandanaraike government
and scarcities and queues were rife.
o The political opposition was in disarray.
o The government faced strikes and opposition after its
stabilization programs were put in place, but it moved
decisively to put down a general strike in 1980 just as
it had moved promptly to implement its package in 1977
after its electoral victory.
o The government was able to mobilize small farmers in
support of its programs by raising the price of rice for
producers and providing subsidies for fertilizer
products. The electoral structure tilted towards rural
areas and votes did count in this system.
o Within government there was discipline and coherence
among decisionmakers.
o The government shifted the debate on subsidies from
justice and equality to underdevelopment, poverty, and
national dignity--in so doing promising jobs and
economic development. It then imposed a means test for
access to subsidized rice but did not enforce this test
everywhere.
o It managed carefully remaining prices on controlled
commodities, and it raised minimum wages and public
service salaries.
o Sri Lanka enjoyed a period of economic bouyancy when the
subsidy cuts occurred from 1977 to 1979.
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
o External donors quickly responded to Sri Lanka's new
directions.
A number of these same factors also were present when
Zimbabwe raised prices by 10 to 20 percent on bread, cooking oil,
fats, and maize meal in July 1984:
o The reasons for the price increases were carefully
explained.
o The government in power had fairly recently been elected
with a decisive parlimentary majority.
o Subsidy cuts were announced during a period of intense
conflict between Shona and Ndebele speaking peoples and
of intense party rivalry of groups based on these
ethnic-language constituencies. And, as in Sri Lanka,
the opposition party in Zimbabwe--Joshua Nkomo's
Zimbabwe Africa Peoples' Union--was in disarray, and its
head was removed from active leadership.
o The ruling Zimbabwe Africa National Union was
comparatively unified on economic issues.
o Donor assistance from bilateral and multilateral sources
made the economic transition easier.
o The number of jobs in the modern economy had risen at
about 2.7 per cent in 1980 and 1981. Real urban wages
were rising.
In 1984, when Morocco and Tunisia had violent reactions to
their subsidy cuts, Turgut Ozal's government in Turkey announced
a 30 percent increase in bread prices, and food prices were
broadly raised without provoking violence. Ozal's political
party, the Motherland Party, won 54 of 67 mayorships in municipal
elections, including those in the very urban areas where the
opposition to cuts should have been greatest. Ozal's cuts in
food subsidies came on top of a large scale stabilization
program, but he sweetened them with a 20 percent tax cut for most
workers. Corporate tax cuts of 40-50 percent also were applied.
III ., Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
A number of features of the Turkish situation worked for the
regime's success. The Turkish economy seemed to have turned the
corner from desperate earlier days. The military government had
allowed a transition to an electorally-based civilian
government. Ozal had won in what has been considered to be a
fair election. He was not the candidate of high-ranking military
officers, but he had his own legitimacy through electoral
victory. Large numbers of Turkish citizens were relieved that
the violence and civil strife of the late 1970s had ended and
that the military had given way after imposing peace in the
country. Indeed, Turkey seemed a sea of relative calm between
Iraq and Iran.
The Ozal regime appeared tactically clever and economically
sophisticated by offering sweeteners to offset the price
increases. Turkey announced tax breaks while officials in
Zimbabwe and Tanzania called for significant urban wage
increases.
Mexico is a country that has been sustaining the prices to
producers of basic foodstuffs above their corresponding
international levels. In the 1960s and early 1970s, Mexico held
down wheat and maize prices and continued to subsidize the
production of tortillas. Mexico sold food at subsidized prices
of 30 percent lower than rural market costs for 13 out of 27
basic commodities. It also sold subsidized food in urban areas.
When Mexico cut various subsidies, large-scale violence was
avoided, although there have been some opposition protests and
strikes over increases in bus fares. Gasoline still is cheap in
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Mexico but in April 1984 its price went from 65 cents to 87 cents
a gallon and sugar went up 30 percent without provoking violent
reactions'. Historically, the Mexican government has been able to
implement austerity packages without high levels of repression or
violence arising. Austerity packages have included subsidy cuts,
although recently they have been less salient than devaluations
and cuts in public enterprise employment. Mexican governments
have been able to get trade unions to comply, and the trade union
leadership--coopted and embedded in the ruling party--has
persuaded the rank and file to accept austerity in the
expectation that future benefits will be received when the
economy is on the upswing. The administration of programs has
been relatively competent and the administrative elite is able.
The political leadership seems unified once decisions to impose
austerity measures are made. There is continuity in leadership
with the chance to change leaders at the top every six years.
Zambia is another country where major subsidy cuts did not
provoke riots. In 1976, the government cut subsidies on maize
meal, rice, and milk. The price on some grades of maize meal--
the staple food--doubled. In early 1978, President Kenneth
Kaunda announced that the government could no longer continue to
subsidize basic foodstuffs, and the price of domestically grown
corn was raised between 30 and 50 percent. Panic buying and
hoarding took place, but large street demonstrations were absent
despite the fact that Zambia is one of Africa's most urbanized
countries. It cannot be argued that economic administration has
been especially good in Zambia. Skilled bureaucrats and
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
technocrats are relatively few. The political elite has not been
unified, although ethnic tensions may have moved attention away
from subsidy issues. More likely, general economic malaise in
the wake of declining copper prices may have led to a general
awareness that subsidies simply could not be sustained.
On the other hand, there are a few cases where a government
is unstable, its economic and political positions weak, and yet
subsidy cuts do not emerge as a significant factor for
instability. Ghana is such a case. In 1984 Ghana raised
petroleum prices, moving towards the goal of eliminating
subsidies on this essential import, one that was eating up 40
percent of export revenue. But at the same time the government
froze the prices of rice, maize, and sugar, and gave tax relief
to the lowest paid workers while bringing public sector wages in
line with those in the private sector. Thus tactically, the
government moved to deal with fuel, but not food, subsidies.
Nonetheless, it got away with some subsidy removal and a massive
devaluation in a country where austerity programs had been
associated with coups and discontent in the past. Indeed, a coup
attempt in early 1984 may have been related to the austerity
budget.
More likely, Ghana illustrates' that subsidy cuts are not a
major factor for instability in a society where so much
instability already exists' and so many destabilizing factors
such as internal military incoherence, general economic decline,
ethnic tensions, and social and-ideological cleavage are at
work. In the last six weeks of 1983, real prices of essential
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
items in Ghana rose between 15 and 100 percent without
devaluation or subsidy cuts as massive shortages appeared.
Moreover,-there was a great deal of conflict and instabilty
within the armed forces and among social groups. Thus subsidy
cuts appear to be no more a fundamental cause of political
instability than other economic sources of discontent, especially
over the longer term.
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
 Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0
Confidential
Confidential
Sanitized Copy Approved for Release 2010/01/07: CIA-RDP85T01058R000304180001-0