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11.03.2009 General News

Beware IMF, World Bank moves Experts warn Mills

By The Statesman

The National Democratic Congress government has been urged to be wary about attempts by the Bretton Woods institutions to pull the nation back into the group of developing economies that are entangled in their web of conditionalities. 

 Experts in economics are convinced that it will not be in the interest of the nation's development to be pulled back into the conditionalities fold of the International Monetary Fund, after the nation had taken a bold decision in October 2007 to wean itself from off IMF-conditionalities and direct annual funding assistance.

 While not against requesting help from the country's development partners, they also believe that the nation is not confronted with such desperate economic circumstances that require her to access the Poverty and Growth facility of the International Monetary Fund which will pull her back into the conditionalities fold of the IMF.

 The IMF has named Ghana among a group of 22 countries that, in its estimation, are "highly vulnerable' to the global financial crisis, and may need as much as $25 billion additional funding this year to cope with the economic downturn.

  According to the projections of the IMF, the 22 countries could need up to $140 billion if global conditions were to deteriorate sharply. But in exchange for its financial help, the Bretton Wood institution is demanding some major reforms from those countries, including Ghana.

But in the view of Henry Jackson, a Senior Economics Lecturer at the University of Cape Coast, the nation's economy is not in such bad shape as to justify placing its economic control under the 'gentle mercies' of the IMF by accessing its Poverty and Growth facility that will make it mandatory for the nation to return to the conditionalities fold.

'The nation's economic circumstances are not as bad as some people want us to believe. The nation is in good financial standing, and it is therefore unfortunate that with the change of government some people, in the name of politics, have sought to create a very negative impression about the national economy,' Dr Jackson told The Statesman yesterday.

According to the Senior Economics Lecturer, an economy which was 'resilient just about a year ago cannot deteriorate to such a level that will require unusually desperate measures to handle.

It is the wrong perception created about the economy that is making things look bad within this short period of the change of government.'

The view of Dr Jackson is strongly supported by Kwaku Kwarteng, a former Spokesperson on the economy under the erstwhile Kufuor administration, who is strongly against any attempt by the IMF to woo the nation back into its conditionalities fold.

Speaking to The Statesman yesterday, Mr Kwarteng noted that it would not be a prudent decision for the nation to willingly return to the embrace of the IMF after the previous government had worked hard to extricate the economy from the shackles of IMF conditionalities.

'We don't find ourselves in any desperate economic situation that requires the decision to access IMF's Poverty and Growth facility. I don't think the current strength of the economy renders it incapable of supporting itself. To take that decision, therefore, will be very unfortunate, as we will lose control over major economic policies.'

Since the transfer of power from the erstwhile Kufuor administration to the current Mills government in January, the Bretton Wood institutions have been ardently seeking to pull Ghana back into its conditionalities fold. Analysts believe the IMF's desire has become sharper in the wake of the discovery of oil.

The subtle moves to woo the Ghanaian government began with a report authored by the World Bank country director to newly elected President John Atta Mills pledging the Bank's support in what it projected to be difficult times for the nation.

In return for some extra funding, expected to be in the region of $100 million, the IMF is said to be demanding two major reforms:

(1) That, subsidies to state-owned enterprises, especially within the energy sector, should be scrapped or cut by at least 70%.

(2) That, divestiture or private management of certain state-owned enterprises previously considered as 'sacred state assets' must go ahead. The list includes the Tema Oil Refinery, Volta River Authority, Electricity Company of Ghana, Ghana Water Company Ltd., Ghana Commercial Bank, and Agricultural Development Bank.

Even though he is not against the policy of privatisation, Dr Jackson argues any 'quick rush' to privatise strategic state institutions, such as the Tema Oil Refinery, will not be in the best interest of the nation.

Also speaking to The Statesman, Asare Otchere-Darko, Executive Director of the Danquah Institute, cautioned the Mills government against being stampeded into cutting a deal with the two institutions

 'It is important that in negotiating with them [IMF and World Bank], government does not operate from a position of weakness. After all, we have an economy resting on a strong foundation and that has weathered the global storm remarkably well.'

He points out that in the West, governments are being encouraged to inject money into their economies by spending more on capital projects in order to stimulate the economy and encourage lending.

While the desire by the Mills administration to reduce the deficit is laudable, the approach - being modest in setting targets and cutting spending - runs the risk of stifling economic activity, further depressing the economy.

Mr Otchere-Darko argues that partly or wholly privatising or handing over management of an important state asset is not necessarily a bad thing, since it has such benefits as streamlining operations and injecting needed capital. But, he insists, any decision to divest should be done not because of the demand by the two bodies, but because it is in the overall national interest.