GHANA IN SEARCH OF A DEVELOPMENT PARADIGM?

It is with very keen interest that one follows previous and current debates on Ghana's relationship with international financial institutions (IFIs), especially the International Monetary Fund and the World Bank Group since the mid 1960s to date. I particularly find the debates interesting because my Ph.D. thesis explores the impact of the activities of donor agencies, including the two institutions, on Ghana's social policy development with a focus on basic education. This piece is the first of a three-series analysis that aims to contribute to the debates. This very piece examines the origins and dynamics of the institutions since their establishment. The second explores Ghana's relationship with the institutions since the mid 1960s. The final piece will seek to contribute to the current debates and suggestions being made regarding possible ways out of our country's development challenges.

The International Monetary Fund (IMF) and the World Bank Group (WB) were founded in 1944 at Bretton Woods in Newhamshire in the United States of America. It was due to this origin that the institutions are often referred to as the “Bretton Woods” institutions. The original purpose for founding the IMF was to help member countries resolve their balance of payments difficulties by providing them with short-term financial support out of their contributions to the Fund. On the other hand, the WB was established to help countries such as Great Britain, France etc. whose economies were ravaged by World War II. The General Agreement on Tariffs and Trade (GATT), which was established in 1947 and was later renamed World Trade Organisation (WTO) in 1995, was also established to resolve trade rivalries among countries globally to forestall similar rivalries that led to World War II.

In the late 1950s and the early 1960s, developing countries such as Ghana had somewhat favourable relationship with the institutions. Ghana, for instance, received development assistance from the institutions to construct the Akosombo Hydro Damp. The former Senior Minister and Chairman of the National Development Planning Commission, Mr. J. H. Mensah, indicated at the launch of the Ghana@50 celebrations in 2007 that the funding for the project fell short of what the then Nkrumah Government had expected since it was supposed to be an integrated project. That is, it was not only meant for the generation of hydro-powered energy but the smelting of aluminium and irrigation-led agricultural industry (remarks at the launch of Ghana@50 Anniversary Celebrations, La Pam Beach Hotel, 2007). According to him, at a meeting in Washington to negotiate for the funding, the fund officials presented the package to Ghana's delegation of which he was part in a take-it-or-leave-it fashion. When they reported to Nkrumah through telephone, he told them they should accept whatever they were offered since half a loaf was better than none.

According to some analysts, the favourable relationship between the institutions and developing countries was a result of the need to contain countries emerging from colonial rule in order to ensure they did not fall to communism. This “honeymoon” was, however, short-lived as that relationship took a different dimension in the early 1980s. Thus, instead of the hitherto soft terms of borrowing, countries had to borrow with stiff conditionalities under the infamous Structural Adjustment Programmes (SAPs).

The change in borrowing terms was triggered by a number of factors. First, the U.S. economy was burdened by internal inflation due to overspending, which was partly attributed to her engagement in the Vietnam war. Her unsuccessful attempt to persuade her allies in Western Europe and Japan to bail her out made her to purge the US Dollar off the Dollar exchange regime in 1971. This precipitated increased lending by especially the U.S. private banks of “petrodollars” to developing countries especially Latin American countries such as Brazil, Chile, Columbia, Mexico and Venezuela. Petrodollars were accumulated in the U.S. banks by OPEC countries due to previous years' oil booms. The increased in lending exported the U.S. internal inflation to the Latin American countries in particular since they benefitted more from the lending.

The inability to pay the debts by those countries and the refusal of the U.S. government to bail out the banks made the latter to resort to austerity measures through the IMF/WB to recover the debts. This led to the imposition of the SAPs on the countries in particular. It was for this reason that the institutions are also often referred to as the “Washington Consensus”. Some Latin American analysts coined the term to describe the institutions because they felt the U.S. Treasury collaborated with the institutions to impose the SAPs. The increased borrowing in the 1960s coupled with the economic downturns of the latter part of the 1960s and the 1970s due to a fall in world market commodity prices and the hikes in fuel prices respectively, led to debt crisis in the early 1980s especially in sub-Saharan Africa. This also led to the imposition of the SAPs on those countries including Ghana in the early 1980s ostensibly to recover foreign debts owed by the countries involved although they were said to be aimed at helping the countries recover from the economic downturns. Following the East and Southeast Asian financial crisis in the latter part of the 1990s, the Bretton Woods institutions again prescribed the SAPs to countries such as Malaysia, Indonesia and others as solution to the crisis. Then, the SAPs were also prescribed for Eastern European countries such as Russia after the fall of the Berlin Wall and subsequently Communism for the purpose of economic recovery.

In all these cases, the SAPs appeared to have failed woefully to resolve the recurrent balance of payments problems that they were meant to address. This is because most of the countries especially those in sub-Saharan Africa, including Ghana that was touted as one of the countries in the sub-Region that successfully implemented the SAPs, are still bedevilled with the same challenges. The SAPs also failed to generate growth in most of these countries calling into question the appropriateness of the policies for the development challenges of these countries. The World Bank itself in 1999, acknowledged the failure of the policies by indicating that some countries (Latin America and sub-Saharan Africa) implemented the policies but failed to achieve growth while other countries (East and Southeast Asia) refused them and intervened in the market and achieved growth. Of course, the failure of the SAPs in sub-Saharan Africa was partly attributed to bad governance, which was quite controversial, lack of markets and others while the success in East and Southeast Asia was attributed to strong leadership, patriotic citizenship, etc. The question of bad governance in the case of sub-Saharan Africa and elsewhere as a reason for the failure of the SAPs is often debatable because critics argue that the institutions presided over those bad regimes.

It was due to the general failure of the SAPs in the 1980s early the 1990s that the institutions introduced the enhanced SAPs in 1996 and the Highly Indebted Poor Countries (HIPC) initiative in 1999 aimed to ensure growth and the eradicate poverty in participating countries.

This analysis is a brief history of the origins of the Bretton Woods institutions of the IMF and the WB as well as their dynamics over the years. The second part of the analysis will focus on Ghana's relationship with the institutions since the mid 1960s.

Many thanks for your time.
S. A. Achanso
Ph.D. Candidate
Social Policy Research
University of Lincoln
UK.