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Ghana-World Bank: Star Pupil Has Second Thoughts on Reforms

By Asare Kofi. InterPress Service. 17 February, 1997

ACCRA, Feb 14 (IPS) - Viewed as one of Africa's top reformers, Ghana is now coming to grips with the high cost of adjustment on its people 13 years after it launched a structural reform programme at the World Bank's bidding.

The programme has reaped benefits, but it has also brought severe pains in its wake, and government officials whom World Bank chief James Wolfensohn met here this week told him the time had come for aspects of the programme to be reviewed.

Wolfensohn, accompanied by his wife, Elaine, and four top officials of the bank, visited Ghana from Monday to Wednesday to assess the impact of his institution's programmes on the West African nation.

Finance Minister Kwame Peprah Peprah said it had been relatively easy to get Ghanaians to support the programme in the initial stages, that has now become more difficult.

Under its structural adjustment programme, begun in 1983 while it was under military rule, Ghana has removed all forms of market control and exchange regulation, sold state enterprises and scrapped subsidies. As a result, the cost of food and services has risen beyond the reach of poorer Ghanaians.

''These adjustments have been difficult, but our ability to absorb the pain has been the reason we have been able to move thus far,'' Peprah told Wolfensohn and his team during one of their meetings here.

But, he said, ''as we move along, the ability with which we get people to move along changes ... Our present political system, which is guided by the consitution, is beginning to influence the country's ability to carry out the desired adjustment required by the bank's programmes.''

In 1995, for example, the government had to withdraw a 17.5- percent Value-Added Tax (VAT), meant to increase state revenue, after violent anti-VAT protests in which five people were killed.

At a meeting Wednesday with Wolfensohn, President Jerry Rawlings said Ghana's budget had come under severe strain from the rising expectations of the majority of Ghanaians. This, he explained, now made it difficult for the country to generate adequate budget surpluses to service its foreign debt and meet other financial obligations.

The amounts Ghana spent servicing its foreign debt went from 13.2 percent of its exports in 1980 to 24.8 percent in 1994, according to the World Bank's 1996 World Development Report. In the same period, the debt increased from just under 1.4 billion dollars to close to 5.4 billion dollars, according to the same source.

Rawlings said that Ghana, like some other SAP-applying developing countries, now faced a dilemma: how to meet the rising expectations of its people and, at the same time, the objectives of the adjustment programme.

In a tacit admission of the lack of achievement of some of the objectives of the programme, Peprah said: ''The same issues are still with us as they were in 1983 when we had to explain them to the people.''

These problems include high unemployment, which government sources put at about 20 percent of the active population while the opposition claims that it is as high as 35 percent. They also include inflation -- reduced from 71 percent in January 1996 to 32 percent by yearend, but still short of the government's 1996 target of 20-25 percent.

Wolfensohn said the basic solution to Ghana's problem of macro- economic instability was for the government to rein in inflation. ''And the best way to do that is to make sure that you don't overspend,'' he said Wednesday at a pre-departure press briefing.

Ghana's high inflation rate has largely been blamed on the government's spending -- financed by borrowing from banks here. In addition to raising domestic interest rates (91-day treasury bills attract 47-percent interest), the state's dominant position in the financial market also crowds out the private sector.

Apart from stalling growth by preventing the inflow of investments, Wolfensohn said, ''it is the large bulk of people who are struggling to get out of poverty who are hurt.''

He also stressed the need to weed out corruption in government. ''What everyone now has to be concerned about is the management of wastage,'' he argued. ''If people don't get rich on corruption, then there is a sense of justice.'' Referring to discussions he had with Rawlings on the issue, he said: ''He's very passionate about this.''

''I believe that corruption is the single worst factor that affects investment,'' Wolfensohn said, adding however that it was not a problem limited to Ghana.

He said some of the discussions he held here with government officials centred on micro-financing for projects in the countryside. ''Much of poverty is in the rural areas,'' he said, ''therefore, you cannot afford not to consider how we at the bank and the government can have a closer look at the rural areas.''

The World Bank plans to develop an integrated rural assessment, not just a piece-meal programme, he explained. The integrated programme, he said, would be aimed at helping women grow better crops and get information on what products to produce and how to get them out.

Origin: Harare/GHANA-WORLD BANK/

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