A Snap shot of the World Bank and IMF Annual Meetings: How to achieve a world without poverty!

Thursday, October 14, 2010

By Franklin Cudjoe, Washington, D.C.

The President added; “That these Keynesian ideas have “lost credibility is progress”. And that there are some basic principles we can follow: “a belief in property rights; contract rights; the use of markets; getting incentives right; the benefits of competition from within and across economies; the importance of education; macro-economic stability”.

The World Bank and the IMF have not had many friends in the developing world since post-Structural Adjustments days, when their advice and interventions, largely backed by aid yielded slow and negative growth.  It is the case though, that dealing with the two Bretton Woods institutions is like loaded dice. In one breadth they provide you with advice, and then in another, they continue to support countries that fail, even when their failure did not originate from bad advice, but essentially rooted in disrespect for the most basic institutions needed to effect real change. 

Take Ghana, for instance.  Not all the IMF and World Bank’s involvement in our mostly self-inflicted tottering economy in the 1980s come to doom and gloom? There were significant gains, which could have been used to diversify our agrarian based economy- yet we watched politicians splurge most of the gains on the 1992, 1996 and 2000 general elections. And just when our strangling debts were paid off, with a promise to ‘taking off’ into the middle income bracket, we watered down the gains again in 2008, with a world record deficit of almost 20% to GDP- mostly incurred as a result of light-speed spending, mainly outside of the budget and ostensibly to chase political votes.

Under our current watch, the politicians in charge are engaging in a game of numbers, contracting billions of dollars under shadowy circumstances from the ubiquitous Chinese and new entrants South Korea for yet-to-be properly disclosed ‘development’ projects. The fear is not with our inability to contract loans, but the propensity to misspend, leaving us with uneconomic deficits.

My centre, IMANI, has in the past five months produced two significant reports on how the World Bank spends its time and money in Africa and how often their funds encourage inertia in government, as disbursement rates of approved and transferred loans to recipient governments sometimes hover around abysmally low figures of between 10 % and 20%, ultimately leading to loss in value when the funds are eventually disbursed for intended projects, if they ever are.  It is disheartening to hear a foreign diplomat openly complain to Ghana’s Vice President and Ministers of Finance (during a high-level meeting of government and donors) about his inability to go back to his headquarters and ask for more funds for the country when less than 60% of  his country’s aid to Ghana is unaccounted for.

But the World Bank, the biggest donor to most African countries, believes it can now chart a new path by engaging with all clusters of knowledge in order to do better.

Ahead of the 2010 Autumn Annual Meetings of the World Bank and IMF here in Washington, Bank President   Robert Zoellik called for a democratization of “development economics” with the humility to depart from the hubris of “the Washington Consensus” where “one cannot have a consensus about political economy from one city applying to all” and discard dirigiste economic models, largely Keynesian.  The President added; “That these Keynesian ideas have “lost credibility is progress”. And that there are some basic principles we can follow: “a belief in property rights; contract rights; the use of markets; getting incentives right; the benefits of competition from within and across economies; the importance of education; macro-economic stability”

However, this new engagement process, to be chartered by the World Bank will take longer to deliver the fruits of development. The reason being that the Millennium Development Goals ( MDGs) on which the process is anchored, are disproportionately encouraged, leaving the last goal and its sub-goal which is “Develop further an open, rule-based, predictable, non-discriminatory trading and financial system” to its fate. The stalled Doha trade talks are in no country’s interest.  The attainment of this last goal will enhance the delivery of the other seven goals.

And yet most of the discussions I participated in here in Washington missed this important point, except for a session organized by the Africa Business Round Table that breathed some life into what ought to be done for the continent to make progress- promoting intra regional and inter regional trade. This is because in the words of Bisi Onasanya, Group CEO of First Bank of Nigeria, it is baffling why Africa should realistically have only 1% share of world trade and 10% of regional trade, when it is home to 13% of the world’s population. The conundrum can simply be solved by making the continent attractive for investment, said Dr. Donald Moyo, Vice President of the African Development Bank.

Sadly, Professor Emmanuel Nnadozie, the Chief Economist at the United Nations Economic Commission for Africa who spoke at the same meeting, believes African governments must spend time chasing all aid money lodged with global campaigns such as, climate change fund, wild life conservation fund, food aid, and significantly use taxation (higher taxation he suggested) as financing mechanism to achieve development goals.  I politely reminded him that it was unnecessary chasing what was pocket change from our apparent do-good global activists, compared to the $150bn our leaders stash away annually and then turn around to beg the world for $70bn annually to achieve the MDGs. Second, whilst identifying ordinary Africans to tax is a huge hurdle, governments on the continent can be smarter by adopting innovative flat tax regimes for small scale businesses, in order to encourage them to grow and formalise their operations through certification.

Incidentally, the evidence on the ground supports the life changing impact trade has, at least from the collation and validation of some 40 consultations (between government, businesses, and civil society actors) held across Africa, which IMANI undertook on behalf of the World Bank as part of its relearning and redefinition of its Africa Action Plan (AAP) for the next 3 years, but particularly to prevent armchair experts in Washington D.C. from thinking for Africans.  “Regional integration and trade” mattered more to African stakeholders than “health”, “water & sanitation”, “land & natural resources” and “peace & security” all combined.

So perhaps instead of Civil Society organizations, aid activists and the World Bank busily focusing on the other MDGs, they should encourage the World Bank to tell success stories on the continent, where sensible institutional reforms are paying off such as Rwanda and Botswana. They should also encourage developed countries especially members of the OECD to lower trade barriers for African produce. and ask the Bank to contribute to big ticket, transformative, initiatives such as trade corridors, integrated value chains, industrial parks on a purely strategic investment basis. It is good news that IFC, the private sector lending arm of the Bank, is shifting “significant resources to small and medium-sized enterprises” (SMEs), although the IFC head couldn’t tell me how much of the $2.7bn  invested in sub-Saharan Africa this year went to supporting SMEs.  The joint communiqué issued by the World Bank and IMF on ‘replenishing’ financial contributions for IDA to help 79 poor countries must rethink where these funds will make the most impact on individual lives rather than transfer them directly to national budgets of developing countries where arbitrary spending occurs.

This will force national governments, to think creatively about their own survival by generating funds through sensible taxation, and of course accounting to their people how their monies are being employed to their benefit. This will ultimately give the Bank and Fund some space to effectively map out their exit strategy from most African countries, whose citizens really, are anxious about the day their national governments will end the cyclical dependence.

So, what is the guarantee that these significant steps will yield the desired results? Unfortunately, the continent is replete with examples of overbearing political establishments.  Most leaders and their immediate advisors would rather the Presidency be directly involved in negotiating and executing development projects, not for achieving efficiency, but often to make political capital through sod-cutting photo-opportunities and stampede progress through inappropriate cost-cutting measures for financing political campaigns. 

The fact that politicians get away with their ill-motivated actions is no excuse not to do anything.  Three important items must be on the menu of reformist governments and the World Bank.  First is the demand for freedom of information laws across Africa.  Second, civil society must push for the passage of Fiscal Responsibility Law(s) (IMANI is already leading this campaign in Ghana) and finally the creation of an independent evaluation group that will monitor and evaluate government projects and have the confidence to name and shame, since clearly national development planning commissions on the continent are not taken serious by national governments that appoint and pay their members.

As the World Bank delivered on its promise of a third seat for Sub-Saharan Africa on the World Bank’s Board, all three seats going to  a few of the continents’ most powerful women, they  should  use the shared knowledge reality-based civil society organizations , think tanks and businesses offer  to  improve the lives of Africans.  That is the only way the World Bank’s vision of building a world free of poverty can be achieved.

*Franklin Cudjoe is head of Ghanaian think tank, IMANI, a non-profit, non-government organization dedicated to fostering public awareness of important policy issues concerning business, government and civil society.  The Foreign Policy Magazine named IMANI, the fifth most influential think tank in Africa in 2010. Franklin is editor of AfricanLiberty.org. Franklin was named Young Global Leader 2010 by the World Economic Forum.