Madagascar - Politics, government, and taxation

Colonized by France in the 1890s, Madagascar gained its independence on 26 June 1960 after a violent separatist struggle. Its first president, Philibert Tsirinan, was toppled in May 1972. In the 3 years of military rule that followed, Tsirinan's foreign minister, Didier Ratsiraka, emerged as the principal strongman and took the presidency officially in June 1975. Declaring the Democratic Republic of Madagascar, Ratsiraka closed all foreign military bases, nationalized the country's major industries, and opened relations with the Soviet Union and China. A drastically worsening economic situation forced Ratsiraka's Avant-garde de la révolution malagache (Arema) government in the 1980s to seek international help and institute a new monetarist reform agenda. Although re-elected in March 1989, popular agitation for political liberalization had reached the point that, by 1992, Ratsiraka was forced to accede to a new pluralist, democratic constitution (pluralist societies are characterized by a variety of opinions voiced in a democratic context). In the first elections, under the constitution adopted later that year, he was voted out of office. He returned in 1996, however, after his successor, Albert Zafy, was impeached by parliament. The next presidential election is scheduled for 2001, and remains largely up in the air. Although the president's opposition is fragmented, and his IMF (International Monetary Fund)-sanctioned policies enjoy broad support, Ratsiraka himself is not especially popular; and he is also now very old. Madagascar has yet to resolve its unstable, and sometimes violent, political situation.

Madagascar's republic's laws are based on the French civil law system and traditional Malagasy rule, and a new constitution was adopted in 1998. The president of Madagascar is the chief of state and elected by direct vote for a 5-year term. The country now has a two-chamber legislature: the National Assembly and the Senate. The National Assembly is directly elected. The president and his cabinet appoint a prime minister. The country has nearly 30 active political parties.

Although the political consensus in Madagascar has generally favored fiscal discipline, it is only in the last 4 or 5 years that economic liberalization and monetary stabilization have been consistently and rigorously applied. Current policy is committed to minimizing inflation , servicing the national debt, stimulating the private sector, and diversifying the country's export base. The effects have been encouraging, with an average growth rate since 1995 of 3.2 percent.

Other initiatives include the divestment of state enterprises, with more than 40 slated for privatization , and the devolution of certain government powers to local councils, a measure to make government more efficient and accountable. Longer-term plans include reforming the justice system to combat corruption, and re-investing in education, which has become badly neglected in the last 20 years (falling from 4.4 percent of GNP in 1980 to 1.9 percent in 1998).

With tax evasion widespread, part of the new regime of fiscal reform has also been a more aggressive approach to taxation and revenue collection. This has seen revenues increase to 10 percent of GDP in 2000, but in an economy that is largely informal, the burden has tended to fall on the fragile business sector. Vocal protests from the Malagasy business community in 1999 forced the government to soften its stance and exposed the limits of fiscal reform. To bolster industry, plans are now afoot to reduce trade-based levies , currently the source of 60 percent of government tax revenue. Some of this shortfall will be picked up by the 20 percent value-added tax .