The International Monetary Fund (IMF) is one of the Bretton Woods institutions. The IMF is a specialized agency (has its own charter, governing structure and finances) of the United Nations that provides policy advice and financing to countries in economic difficulties and also help developing countries achieve macroeconomic stability. Through its economic surveillance, the IMF has become the foremost institution that multinationals and donors fall on to ascertain information with regards to performance of a country. 

Africa and Ghana over the years have been dealing with the IMF until we weaned ourselves (Ghana) from the IMF and its conditionalities at the later part of 2007. For Ghana, any time IMF is mentioned, mixed reactions follow. These mixed reactions stem out from historical and ideological back ground. Just two (2) months ago, I wrote on my face book wall that “between going to the international market to borrow at this excruciating times and going to the IMF, I prefer the latter”. The comments that came in opposition to my post although very genuine were too much of ideological sensationalism coupled with wrong historical diagnosis of the consequences of the Economic Recovery Programme (ERP) and the Structural Adjustment Programme (SAP).

I say wrong historical diagnosis of the effects of the ERP/SAP because people want us to believe that the programme achieved very little. I beg to differ. In my humble opinion, the programme wasn’t meant to bring us wholistic economic salvation. It had a role to play but our leaders must have known that the programme requested some practical and persistence actions from them too. I know this debate will continue but I want to hung it here for another time only to ask lastly that “after a pig is washed by an external cleaner (although all stains were not completely washed) and the supervisor of the piggery allows the washed pig to swim in a mud, do you blame the external cleaner, the pig or its supervisor?

I am not the advocate for IMF. In fact, I believe that Ghana’s problems are home grown and majority of the solutions lie in Ghana. However, considering our current economic predicaments and frustrations, I believe that going to the IMF at this time is a better option. I concede that some arguments against government’s decision to for a bailout hinge on sound logic and reasoning. Some of them include the following

Ghana will lose its national pride and self respect should it goes to IMF for bailout. Ghana is a sovereign state and sovereignty comes with national pride and respect. I agree that respect is important but in the Maslow’s hierarchy of needs, self respect is not the first. If you lack the basic necessities of life you have disrespected yourself in the first place. I am not saying we should be like the biblical Esau who sold his dignity, sense of pride and entitlement for food but let’s get real, going to IMF for a bail out doesn’t mean slavery. To me, I see it as a sign of humility. Thus you are telling the whole world that I have mismanaged my affairs, I am in crisis, I resolve to repent from my bad ways so I need help. Whether we will cry again for help ten (10) years to come is something we should all push to avert.

Again, it is a truism that IMF handouts come with conditionalities and this will not be an exception. The obvious that come to mind is cutting down on the governments wage bill.  Cutting down the wage bill will lead to retrenchment and unemployment which have dire consequences on the victims. We already have a very devastating unemployment situation to handle. Any additional retrenchment will increase the plight of the affected Ghanaians and national unemployment statistics. Despite this, I believe this affords us the finest opportunity to conduct value for money audit on the people on the national pay roll. I can’t understand why only 600,000 citizens in Ghana consume over 52% of the national revenue (revenue for 25 million) all in the name of compensations. A proper audit will bring to bear the real facts behind this anomaly. Again, I pray the IMF to push for a downsize in government. This will bring relief to the national purse. The over 80 ministers, large number of presidential staffers and political appointees is just too much for our strained purse to cushion.

WHY AM I FOR IMF BAIL OUT?

Zambia early this year suffered drastic reduction in copper prices and 14 % depreciation of the kwacha against the dollar. This brought some challenges on the country hence they run to the IMF for help. Aside the real issues, prices of almost all our leading export commodities have been down. Due to our actions, revenue mobilization has been stagnant. On the real issues, we have monetary and fiscal challenges.

On the monetary side, only in this year, the Ghana cedi has suffered over 40% depreciation against the dollar. For the cedi’s performance as against the pound, the least said about it the better. I belong to the school of thought that holds the view that the short term solution to our ailing economy can only be achieved if we find an antidote to the depreciation of the cedi against the foreign currencies. The Monetary Policy Committee has not helped in finding lasting remedy to this challenge and national reserve is speedily running out. How can going for a bail out help in solving this problem? Lack of public confidence has given speculators the impetus to predict negative future performance of the cedi. This puts unnecessary demand (stress) for the foreign currencies at the expense of the local currency hence further depreciation of the cedi against the foreign currencies. IMF will obviously push for a very liberal exchange regime which will boost confidence.

On the fiscal side, it has been amply argued over the years that mismanagement, corruption, wastage and fiscal indiscipline have been the bane of Africa of which Ghana is no exception. The 2012 budget deficit due to reckless government expenditure (especially in the last quarter of 2012) is the chief reason why we are here today. The big hole (huge deficit) created in 2012 accounted for a double digit deficit in 2013. Our debt portfolios have increased astronomically. For developing countries, financing capital expenditure in order to open up the economy for industrialization and production should be the first investment priority of our government but due to our huge debt, amounts paid as interest on loans contracted over the years eat up all our revenues making it difficult for government to honour its statutory obligations.

Opting for an IMF bailout will bring sanity in our fiscal management. Governments’ expenditure will be scrutinized. Wastage, corruption and mismanagement’s flag cannot be hoisted (at least as long as we are under the IMF’s care). Again, we will have a relatively cool breathing space in debt servicing. Our debtors will understand us and assist us by helping us to find a sound economic footing.

The above will bring great relief to the private sector (all other things being equal). I say this because, currently there is nothing like industrial sector in Ghana. The performance of the industry sector is very infinitesimal because a lot of industries have crowded out. Treasury bill rate and interest rates are ridiculously high leading to crowding out of businesses. Just few days ago, the government raised a 3 year bond (400 milion cedis) at 25.4% per annum. This is the government of Ghana bond so how do we expect the private sector especially the manufacturing sector to do well under such conditions?  

The truth is that a lot of private businesses find it difficult to break even under these harsh economic conditions. Some businesses are nicodemously laying people off. If the private sector is the largest employer in the country and this same employer is strangulated, how can this employer help government reduce the unemployment menace?  

CAUTION/ CONCLUSION.

As I always say, no IMF handout can address all the challenges of the country. In fact their handouts will have some concomitant effects on the health of the economy. The most intelligent way of handling the negative repercussions of the suspected negative effects is to draw a home grown policy. Thus, let us analyze the package dispassionately, juxtapose it with short, medium and long term developmental aspirations of the country, and come out with a credible home grown policy that will stand the test of time.

Till now, it has become very difficult for economists to place value on how the Marshal Plan accounted for the economic revival of Europe after the cold war. Everybody knows it helped, but how much it helped (whether it singularly led to the resuscitation of Europe), no one can tell us. This is because aside the Marshal plan, the 17 Western and Southern European countries also had a “second plan” that augmented the Marshal plan. The question to our leaders is “Is the IMF bailout the single plan that will bring salvation to the economy”? If they answer in the affirmative, I will boldly say, we will go for a bailout in 10/15 years to come. If they say No and back it up with practical and prudent actions, I will forever sing hallelujah to my Maker.

 

ABOUT THE AUTHOR

Bernard Owusu (dnkowusu@gmail.com)

Policy/Investment Analyst

Founder Goshen Investments Solutions