Nicaragua negotiates whilst Ghana exits from IMF’s PRGF

Added 26 Mar 2007

Ortega vs the IMF – or how to make a revolutionary safe

Amidst calls for change from civil society groups inside and outside Nicaragua, the recently elected government has started talks with the International Monetary Fund to discuss future relations. The IMF representative Anoop Singh has said that the Fund will possibly agree a programme with the new Sandinista government, but that the details still need to be defined. Yesterday the IMF met with Nicaragua’s president-elect Daniel Ortega to discuss future relations. Ortega on the one hand is under pressure from the IMF to follow its advice and on the other from Nicaraguan citizens calling for an end to IMF macro-economic conditions they say are hurting the poorest in the country. Ortega in the meeting yesterday told the IMF that his administration would follow policies that combated poverty and unemployment as well as ensuring that all regions of the country benefited. IMF representative Anoop Singh said that the Fund had not come to Nicaragua with a fixed agenda “but rather we have come to listen to his points of view and how he plans to direct the economy to reduce poverty.”

Ortega has said recently that he would call on the IMF to relax its stringent policy towards Nicaragua in order to curb poverty and hunger; the IMF however has urged Ortega to roll back an “unsustainable” pension plan reform and move ahead with changes unfinished by the current administration such as energy sector regulation.

Whilst commending Nicaragua for its “prudent and pro-active management” the IMF in a recent press release urges the new administration to “exercise vigilance with respect to pressures for higher public sector wages and subsidies, which could adversely affect stability and competitiveness, and should be prepared to implement offsetting measures, if needed”. And in addition the IMF has told the new government to “repeal the fiscally unsustainable pension reform Law 539 approved last year”. The president-elect says that abandoning such programmes means abandoning the neediest.

Civil society critics are outraged by this continued conditionality being imposed by the IMF and argue that the IMF is more concerned about paying off Nicaragua’s internal debt – contracted under highly irregular circumstances – which will benefit private banking interests than it is about addressing the pressing problems of health and education in the country. IMF wage caps mean that the government is unable to increase spending on much-needed health and education workers. Nicaragua at present spends hardly 5% of GNP per capita on secondary education in comparison to 13% for example in Bolivia. Adolfo Acevedo an economist working with the civil society platform Coordinadora Civil says that IMF conditionality is compromising the future of the country. He said that “this is not just a strictly economic issue, but a profoundly political one and it has to do with citizens’ rights to analyse and decide freely on future options, using democratic and deliberative process, instead of having a “single future” with no options imposed from the outside”.

Acevedo is also very critical of European donors in Nicaragua. In an effort to live up to their commitments to aid effectiveness and “align” to country priorities, he said that European donors (including Denmark, Sweden, Switzerland, Norway and the Netherlands) that provide “budget support” to Nicaragua make this budget support conditional on Nicaragua having a programme with the IMF. This sort of action from European donors would clearly increase the gate-keeper role of the IMF and in the event of Nicaragua going “off-track” with the Fund, seriously affect the predictability of aid flows.

Meanwhile in Ghana, government has decided to withdraw from the IMF’s PRGF…

Ghana doesn’t want any more frozen chickens

In 2003, the IMF effectively reversed a decision of Ghana's Customs to raise the tariff on chicken imports from foreign producers from 20 to 40 per cent, citing an ostensible concern for Ghana's obligations under the 2003 PRGF.

The tariff rise had been a response to the flooding of the local market by ultra-cheap frozen chicken offcuts produced by European Union poultry farmers who were generously subsidized by their governments. Ghanaian farmers had seen their share of the domestic chicken market shrink radically from 95 per cent in 1992 to just over 10 per cent a decade later.

At the time, some critical voices in Ghana said that the government's reversal of its tariff decision two months after making it was an example of the "desperation" with which developing countries - including Ghana - seek to placate the Bretton Woods institutions.

Interpreting Ghana’s withdrawal from the PRGF

This month, Mr. Kwadwo Baah-Wiredu, the Minister for Finance and Economic Planning, announced Ghana's withdrawal from the International Monetary Fund's Poverty Reduction and Growth Facility (PRGF) – which provides loans to low-income economies at concessional rates of annual interest but comes with highly prescriptive conditions. By withdrawing from the PFGF, Ghana takes a major step toward economic independence from the IMF.

If the Ghanaian government is unhappy about the IMF's prescriptions, it does not say so publicly. As Mr. Kwadwo Baah-Wiredu, Minister for Finance and Economic Planning, told Parliament recently: "Our disciplined management of the economy and the use of IMF resources have resulted in unprecedented economic stability and economic performance that has positioned the country for accelerated growth."

Of course, such official approval of the IMF's policies might simply be an example of old-fashioned diplomacy by a politician keen to not bite the hand that feeds - or, perhaps more appropriately, offend the bully with the bigger stick.

While the benefits of withdrawing from the IMF's concessional loan scheme might be great in terms of improving national confidence and attracting foreign investors, the greatest benefits to the country may indeed flow from Ghana having as little to do with the IMF as possible.

Related articles and reports: 

Press Release: IMF Executive Board Completes Final Review Under Nicaragua's PRGF Arrangement
Press Release: IMF Executive Board Completes Sixth and Final Review under Ghana's PRGF Arrangement
Coordinadora Civil Campaign on IMF:
Choike: About the negotiation of the fifth IMF programme with Nicaragua Country and IMF Interpreting Ghana's Withdrawal from Loan Scheme  
Corpwatch: Playing Chicken: Ghana vs. the IMF
Christian Aid: “The damage done: aid, death and dogma”  


In the news:

  1. International Herald Tribune: IMF asks Nicaragua's Ortega for structural change
  2. Gerente del FMI se reúne con presidente electo de Nicaragua  

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