Deflecting Political Pressure

The government carried out these devaluations at considerable political cost. The workers had become largely alienated, in good part because each newspaper that carried news of the latest devaluation also reported that petrol and other commodities were increasing in price because of the new exchange rate.^[37] In a remarkable statement for a country that still suffers from what Rawlings calls "the culture of silence," A. K. Yankey, head of the TUC, said in late 1985 that "workers out of frustration would be forced by their human instinct of survival to rise up against the Government since it cannot ensure them their survival."^[38] Students, too, were largely alienated from the PNDC, and the universities had to be shut for a considerable time because of student protests.

Perhaps most important, by early 1986, senior government officials were beginning to voice, in public, serious concerns about the political implications of continued exchange rate reform. In a bold challenge to government policy, Lt. Col. (ret.) J. Y. Assasie, who was at that time political counsellor for the Economic Development of the Committees for the Defence of the Revolution (as the WDCs and PDCs had been renamed), said,

We are of the view that the burdens that tend to flow from currency adjustments fall disproportionately heavily on the deprived and poorer sections of [the] community without adequate and corresponding compensatory benefits. This sector of our society is the constituency of the Revolution which must not be unnecessarily burdened in the pursuit of growth.^[39]

Similarly, one Finance Ministry official said, "Exchange rate announcements became more and more difficult with each successive announcement of devaluation. The government began to look bad. Revolutionaries asked if the government was for the workers. Every devaluation brought an increase in prices."^[40] By this time, government officials admitted that they faced too much popular pressure to simply continue the practice of administrative announcements of devaluations. Government officials also expressed some unhappiness that the process of setting rates administratively, which involved the Ministry of Finance, the Bank of Ghana, and the PNDC, was too cumbersome to continue indefinitely.

[37] For instance, on 5 December 1984 the People's Daily Graphic reported a devaluation; the accompanying story on the page concerns an announcement from the Ministry of Fuel and Power that fuel prices were increasing because of the new exchange rate.

[38] Pioneer, 25 November 1985.

[39] J. Y. Assasie, "CDRs and the National Economy," The CDR Eagle Flies 1, no. 1 (December 1986): 16.

[40] Interview, Accra, 25 July 1989.

In addition, while the devaluation had hurt a large number of people, explicit supporters of the government's economic policy were still relatively scarce. Although farmers' incomes were increasing, cocoa production was at only 215,000 tons in 1985, an increase from 1983's level of 158,000 tons but still well below the 258,000 tons achieved in 1980.^[41] Of course, the slow response by cocoa farmers was hardly surprising given that it takes five to seven years for a tree to begin to yield cocoa beans. Thus, there was no obvious manifestation of rural support for the government and, as will be discussed in chapter 5, the PNDC was still grappling with the fact that its institutional ties with the countryside were tenuous.

Faced with these problems, the government decided to institute a foreign exchange auction, which constituted a "second window" for foreign exchange allocation. As Dr. Botchwey noted, the auction tended to "depoliticise" currency adjustments because the government could plausibly deny its responsibility for further devaluations, blaming them on the market.^[42] Similarly, an editorial in a local newspaper noted how the auction deflected blame from the government:

Each and every Ghanaian, therefore, must be aware that the way he or she goes about the tasks and responsibilities of daily life will be reflected in the weekly auction results. We can no longer hide from the truth or blame it on international financial institutions or economists who talk a language which we don't understand. . . . It is our efforts which will determine the weekly economic temperature.^[43]

In the first week, the value of the cedi decreased by almost 42 percent to 128 cedis to the dollar. The government soon confirmed its commitment to the auction by closing the first foreign exchange window so that the auction became the sole means of foreign exchange allocation in the country. The auction continued the gradual devaluation of the cedi: by September 1991 the exchange rate had reached 400 cedis to the dollar. Figure 4 indicates that the auction brought about a further real depreciation of the cedi even though there was substantial slippage after the auction was instituted. The same groups that had been disaffected before by the devaluation continued to be unhappy, but there is little evidence that they posed any threat to the regime.

Once the auction began, the PNDC did not comment as the cedi fell

[41] Commodity Research Bureau, CRB Commodity Yearbook, 1991 (New York: CRB, 1991), 35.

[42] Quoted in Baffour Agyeman-Duah, "Ghana, 1982–6: The Politics of the P.N.D.C.," Journal of Modern African Studies 25, no. 4 (December 1987): 635.

[43] People's Daily Graphic, 15 September 1986.

and did not intervene too overtly in the auction. The government could reasonably claim, therefore, that it was not directly responsible for the devaluation or the ensuing hardships. Indeed, Ghanaian authorities repeatedly noted the benefits of the cheaper cedi.^[44] In contrast, the Zambian government began to worry about the value of the kwacha and intervened overtly in its auction,^[45] thereby directly assuming responsibility for the devaluation and the accompanying political blame. As a result, in contrast to Ghana, the Kaunda government was forced to terminate its auction.

In February 1988, the government embarked on further liberalization of the exchange rate by allowing the establishment of foreign exchange bureaus. These bureaus, which are privately owned, are allowed to trade openly in foreign exchange with no questions asked of either Ghanaians or foreigners who want to buy or sell foreign exchange. As Figure 4 indicates, the establishment of the bureaus led to a further real depreciation of the currency from the auction rate. This further decline occurred because the auction is partially managed and because some Ghanaians are reluctant to indicate to the government how many cedis they possess. The establishment of the bureaus was an extraordinary step because it marked the abandonment of the old system, in which the government had allocated all foreign exchange, in favor of one in which the foreign exchange rate was either determined by auction, for a limited number of goods, or by a competitive free market.

According to government officials, they took this radical step because they recognized there was a flourishing market for foreign exchange outside official channels and decided they would be better off legalizing illegal trade and trying to understand the market rather than continuing to ignore a substantial part of the economy. As one official quipped in an interview, "If you can't beat them, join them."^[46]

The bureaus also may serve as a lucrative new form of business for those who previously made their living exchanging money on the black market or through privileged access to government-allocated foreign exchange. Several government officials stated that at least some of the dealers who previously occupied the infamous Cow Lane (Accra's once thriving black market for foreign exchange) have now opened foreign exchange bureaus, but it is impossible to investigate this assertion. It

[44] For instance, see PNDC, The P.N.D.C. Budget Statement and Economic Policy for 1991 (Accra: PNDC, 1991), 39.

[45] Roger Young and John Loxley, Zambia: An Assessment of Zambia's Structural Adjustment Experience (Ottawa: North-South Institute, 1990), 33.

[46] Interview, Accra, 10 July 1989.

can be said that the incentive system the government has now established promotes legitimate trading activity (for which the government receives a licensing fee) and that the once vibrant black market has largely dried up.