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Bio-Tchané insists Africa’s future hinges largely on its own actions

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
November 2003
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At the African Union summit in Maputo, Mozambique, in July and the IMF-World Bank Annual Meetings in Dubai in late September, African leaders underscored their commitment to sound policies and good governance but expressed strong frustration with donor countries’ slowness in keeping up their end of the bargain. Abdoulaye Bio-Tchané, who has headed the IMF’s African Department for the past two years after serving as Benin’s Minister of Finance and Economy, talks with Laura Wallace about what he sees as the biggest stumbling blocks to ensuring a better future for the African continent.

IMFSurvey: What do you see as the top challenges facing sub-Saharan Africa today?

Bio-Tchané: The main challenge is how to achieve sustained economic growth and poverty reduction. I believe that now, more than ever, there is a strong consensus among African leaders on what needs to be done. First, there is no longer any significant debate about the importance of sound macroeconomic policies. Second, most governments accept the need to reduce economic distortions that impede efficiency and often represent a drain on scarce government resources and that, by the way, usually end up not benefiting the poor. Third, governance issues are now much more firmly ingrained in government agendas. This doesn’t reflect the imposition by outsiders of “neoliberal models,” but rather the clear recognition that social stability, transparency, and accountability are essential for a healthy democratic environment and economic progress. Of course, it is a challenge to put this into practice, but most African leaders now believe that there isn’t any alternative. Fourth, there is recognition that where a country is embroiled in civil conflict, no meaningful progress on the economic front is possible. The efforts of the African Union and other regional organizations and initiatives, such as the New Economic Partnership for Africa’s Development [NEPAD], should be encouraged. Finally, and this is critical, all the valiant efforts in the above areas will be greatly hampered unless there is major support from the development partners on both the aid and trade liberalization fronts.

IMFSurvey: Is there a need for better dialogue between African leaders and the IMF?

Bio-Tchané: The policy dialogue between African leaders and the IMF has become increasingly productive in developing a deeper and shared assessment of the main challenges facing Africa. Perhaps one of the biggest changes—and among the most appreciated—is that we have been insisting on a real discussion of policy options with the authorities, making sure that there isn’t only one option on the table. That’s really what ownership is all about. Another change is that we’ve been actively seeking ideas from African leaders on how we can better align the IMF’s concessional lending facility [the Poverty Reduction and Growth Facility] with countries’ homegrown poverty strategies—as spelled out in their poverty reduction strategy papers [PRSPs]. We also need to better gauge their economic and political environments. Finally, the IMF is in the midst of reappraising how it should best engage with low-income countries. This is another opportunity for us to deepen our dialogue with African authorities.

IMFSurvey: How about tackling corruption? Any progress? And how is the IMF involved?

Bio-Tchané: In recent years, many countries have adopted measures to improve transparency, efficiency, and accountability in budgetary management and in the judiciary. These efforts have gained momentum as an increasing number of countries have drafted PRSPs and benefited from debt relief under the Heavily Indebted Poor Countries [HIPC] Initiative. The importance of better governance is also highlighted in NEPAD and in the African Union Convention on Preventing and Combating Corruption. But while countries are making progress in adopting the needed rules and institutions, major challenges still remain in enforcing the rules and allowing the institutions to operate. In most programs now, there are measures that cover governance issues, particularly on public expenditure management. In our discussions on Senegal’s program, we are exploring how the public expenditure management system could be overseen by the judiciary and then reported back to the parliament—which would be a first in Senegal. In Kenya, the new government, which took power in January, has agreed to take good governance steps that had been under discussion for several years. Another example is the work we are undertaking on oil revenue management issues with the African leaders of the Gulf of Guinea.

IMFSurvey: Are you worried about the IMF, the World Bank, the African Development Bank, and other international institutions giving African leaders differing economic policy advice?

Bio-Tchané: To my mind, this problem is a little bit exaggerated. There can be differences of emphasis and nuance among the international institutions, arising in part from their different mandates, funding sources, range of technical expertise, and so on. But we should first agree on a sharing of responsibilities, including the distribution of roles in the development agenda. Indeed, within each organization and between organizations, quite often a range of views is expressed, sometimes in a fairly spirited fashion—and this is healthy. But one needs to avoid sowing confusion among, and providing misleading signals to, our members.

IMFSurvey: A major stumbling block to faster growth and poverty reduction seems to be getting the Doha trade round back on track. What do industrial countries and developing countries need to do? How can the IMF help?

Bio-Tchané: Obviously, the breakdown in Cancun was a grave disappointment. But as IMF Managing Director Horst Köhler put it, we should consider Cancun a wake-up call and look forward, not backward. Compromises will have to be made by both industrial and developing countries. Indeed, progress was being made on agriculture before the talks broke down, and look how much was achieved in terms of generic drugs! For Africa, the top priority is getting industrial countries to open up their markets and remove agricultural subsidies. The IMF will continue to support countries adopting trade reforms aimed at faster growth and poverty reduction, particularly when these reforms lead to temporary balance of payments shortfalls.

IMFSurvey: In Dubai, African governors raised serious questions about the effectiveness and credibility of the HIPC Initiative. Are these justified?

Bio-Tchané: So far, 27 of the 38 potentially eligible HIPCs—23 of which are in Africa—have reached their decision points, the most recent one being the Democratic Republic of the Congo in July 2003. In net present value terms, these countries account for around 85 percent of the total expected relief. And 8 of the 27 (7 in Africa) have reached the completion point, when the remainder of the debt relief is pledged. Debt-service ratios have been substantially reduced for most HIPCs, and savings from lower debt-service payments have contributed to a substantial increase in poverty-reducing spending. In 2002, such expenditures were almost four times as great as debt-service payments. That said, the African governors complained that, during the past 12 months, only two countries reached their completion points. It is true that African countries’ progress in this respect has been slower than expected, but the IMF and the World Bank are moving as fast as they can. Most of the 11 countries (9 in Africa) that may require HIPC Initiative relief but have not yet reached the decision point have been involved in conflicts or had arrears to settle. The bottom line is that I don’t have doubts about the effectiveness and credibility of the HIPC Initiative.

IMFSurvey: How about countries that have reached their completion points but are running into trouble again because of outside shocks, such as commodity price drops?

Bio-Tchané: For those countries that reach their completion points but still face unsustainable levels of debt on account of exogenous factors, the international community has the option of considering additional debt relief (or “topping up”) on an exceptional basis beyond that committed at the decision point. Burkina Faso is one country that has been able to benefit from such topping up. For those countries that have graduated from the HIPC Initiative—that is, they have reached their completion point and received irrevocable debt relief—there is no guarantee that debt sustainability will be maintained. That is why the IMF and the World Bank have recently stepped up efforts to find a solution to this problem. The ongoing review of instruments in low-income countries [due December 2003] should also shed light on ways in which the IMF can assist its members to deal with the effects of a shock.

IMFSurvey: When it comes to reaching the UN Millennium Development Goals, what do you say to those who worry that the IMF is part of the problem because it insists on countries’ carefully watching outlays to avoid running up unsustainable debts?

Bio-Tchané: The IMF is part of the solution, not part of the problem. Every analysis that has been carried out has concluded that macroeconomic stability is essential for achieving high, sustainable growth and reducing poverty. If the macroeconomic situation isn’t stable and inflation is high, the poor are the first to suffer. Moreover, countries that scale up expenditures on the basis of unsustainable borrowing will eventually be forced to implement cutbacks to avoid an economic crisis. This reality is recognized by most Africans today. Don’t forget that, even if the external financing is available, countries will need sound economic policies to generate additional domestic resources for growth. At the same time, however, the IMF has been calling for more aid in the form of grants to meet the sizable social needs of poor countries. Whenever necessary, we’ve sought to ensure that budget allocations were provided and that there was enough financing to meet food shortages and combat HIV/AIDS.

IMFSurvey: What is the IMF doing to facilitate the efforts of countries that need to spend more to combat the HIV/AIDS epidemic?

Bio-Tchané: The IMF supports all efforts to combat the HIV/AIDS epidemic, including through increased spending; in a number of cases already, fiscal deficits have been relaxed to make room for this. In fact, in no case has the IMF not accommodated the need for such spending. Virtually all HIPC agreements include a trigger that calls for higher spending on HIV/AIDS. Moreover, in many countries, the IMF’s country teams explicitly incorporate the impact of HIV/AIDS in their macroeconomic assessment and policy advice. While the World Bank, UN agencies, or other development partners typically take the lead in this area, the IMF cooperates closely with them. Our mandate is to focus on the macroeconomic impact of HIV/AIDS, including on labor productivity and economic growth, government revenues, health and other social outlays, and pension systems.

IMFSurvey: How important is it to promote financial sector development for growth?

Bio-Tchané: Obviously, you can’t expect growth if a majority of the population lacks access to financial services. Since the mid-1980s, there has been a growing recognition that sound financial markets are essential for growth, and that is why we’ve recently stepped up efforts to support certain areas of financial market development that are essential for tackling poverty. These include bringing job-creating growth to rural areas, promoting the development of small and medium-sized companies, and facilitating access to local sources of long-term credit. With financial sectors dominated by commercial banks, countries need to focus on developing nonbank financial institutions, particularly institutional investors such as private pension funds and insurance companies. It is also clear that other reforms are necessary, including enforcing property rights and reforming the judiciary.

IMFSurvey: What should oil-producing sub-Saharan African countries do to better manage their resources?

Bio-Tchané: This is a critical issue, and it’s becoming even more so given the recent major oil discoveries in several countries in the Gulf of Guinea. There is no doubt that the record to date for African oil-producing countries is very disappointing overall. Put simply, oil revenues haven’t translated into a commensurate improvement in living standards for most of the population. The IMF has increasingly engaged in an active dialogue with the countries concerned, which included holding a special joint seminar with the World Bank last April in Cameroon.

The messages are clear. First, governments must be transparent about oil revenues received. Second, they must be fully accountable as to how oil revenues are used—that means an end to off-budget expenditures and the holding of oil receipts in special offshore accounts that are outside regular budgetary channels. Finally, they need to establish clear rules as to what portion of current oil revenues are spent (preferably, for developmental needs) versus put aside for unforeseen developments and the eventual depletion of oil resources. Without such arrangements, there is a high risk—and there are some clear cases of this hap-pening—that the oil windfall will have had very little to show for it, which would be a major tragedy.

IMFSurvey: Now that the Chad-Cameroon oil pipeline is in operation, to what extent is the IMF going to be involved in monitoring the oil revenue management plan?

Bio-Tchané: The IMF and the World Bank have worked very hard with the authorities to put in place the sort of framework to which I just referred, in anticipation of the coming onstream of oil revenues, which has recently begun. A great deal of progress has been made. All that remains is to put a few finishing touches to some of the precise institutional mechanisms required, which is expected to be done very soon. We all very much hope that successful implementation of this approach by Chad will serve as an excellent example for other countries.

Photo credits: Bayer AG, page 329; Denio Zara, Eugenio Salazar, and Michael Spilotro for the IMF, pages 329—0; Picture Communication, pages 343—4.

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