For Online E-newspaper
The East African : Oct 17th 2015
32 The EastAfrican BUSINESS OCTOBER 17-23,2015 It is not t≥ue to say that IMF ≥esolves c≥ises to save capitalists and banke≥s COMMENTARY RICARDO HAUSMANN “But it is too easy to confuse the pain caused by the crisis itself with that caused by the remedy.” hate. According to some, the IMF is bad for the poor, women, economic stability, and the environment. For example, Nobel laureate Joseph Stiglitz blames the IMF for causing and then worsening the economic crises it was called on to resolve. The IMF purportedly does so T to save capitalists and bankers, not ordinary people. Though untrue, this belief does enormous harm and limits the potential good that the IMF can do. It is easy to misunderstand what the IMF does. The bulk of its efforts are dedicated to crisis prevention. As Franklin D. Roosevelt said at the 1944 Bretton Woods Conference, where the IMF and the World Bank were established, “Economic diseases are highly communicable. It follows, therefore, that the economic health of every country is a proper matter of concern to all its neighbours, near and distant.” That is why the 44 countries in attendance, and the 188 that now belong to the IMF, agreed to “consult and agree on international monetary changes that affect each other… and they should assist each other to overcome short-term exchange difficulties.” Operationally, this is expressed in so-called Article IV consultations. These formal policy discussions between the IMF and member governments, typically carried out annually, are written up, reviewed by the he International Monetary Fund is, in many places, the organisation that everybody loves to Fund’s Board of executive directors (representing all 188 governments), and published for anyone to read online. This is a standard of collective surveillance and transparency to which organisations addressing other issues should aspire. The IMF has been instrumen- tal in developing the tools with which countries measure, assess, and improve their current macroeconomic position: Fiscal and monetary policy, as well as financial, currency, and price stability. It helps countries find better ways to implement measures in all of these fields, and it seeks to identify broad lessons from the experience of many countries that may shed light on the options that any particular country has. Through dialogue, research, advice, technical assistance, and training, the IMF has helped create a global community of practice. Today, it is much easier to be a central bank president or a finance minister than it is to be a minister of health or justice. This is not because the challenges are easier, but because the international community of practice, led by the IMF, provides a level of support that simply does not exist in other areas. The IMF’s most controversial activities come during times of crisis management and resolution. Countries ask for IMF financial assistance when they are in trouble and have lost or fear losing the ability to borrow on international markets. The IMF can mobilise hundreds of billions of dollars of member A world without the IMF looks a lot like today’s Venezuela. Hugo Chávez became the darling of IMF bashers, including Stiglitz, when he suspended Article IV consultations in 2004. As a consequence, Venezuelans lost access to the basic economic information that the country is obligated to share, through the IMF, with the world. The break prevented the international community from expressing its voice as the country undertook truly irresponsible policies, spending in 2012 as if the price of oil were $197 a barrel, not $107. With the collapse in the price of oil since then, the economy has gone into a tailspin: GDP is contracting at a record pace, inflation is in excess of 200 per cent, the currency has plunged to less than 10 per cent of its previous value, and massive shortages have emerged. The Chinese ‘non-solution’ Venezuela has tried to finance itself with the help of the China Development Bank, which does not impose the kind of conditionality that IMF bashers dislike. Instead, the CDB lends on secret terms, for uses that are undisclosed and corrupt, and with built-in privileges for Chinese companies in areas like telecommunications (Huawei), appliances (Haier), cars (Chery), and oil drilling (ICTV). The Chinese have not required that Venezuela do anything to increase the likelihood that it regains creditworthiness. They merely demand more oil as collateral. The tragedy is that most Ven- “The tragedy is that most Venezuelans (and many citizens of other countries) believe that the IMF is there to hurt, not help.” Picture: File countries’ money to give borrowers the time to get back on their feet. Its resources dwarf the sums that the international community can mobilise for other issues, because its money is lent and is supposed to be paid back. In exchange for its financial support, the IMF typically requires countries to address the imbalances that caused their problems, not only so that they can repay the money, but also for their own good, so that they can restore their creditworthiness (and hence their access to capital markets). But it is too easy to confuse the pain caused by the crisis itself with that caused by the remedy. To be sure, the IMF inevitably makes mistakes, partly because the questions and issues it must address are constantly changing, so that it never knows whether the current state of thinking is adequate to new challenges. But it is a sufficiently open organisation that it can and must be responsive to its critics. Now consider the alternative. ezuelans (and many citizens of other countries) believe that the IMF is there to hurt, not help. As a consequence, they eschew the massive resources and wisdom that the international community can offer at a time of economic crisis to lessen the pain and hasten recovery. That has left them far worse off than the IMF bashers can bring themselves to admit. Rica≥do Hausmann is a fo≥me≥ ministe≥ of planning of Venezuela. He is cu≥≥ently a p≥ofesso≥ of the p≥actice of economic development at Ha≥va≥d Unive≥sity. Kenya’s ≥oad annuity p≥og≥amme collapses as banks ≥eject p≥oject BY JAMES ANYANZWA The EastAfrican KENYA’S EFFORTS to secure up to Ksh260 billion ($2.48 billion) from local banks to construct 10,000 kilometres of tarmac roads in three years hit a dead end:Commercial banks have refused to fund the project that had been termed as one of the key milestones of the ruling Jubilee administration. The government has now terminated the Annuity Financing Model. Sources told The EastAfrican that the lenders did not agree with the government on the rate of interest to be charged on loans issued to contractors (12 to 13 per cent), in an environment where the local currency is losing value against foreign currencies, lending rates are soaring, inflation is on the rise and the risk of default is high. Sources said the banks also snubbed a government proposal to charge contractors a uniform rate of interest; they argued that the contractors were borrowers like any others, and that the rates take into consideration their individual risk profiles. The matter was further complicated when contractors submitted bids the government considered too expensive. The government had expected to spend about Ksh25 million ($238,472) for every kilometre of rural roads, and between Ksh50 million ($476,945) and Ksh80 million ($763,111) for each kilometre of urban and trunk roads. But some of the bids submitted by the contractors were as high as Ksh300 million ($2.86 million) per kilometre. “The government has frozen this programme because of the 10,000km Combined length of roads that the Kenya government had planned to construct. emerging issues. Interest rates are very high and we are not sure when they will come down. Right now, the rates are untenable and why it was difficult to agree on a uniform rate,” said one source. Treasury Cabinet Secretary Henry Rotich said the government would explore other forms of public private partnership to construct the roads. In the 2015/2016 budget, Mr Rotich had increased the Road Maintenance Levy on fuel by Ksh3 ($0.02) per litre in order to collect Ksh9 billion ($85.85 million) every year towards roads construction. “The roads are still going to be done through the engineering, procurement and construction method. There are many modes of public-private partnership,” Mr Rotich told The EastAfrican. Principal Secretary in-charge of Infrastructure Eng. John Mosonik and acting cabinet secretary in-charge of Transport and Infrastructure James Macharia did not respond to our calls. The Annuity Financing Model for road construction in Kenya was launched by President Uhuru Kenyatta in July last year with the objective of delivering high quality roads at minimal cost. Of Kenya’s 161,100km of roads, only 14,100 kilometers have been paved since Independence.
Oct 10th 2015
Oct 24th 2015