IMF urges good planning
In a Press statement made available last week, the Bretton Woods institution called for policies that will strengthen the potential impact of financial aid on growth. The fund said it was worried by a growing trend that has seen financial assistance scaled up, while growth has remained stagnant, and in worse scenarios, where growth has been reduced. The statement comes in the wake of a massive US$25 billion package to increase aid in Africa ‘ a move that will undoubtedly double financial aid on the continent ‘ that was passed by the Group of Eight (G8) industrial nations. The G8 financial plan has been backed by an additional US$33 billion called for the United Nations (UN) to help reduce poverty levels in Africa in line with Millennium Developmental Goals (MDGs) ‘ a sore area that has seen Africa lagging behind set targets. Chief amongst IMF recommendations on the matter was how a country should be able to choose how much aid it is able to absorb and how much to spend. If handled carefully, the IMF contends that a country that absorbs financial assistance may be able to exercise prudence and build foreign exchange reserves, and thus in the process shore up their legal tenders against major world currencies such as the green back. Said the IMF: “A sound understanding of how a country will spend additional aid, as well as the likely policy response of the central bank, is critical to projecting the likely macroeconomic impact of scaling up of aid.” The fund believes that for aid to have a definite and lasting impact on growth, it has to be used towards infrastructural projects such as roads, irrigation projects, ports and electricity generation programmes. IMF has been at variance with most third world countries over the absorption of financial aid, arguing that developing countries were channelling money meant for infrastructural growth towards recurring expenditure which adds no meaningful value in terms of investment to a country’s economy. IMF also mentioned the anti-corruption crusade and promotion of transparency and accountability as factors that would allow funds to be channelled towards more productive means and at the same time reassuring aid donors was being well spent. A number of African countries have embarked on anti-graft drives, notably Zimbabwe, South Africa, Zambia and Kenya. Zimbabwe established an anti-corruption ministry in 2004, followed up by the Anti-Corruption commission some months ago as part of efforts to fight the escalating levels of graft in the country. South Africa has the Scorpions – the very effective crack unit that has presided over the arrest of high profile personalities in political circles such as former African National Congress (ANC) chief whip, Tony Yengeni some years ago. The Scorpions have also looked into former South African deputy president, Jacob Zuma’s affairs. In Zambia, president Levy Mwanawasa came into power and cracked the whip on corrupt practices. The net effect has been the investigation of former president Frederick Chiluba. While Kenya has been accused by the west of sheltering anti-corrupt tendencies and fingered individuals, the country is at pains to prove to donors that any acts of corruption were not condoned and were committed officials in their individual capacities and without collusion with government. Other issues proposed by the IMF include proper planning by African governments to ensure that the desired growth levels are achieved, whilst reducing poverty levels. “Policies during the scaling-up period must be consistent with a smooth transition during the scaling-down period. The country must maintain its revenue efforts and strengthen its tax systems,” the fund added in the statement. However despite its insistence on good planning on the part of African governments, IMF policies have also attack for their “one size fits all” Structural Adjustment Programmes (SAPs). The policies have since inception failed to reach IMF goals, as most African economies have continued to slide despite strict adherences by policy makers to IMF guidelines ‘ and this is something the IMF acknowledges. The IMF has called for removal of subsidies and trade barriers ‘ but instead the situation has seen western governments taking advantage of the vulnerable state most governments have found themselves in. This has happened moreso because western nations have perfected the art of manufacturing and can easily achieve economies of scale, meaning that manufacturing industries in developing countries have been bearing the brunt of IMF policies as they cannot compete with the advance technology available in developed nations that churn out cheaper commodities. Taken as a whole, poverty reduction has become almost impossible as the industries of developing countries continue to suffer.