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29.11.2004 Business & Finance

IMF clashes with gov't over VALCO

By Public Agenda
IMF clashes with gov't over VALCO
LISTEN NOV 29, 2004

...NOT first time IMF has interfered in Ghana's sovereign decision The government and the International Monetary Fund (IMF) are at loggerheads over the government's plans to buy the 90 per cent shares of bankrupt Volta Aluminum Company (Valco).

While the IMF has asked the government not to buy back the shares of Valco until it has consulted with it, Minister of Finance, Yaw Osafo-Maafo told Public Agenda that government has already paid part of the US$18 million agreed fee for Valco.

The disagreement between the IMF and the government is captured in the Economist Intelligence Unit (EIU) 2004-2005 report on Ghana. The report said the IMF specifically asked the government not to take back the 90 per cent shares of Valco.

Valco's owners, Kaiser International filed for Chapter 11 bankruptcy in the United States of America in 2002 and have been looking to sell a number of Valco's non-profitable assets, which have not been operating for the past nine months.

As the biggest private-sector entity in Ghana, the government was reluctant to see Valco close, especially in an election year and so it stepped in to buy Kaiser's stake for US$18 million.

Quite expectedly, the IMF took exception to this deal, arguing that if Valco could not run the company profitably, there was no assurance that the government could do so. The government indicated to the IMF that any purchase of Valco would be temporary, until another buyer was found.

The government also suggested that it would maintain a stake in the company in order to put pressure on any new owner to develop Ghana's bauxite deposits and adhere to environmental standards. Again the IMF strongly opposed this, arguing that it could expose government to large potential liabilities and send signals that the government would bail out the company again.

Eventually, the government gave up and agreed to consult the fund before taking the final decision. The EIU forecasts that should the government be unable to find a buyer for Valco, the IMF is unlikely to accept a public-sector takeover, although it is expected to wait until after the December 2004 presidential and parliamentary elections before advising the government to close Valco. All may not be lost for the company, as it is reported that a US firm, Alcoa , the world's biggest aluminum producer is considering plans to increase its stake in Valco-Alcoa holds the remaining 10 per cent, not the Ghanaian government as was previously thought.

EIU says Alcoa's holding a larger stake in Valco would enable it to exploit Ghana's bauxite deposits of some 120 million tonnes in Kibi in the Eastern Region, according to the Minerals Commission.

This is not the first time IMF has had an authoritative say in a sovereign decision concerning Ghana's economy. In 2002 when the government slapped minimal import tariffs on foreign rice and poultry, it took a mere telephone call from the funds New York head office to have the tariffs withdrawn despite parliamentary approval.

The Ghanaian government had hoped to protect local rice and poultry producers from dumping of imported rice and poultry, but it was the IMF that had the final say. Local farmers are still sweating it out against unfair competition.

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