The Bretton Woods of our grandfathers: any hope for change?

As the world grows digital every day, in the face of unprecedented levels of lockdown and limited human interactions resulting from the COVID-19 pandemic, meeting applications like Zoom are coming to the rescue of the global society staying at home. One such Zoom meeting held recently dealt with this global scourge, the COVID-19 pandemic, with a special focus on its impact on the Ethiopian Economy. The meeting, a webinar as it is called these days, was organized by Precise Consult, 251 Communications, Flawless Events and Gazebo International, all local players in the communication and event organizing industry.

This online conference attended by Eyob Tekalign (PhD), State Minister of Finance, Ephrem Lemango (PhD), Commissioner for Federal Jobs Creation Commission, Abebe Aemero Selassie, the International Monitory Fund’s (IMF) Africa Director, and Berhane Demissie, Managing Director of Cepheus Capital, looked into the challenges Ethiopia faces as a result of COVID-19 and the response from both the government and the international community.

Just as a passing remark out of an hour and a half discussion, Abebe underlined that the IMF today is not “your grandfather’s IMF” quoting his “boss” to be immediately lauded by Eyob.

Abebe, speaking of his institution’s response to the global crisis, mentioned that the financing provided by the IMF is being done with a consideration of sizable fiscal deficits in financed countries for some time to come, and in a manner that protects the health crisis ravaging the global economy. This, according to Abebe, is not just a mantra but also something that is backed by resources out of IMF’s coffers which 32 African nations including Ethiopia has requested; and the Institution is “processing extremely quickly”.

While highlighting that, he also pointed out that there are existing vulnerabilities in some countries in terms of already expanded fiscal deficits and high debt levels, all in all complicating the response to crisis. Abebe stated, “Our view remains that at least in the near future allow fiscal deficit to widen. And issues like debt sustainability are more of a medium-term issue and we really can’t ascertain that until we have a clearer picture of what the crisis is going to look like – there are and there will be a number of countries on the verge of the gray zone.”

Hence, the focus of his institution, he said, is to get “this crisis behind us”. He argued if the crisis is not put under control, there would be issues more than debt sustainability to worry about.

On the other hand, indicating that his Institution has done “quite a lot of reforms” including doubling the amount of resources that can quickly be provided to countries with no programs attached to them,” Abebe can’t help but question whether this condition would continue or not; adding “only time will tell”.

Also justifying the reason, the international community is extending a helping hand during this COVID-19 crisis Abebe argues that “if you allow countries that are facing these temporary liquidity challenges to slump into severe economic difficulties, then you aggravate the global economic and social situations further. So, it is also in the interest of the international community to provide temporary financing; temporary support to allow countries to come out of this without lasting damages.”

He also lauds the IMF to have worked rapidly to avail a huge amount of money to countries in need in a manner that was never seen in the institution’s history.

The Moderator of the Conference, Henock Assefa of Precise Consult, was quick to point out such kinds of recommendations coming from the IMF deserves attention as they are “contrary to what we normally hear from the IMF which usually recommends discipline in fiscal matters … it is kind of refreshing and it is also scary.”

Abebe took from Henock to add that, IMF’s director, Kristalina Georgieva, in her own words said that “this is not your grandfather’s IMF” highlighting not only “the enormity of the crisis but also [the fact that it is] a different institution than its public image often portrays”.

Eyob Tekalign introduced his discourse by reflecting on what Abebe has said, stating “we have really seen that [the IMF is not our grandfather’s IMF] when we developed our Home-Grown Economic Reform (HGRE) program and asked for support. As someone involved in the entire process, I was surprised by how far they’ve come – truly there is some change over there in terms of encouraging local ownership,” he asserted.

Nonetheless, this is not the first time that a high-level Ethiopian official appreciated the attitude and financing support of the Bretton Woods Institutions to the country. Speaking on December 20, 2019, at a peace conference at the Millennium Hall, PM Abiy Ahmed (PhD) said that borrowing from the IMF and the World Bank is like borrowing from one’s mother.

“The money that the IMF decided to give is 700 percent higher than what we used to get. Some say we are adding more debt to the country’s already high debt level. But, borrowing from the IMF and the WB is like borrowing from one’s mother. This is not a debt; because they give a billion-birr loan and say that we could pay it in 20 and 30 years with an interest of 2, 3, or 4 percent. What is hurting Ethiopia is borrowing from other companies or countries. For instance, it borrows to build a railway but it is asked to repay the debt before the construction is even completed … The problem is giving a hundred and asking for 150 tomorrow. This is not credit but usury. Hence, the WB has been criticizing us so far saying that we take loans from them and repay it to usurers and we don’t put out loans into development. But now, with the newly started economic reform, we will ensure Ethiopia’s prosperity if we work hand in hand like we did to bring about peace,” Abiy lauded.

But these are somewhat questionable propositions for many economists as well as practitioners in the commerce and finance sectors, since they even conclude that what the HGER carries is what the IMF and its twin, the World Bank (WB), have been propagating for years.

“It is not a surprise that these institutions backed the so-called Home-Grown Economic Reform (HGER),” Kebour Ghenna, the Executive Director of the Pan African Chamber of Commerce and Industry, stated a while back, adding that, “they are supporting the reform because it is aligned to their needs.”

Similarly, Alemayehu Geda (Prof.), the prominent macroeconomist and a professor at Addis Ababa University’s College of Business and Economics, in an article he published in September 2019, claimed that “a closer examination of the “homegrown” economic policy reform shows that it is not really “homegrown” as it is said. Why? Because it is strikingly similar to a typical IMF program for reforming (liberalizing) developing countries and appeared to have adapted the template. Because it doesn’t start from an understanding of what the real economic problems at home are. As a result, the review and diagnosis in the policy are based on such templates instead of the real issue on the ground.”

He also adds to his argument that “the government needs to be in a driving seat to formulate and implement its policy (i.e. making it truly homegrown) and the technical assistance such as the IMF/WB/Harvard groups from outside should be complementary and supportive – not the other way around as it is now.”

According to Kebour, still the leadership of these institutions under the US and Europeans and the conditionalities being the same, there is nothing to say that these institutions have changed

“For me, their conditionalities like privatization have not changed when providing support for Ethiopia; they became more willing to lend Ethiopia more money while the conditionalities are still there,” he stresses.

In order to say that such institutions have changed, there needs to be a change in the governance infrastructure; whatever change that they are talking about now falls under administrative and management reforms that is largely about a change of people, he argues. This could also be a change in orientation like increased loans and financing, Kebour adds.

The argument is the so called conditionalities of these institutions did not bring about development and sustainable growth in African nations who had to say ‘yes’ to get loans attached to these programs. In another article he published in July 2018, Alemayehu indicated this clearly by saying, “by sponsoring to the so-called structural adjustment programs (SAPs) through what is called the ‘Washington Consensus’, that includes privatization across Africa, these institutions’ policies have been the cause of African stagnation and poverty than prosperity. Apart from the liberalization that includes devaluation and related macro policies, privatization was one of the key policies that Africans need to do in order to get aid from the WB/IMF and through their seal of approval from the Western countries. These neoliberal policy packages brought about disaster in Africa in the 1980s and 1990 which led the Economist Magazine to label those decades of Africa as ‘the Lost Decades’.”

Hence, because of the long history of the conditionalities attached to the Bretton Woods’ money, Kebour is skeptical that they could reform themselves now.

“It is difficult to change institutions like the IMF; the US has to change first for them to change,” he stresses.

Also indicating that the economic reform document that was presented to the public after completion did not even benefit from stakeholder discussions during preparation, “it has been prepared in a way that stands for the interests of the WB; this program is much more suiting for the interests of the WB and the IMF than any of the previous plans. It is captive to these institutions’ interests,” he emphasizes.

For him, the Ethiopian officials are appreciating these institutions in a belief that they were given loans for development.

“They do not stand for the interests of Ethiopia. Development never comes from debt,” he stated. “If the IMF said that you are doing well, it is not out of the blue and there is some problem.”

The question of why the Ethiopian officials are submitting to the historically unsuccessful advises and succumbing to the infamous conditionalities seems to also puzzle Alemayehu. In an article where he criticized the Home-Grown Economic Reform Agenda, Alemayehu questions why the current Administration is copying the IMF and WB recommendations to the letters.

“It has to be recalled that in every negotiation the Ethiopian government has with these institutions in the last 27 years, the IMF and the WB were pressuring the government for such wholesale privatization and the opening up of the financial sector for their investors. Although in some of the public firms such as the telecom the government failed to bring about competition and good service to the mass, to its credit, unlike many governments in Africa, the EPRDF government so far had been strong enough to resist this pressure. Against this proud tradition and policy ownership, I don’t understand why the new PM seems to open to this pressure today,” he wonders.

Also contesting what Abebe said about allowing fiscal deficits for some time, Kebour indicated that this is more of an accounting trick and as long as the sovereign nation that prints its own money has a budgetary deficit, the real money lies in the pocket of the taxpayers who did not comply. Asking what the problem is if the fiscal deficit expands, Kebour questions its validity as he says, this is what the modern monetary theory (the Keynesian thought) brought about.

The influence that Keynes has on the newly introduced economic reform seems evident as Eyob himself had admitted that the majority of the people involved in the making of the policy document were influenced by the prominent economist John M. Keynes. He said so during the launching of the HGER program at the Sheraton Addis Hotel in August, 2019.

“The real concern in expanding budgetary deficit is the inflation which needs to be tamed through various mechanisms,” Kebour indicated.

For Kebour, the Chinese dollar is more suitable for nations like Ethiopia than getting loans from the IMF and the WB also reminding that China has provided more than three folds of the loans for the developing world than the two institutions.

“There is no conditionality in Chinese money. If there is conditionality, it is the creditor that leads your country. Also, Chinese debt relief measures are meaningful. The need is to carefully negotiate the terms of the debt,” Kebour argued admitting that there is high interest rate in the Chinese money which could be managed through negotiations.

Hence, unless the US changes itself, there is no global order that could force change into the Bretton Woods Institutions, he adds, as the neoliberal ideology which is under question now, generally undermines social spending in favor of the private sector empowerment.

For Ethiopia, what is needed is having a government that stands for the people and their interests, which is lacking at this moment.

“It does not have to benefit only the one percent of the society,” he concludes. [Reporter]