Chapter

10 What the IMF Can Do to Support NEPAD

Author(s):
Saleh Nsouli
Published Date:
September 2004
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Author(s)
Abdoulaye Bio-Tchané

We have already found one concrete way for the IMF to support NEPAD: bring together the people who will make it work—the politicians and officials who can encourage, design, and implement open, poverty-reducing, growth-oriented, and equitable policies—with the technicians who can provide advice, research the evidence, and help to monitor the processes. The discussions in this seminar are also showing what NEPAD can achieve: sharing of ideas; honest appraisal of goals, approaches, and relative successes; and a calling to account for past promises and aspirations.

I should like to add another introductory thought. There is a critical issue that pervades the philosophy and approach of NEPAD. Yet because it is seemingly neither an economic nor a specifically mandated “IMF issue,” none of our seminar sessions addresses it specifically. Nevertheless, it crucially affects every topic that we are covering, and each of our topics has the potential to influence it enormously. I am talking about conflict—violent conflict within or between nations. In addition to taking or ruining thousands or even millions of lives, such conflict can set back economic progress for years if not decades.

Alongside the scourge of HIV/AIDS, the saddest fact of the past decade in Africa has been our self-imposed self-destruction. At the turn of the millennium, even after ridding ourselves of apartheid and immediate aftermaths of colonialism, roughly one-third of our nations in sub-Saharan Africa were in conflict. What is more, even after the deactivation of the “frontline states” against South Africa, the conflicts were becoming increasingly regional in nature. We saw border issues flare up again as neighbors were sucked into disputes by unsettled rivalries, cross-border incursions, the temptation to grab the spoils of war, or a desire to help related ethnic groups. With this enlargement of the scope of the conflicts came greater actual and potential economic destruction. And with more nations experiencing war, the future risks of war grew. Economic development and physical and human capital, painfully established over the years, were set back a decade or more. Natural resources were plundered. In some countries, a whole generation has now been denied the education and health services so vital to future growth.

Thankfully, the past two years have seen the winding down of many of these conflicts. Indeed, one of the redeeming features of intercountry conflicts compared with civil disputes is that the path to settlement can often be much more straightforward and complete. But there are many areas where unrest is still at or just below the surface. And when it boils over, all the efforts we expend on the NEPAD economic priorities of poverty alleviation, macroeconomic stability, increased transparency, and larger inward resource flows are utterly wasted.

Of course, NEPAD itself will play a crucial role in seeking to prevent or reduce conflict as it occurs. This has always been a major objective of its intended political, governance, and peer review processes. But we also know only too well that the seeds of many domestic conflicts are sown long before they actually flare up. Economic failure and inequality provide fertile ground for social, ethnic, and religious divisions to erupt into violent competition and conflict. On the other hand, economic integration and inclusion, fairly established, can help to overcome the effects of centuries of war and oppression, as the example of Western Europe shows. So I see the objectives of NEPAD for economic growth, poverty alleviation, and regional integration as means for reducing the risks of future conflicts. Gains in overall income and reductions in inequality will help reduce the desperation of the dispossessed, give the vast majority of the population a stake in the protection of resources, and provide the resources to safeguard the state from easy takeover.

How can the IMF help NEPAD meet its objectives of growth, self-reliance, poverty alleviation, and regional integration, which together should lay the ground for regional peace and security? I would like to structure my remarks by distinguishing three themes that seem to underlie the objectives and mechanisms for achieving the economic elements of the NEPAD agenda:

  • Describing or formulating guidelines for national economic policies

  • Facilitating regional—and ultimately pan-African—integration

  • Establishing a peer review mechanism.

Within each of these themes, I shall suggest very specific roles that the IMF could and should play and some general principles that NEPAD might pursue.

First, on national economic policies, let me address the topic that is at the center of our concerns in Africa—poverty alleviation. I believe that the formulation of national economic policy in Africa has been transformed in the last three years by the advent of Poverty Reduction Strategy Papers (PRSPs). To be successful, PRSPs must be participatory, home-grown, and home-owned. NEPAD need look no further than PRSPs and the PRSP process for the building blocks from which national priorities and processes can be formalized and, ultimately, monitored. Nevertheless, there continues to be a role for the IMF in assisting countries to specify the medium-term economic framework or frameworks that structure the PRSPs, and in formulating policies—macroeconomic, structural, and financial—that can make it viable and growth-friendly. Indeed, the advent of the PRSPs and of the Poverty Reduction and Growth Facility has helped transform the contribution and perception of the IMF in Africa. As President Benjamin Mkapa of Tanzania recently said, “Unlike in the past, the relationship between the IMF and African countries is presently characterized by unprecedented—repeat, unprecedented—mutual respect [and] flexibility.”

Looking more specifically at the national economic policies that will underpin a successful poverty reduction strategy, I would identify four areas in which the IMF can offer continuing help—macroeconomic policies; producing a supportive environment for the private sector; ensuring efficient, fair, and transparent management of public revenue and expenditure; and mobilizing international resources, public and private.

The macroeconomic policy side speaks for itself. No poverty reduction program will succeed without macroeconomic stability. The well-tested analysis and advice provided by the IMF through its Article IV consultations, country programs, and multilateral surveillance provide a natural starting point both for the PRSP and for any serious study of the appropriateness of a country’s stance with respect to fiscal or monetary policy, exchange rate mechanisms, or external trade policy.

But I would like to emphasize the role that NEPAD could play to support the World Trade Organization (WTO), the IMF, and other international bodies in securing firm and fair liberalization of world trade. For our part, we know that we have to do more to convince the industrial countries to open their markets to Africa and to refrain from the agricultural subsidies and other domestic policy distortions that deprive developing nations of a fair playing field. Indeed, the IMF recently made clear its concerns about policy developments in this area in both the United States and the European Union. But we also need to work together to persuade African nations—for their own good—to open up their own markets and to fight the vested interests that seek protection and economic rents for themselves at the cost of choice for consumers and innovation for their economies.

Similar arguments apply to the liberalization of domestic markets and to structural reform. Too often, fear and vested interests hold back progress. NEPAD, supported by the international financial institutions (IFIs), can help countries move forward together in providing an environment of free competition and efficient taxation that will support private sector growth and innovation.

For countries to maintain macroeconomic stability, to ensure fair and efficient allocation of public revenue and resources, and to promote and maintain free markets demands considerable expertise and capacity. So, increasingly, IMF and other IFIs have focused on technical assistance and capacity building. Our latest contribution is the establishment of Regional Technical Assistance Centers, or AFRITACs, the first of which I was proud to help open in Dar es Salaam, Tanzania, in October. These will be steppingstones toward the self-reliance that is a central feature of NEPAD.

The five planned AFRITACs will provide and channel IMF technical assistance and capacity building in a number of areas. But I should emphasize, in a NEPAD context, the central role of their support for public revenue and expenditure management. I believe this will be critical to the attainment of NEPAD’s aspirations on governance and poverty reduction. Too often in the past, African countries have seen their revenues plundered or wasted because of corrupt or incompetently managed public spending mechanisms. The IMF’s Code of Good Practices on Fiscal Transparency provides a template for the open and rational prioritization of public expenditures; and the IMF’s technical assistance can help countries maintain control over the delivery and monitoring of such expenditures and ensure proper accountability. Efficient and fair government lies at the heart of successful economies and is a sure protection against abuse and conflict. More generally, my experience in observing success and failure among economies in Africa—along with the evidence of recent academic work—tells me that institutions matter. The rule of law, property rights, a fair and just legal system, and other measures make all the difference as economies strive for growth and poverty alleviation.

Lastly, in looking at how the IMF can help NEPAD establish guidelines for national economic policy, I should like to touch on resource mobilization. In the long run, private resources will provide the means to durable growth. And the best routes to encourage private inflows in a sustainable manner lie through stability-oriented macroeconomic policies, market-friendly structural policies, and good governance, stimulated by investor awareness and involvement exercises such as the recent establishment, with IMF and World Bank support, of investor councils in Ghana, Senegal, and Tanzania.

In the short run, many of our countries will remain highly dependent on financial assistance from donors and international agencies, whose support in turn depends on the performance of recipient countries in IMF-supported programs or in IMF assessments. It is therefore very important that NEPAD guidelines and the policies supported under IMF programs are consistent and mutually supportive. The PRSPs provide an ideal mechanism for bringing this about.

Turning now to the second theme for potential IMF support for NEPAD—regional integration. My own experience from the side of the West African Economic and Monetary Union (WAEMU) is of the invaluable support to the integration process provided by the IMF. Indeed, the establishment of both a common external tariff in WAEMU and the machinery for regional surveillance in WAEMU—including macroeconomic convergence indicators—has relied greatly on IMF advice, technical assistance, and encouragement. The IMF has also provided sustained support to the Central African Economic and Monetary Community (CAEMC) and analytical expertise to the Economic Community of West African States (ECOWAS).

Eastern and southern Africa, however, lack the history of a shared currency, so regional integration is less far advanced. But the IMF is enthusiastically exploring with the Southern African Development Community (SADC)—and potentially with the Common Market for Eastern and Southern Africa and the East African Community—arrangements to coordinate economic policies and achieve convergence on policies to maintain macroeconomic stability. They are also discussing the establishment of free trade and putting in place other policies to encourage integration—for example, the harmonization of standards, procedures, and policies in the fiscal, financial, and statistical areas.

There are nevertheless many unanswered questions on how to realize the visions of the Abuja Treaty and of the African Union, which look to the Regional Economic Communities (RECs) as the building blocks toward full integration across the continent. Clearly, close cooperation will be needed on policies among the RECs, particularly where their memberships overlap, and NEPAD might provide an effective framework for this. The IMF and other IFIs should also be able to play an invaluable role here in providing advice on ways to establish consistency, both between the policies of different RECs and between country programs and the RECs of which they are members.

My third theme is perhaps the most difficult, but also the one with the most potential for bringing about rapid and sustained improvement in governance, economic performance, and potentially, conflict resolution. I refer to the African Peer Review Mechanism, or APRM. I do not want to stray into the deliberations about content and mechanism that engaged heads of state and government in Abuja at the beginning of November 2002. I do not know for sure what was discussed and some of the political issues are outside my domain. But I do want to suggest how the IMF and other IFIs might support the economic policy and governance aspects of such a process. They seem to me to be close to the core of what the IMF has been trying to achieve in its 50-odd years—developing national and international codes of conduct for the maintenance of a stable world trading system, sharing experience between countries, offering support and advice, and occasionally delivering rebukes and invoking penalties. Therefore, it may be that NEPAD will want to adopt some of the consultation and review mechanisms of the IMF, as well as its analytical approaches.

NEPAD may also wish to make use of the reports produced by the IMF, to help it develop a set of clear and transparent guidelines on how national policy should be conducted and to assess the performance and policies of member countries. Relevant reports would include Article IV consultations, IMF-supported programs, and PRSP assessments, as well as multilateral surveillance under the WEO. These already provide background material for the macroeconomic surveillance exercises undertaken by WAEMU and CAEMC, and for the IMF and other international groupings.

To conclude, the IMF and NEPAD share the objectives of achieving and maintaining macroeconomic stability, poverty reduction, and growth in Africa. I look forward to joining with you in developing further the means to put these into practice, along the lines discussed today.

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