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Chapter 2— Ghana in Economic Crisis
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The 1983 Budget Announcement

Finally, after fifteen months of economic failure, the Rawlings government reversed course. The April 1983 budget, announced by Finance Secretary Dr. Kwesi Botchwey, suggested a fundamental break with not only the PNDC's previous policies but also from the thrust of economic practice since independence. Dr. Botchwey said that what was required was "a complete overhaul of policy in the areas of incomes, and pricing, including the pricing of foreign exchange."[42] As discussed in chapter 3, the new budget enacted a substantial devaluation, which previous governments had deemed politically impossible. Also, as discussed in chapter 4, the new budget raised prices on a large number of basic foodstuffs, once again putting the PNDC in grave danger.

More important, Rawlings, addressing the country a few days after the budget was announced, suggested that the government was committed to changing fundamental incentives in the economy:


We have reached a critical stage in our history and we need to ask ourselves serious questions: why has it become so profitable in this country simply to engage in trade instead of production? Why are the most productive and industrious people usually the poorest? Why do we make it less profitable for a person to produce maize here than for him to get an import license to import it from abroad? Idleness and parasitism have become more rewarded in this economy than productive work. . . . This is the time to reverse this process.[43]

In particular, the budget promised a new relationship between the state and the economy. Botchwey noted that "the rigid enforcement of prices unrelated to costs of production is [not] a satisfactory basis for action" and instead insisted that "pricing policy . . . be based on production costs together with appropriate incentive margins."[44] As the following chapters explore, implementing these fundamental changes posed enormous challenges for the PNDC.

Why did the PNDC suddenly change course and adopt what soon became the most comprehensive economic reform program on the continent? The most basic explanation, and one often suggested for Ghana, is that the PNDC had no choice given the state of the economy. In fact, Rawlings, in his May 1983 speech, had claimed that the recently announced budget was "the only viable option open to us."[45] However, as chapter 1 indicated, there is a long tradition of Ghanaian leaders proclaiming (correctly) that the economy had hit rock bottom and then doing nothing to reverse the slide.

Similarly, in many other countries in Africa (Zaire is perhaps the classic case), scholars and many others have repeatedly been proven wrong as governments continued counterproductive economic policies even though the experts were saying the economic situation could not get any worse and the government in question would have to take action. In general, there is no clear relationship between an African country's economic condition and its willingness to undertake reform measures.[46] In fact, as Gulhati and Nallari note in their study of Mauritius's successful stabilization effort, reform is much less likely if the country is already experiencing an acute stabilization crisis.[47] The economy could have become worse in Ghana and the government could have limped by,


perhaps with some kind of modified reform program. Certainly, it was clear to the government that the new budget posed enormous political risks, and these fears were quickly borne out by public demonstrations against price increases in the days after they were announced. Previously, there had not been public demonstrations against the PNDC, despite the deteriorating economy. That the PNDC had no other choice is too deterministic an explanation and does not take account of the huge political and personal gamble that Rawlings and the rest of the PNDC undertook when they adopted the program. After all, given the precedent that he had set in executing Acheampong, Rawlings stood a good chance of being killed in a successful coup.

One aspect of this "no other choice" argument, however, is relevant to the Ghanaian experience. As noted in chapters 3 and 4, the economy had collapsed to such an extent that most people were paying shadow prices. For instance, given that the black-market rate of the cedi was roughly twenty times higher than the declared rate, very few goods on the shelves of stores (and nothing in the markets) were priced according to the official rate. The devaluations and lifting of price controls therefore had less effect than might have been expected—given their magnitudes in nominal terms—because people were already paying well above the official price for goods. Finally, because of the economic crisis, most urban workers were forced to take second jobs or otherwise supplement their income, so a decrease in wages or even outright loss of employment may not have been quite as significant as it appeared.[48] Thus, the extremely poor state of the economy may have made enacting a stabilization program easier than it initially appeared. This argument avoids the artificial determinism of those who argue that Rawlings had no choice but to adjust but does give due attention to the extent to which shadow prices can operate in an economy that reached the depths Ghana's had by 1982–83.

A second explanation for the timing of the adjustment decision looks to the political strength of the leader. Joan Nelson, summarizing a sophisticated series of case studies examining economic reform, argues that among the important factors determining the timing of adjustment decisions is

a basic minimum of political support for the chief executive. Strength in a chief executive is no guarantee of quick decision, but acute weakness and


inability to command support from party and/or legislature or other key support groups virtually guarantees delays or paralysis.[49]

In the case of Rawlings in 1983, however, there was little reason to believe that he had the support needed not only to enact an adjustment program but also to reverse the thrust of economic practice in the country over the previous twenty-five years. Indeed, what was striking was how narrow Rawlings's constituency was: some of the military, university students, and some workers. All these would be alienated to some degree if the government adopted a reform program that reversed the urban biases of past governments. A number of coups against Rawlings had been attempted before the budget announcement, and more would follow.

Nor did Rawlings's assembling an economic team around him (another factor Nelson cites as being crucial to the adoption of an adjustment program[50] ) necessarily suggest that the government was seriously interested in adopting a reform program. The intelligentsia that surrounded Rawlings was strongly opposed to any kind of liberalization program or to relations with "imperialist" agencies such as the World Bank or the IMF.[51] Further, given the exceedingly poor policies that had been implemented since Rawlings had come to power, there was little reason to believe that the PNDC's team had the ability to implement any kind of coherent economic program.

The PNDC was also an unlikely proponent of reform because it was riven with factionalism. Of the original seven members of the PNDC, two (Brigadier Joseph Nunoo-Mensah and the Reverend Dr. Vincent Kwabena Damuah) had resigned voluntarily by November 1982. One (Joachim Amarte Kwei) was executed in August 1982 for his part in the killing of the three high court judges. And two (Sergeant Daniel Aloga Akata-Pore and Chris Bukari Atim) were forced to leave the PNDC after an attempted coup. The other member of the original PNDC besides Rawlings, Warrant Officer Class One Joseph Adjei Buadi, resigned from the PNDC in December 1984.[52]

However, Rawlings and those who became his close associates once


the economic reform program started had well-developed political skills. Rawlings had accomplished major political feats just by emerging out of two chaotic coups as the unquestioned leader. After December 31, 1981, he also defeated a number of attempts by others to gain power. In addition, there is no doubt that he had his hand on the popular pulse in Ghana as few other leaders have. Some of his associates have also proven to be politically adept, although more than a few have not. As noted in chapter 3, development of the proper political strategy by astute leaders can often substitute for the kind of intellectual and analytic cohesiveness that Nelson suggests is necessary. The technocratic input that Nelson describes is important, but to some degree, especially in Africa, it can be supplied by others (notably, the World Bank). Political strategy, however, must come from the leadership itself and is therefore arguably more important than the beliefs and cohesiveness of the senior civil service.

A crucial aspect of Rawlings's decision to adopt the reform program was the intellectual and financial bankruptcy of those who opposed it. While out of power, Rawlings had been influenced by dependency theory.[53] Once in power, however, he associated with a wide range of people, with the result that the PNDC had a particularly confused ideological view.[54] It soon became obvious, especially in light of Ghana's disastrous economic experience, that the proponents of dependency theory or other radical formulas did not have a coherent answer to Ghana's woes. Finance Secretary Botchwey, who before his appointment had been a well-known radical university lecturer, suggested some of the problems the regime encountered when actually trying to follow its radical inclinations: "The experience that we have gone through does indicate that there are very fundamental problems of social transformation that the Left is only now beginning to address."[55] Rawlings, showing his disgust for radical demands in 1983, finally turned and announced what he called an all-out war against "populist nonsense."[56]

Of equal importance to the failure of radicals to propose a coherent solution to Ghana's problems were developments on the international scene. Starting with the election of Prime Minister Margaret Thatcher in


the United Kingdom, many countries across the world began a fundamental reevaluation of the role of the state in the economy. The extremely high rates of growth among Asian countries had a particularly strong effect on attitudes toward the political economy of development, especially in other parts of the Third World, which increasing felt left behind.

In Africa, the reevaluation of the state was marked by the World Bank's extremely influential 1981 report, Accelerated Development in Sub-Saharan Africa .[57] The report was especially important because it went beyond the traditional diagnosis of stabilization crisis to argue that the problems affecting Africa were tied to the way government regulated the economy in such areas as exchange rates, prices, and the control of agriculture. This report was, of course, especially relevant to Ghana, which came to be seen as the paradigmatic case for much of the bank's critique.

The World Bank and the IMF had the great advantage of being able to base their case on an extremely powerful theoretical framework—neo-classical economics—more coherent than anything the radical proponents of change in Ghana could muster. Rawlings, notorious for his lack of attention to economic detail, quickly mastered the logic of exchange rate reform. The bank's message concerning the need for structural reform was also reinforced by the actions and messages from the international community and bilateral donors. As Rawlings noted,

Our measures must be seen as an integral part of the new wave of realism cutting across geographic and ideological boundaries the world over. The wave of realism has led to major economic policy reversals in both the West and the East, both in the North and the South. Both the USSR and China have had to review some of their fundamental economic policies. And so have France and the USA.[58]

The strength with which Botchwey and Rawlings in particular grasped the bank's analysis can be seen in their 1983 budget speeches in which both stressed that Ghana was facing much more than a stabilization crisis. In line with the bank's rhetoric, they argued that fundamental economic institutions had to be changed.

Proadjustment officials' ability to take advantage of such a fundamental change in the intellectual environment gave them an unquestioned advantage over those who opposed adoption of the economic reform


program. When faced with criticism, either public or private, Ghanaian officials consistently asked what they could have done instead. While aspects of the reform program can be criticized, no one inside Ghana has devised a coherent counteragenda that could compete with the PNDC's economic reform program. The intellectual dominance of economic reform in Ghana parallels the situation throughout Africa, where details of World Bank- and IMF-sponsored programs are often criticized; seldom, however, is an alternative proposed.

In addition, the international community was willing to support its new diagnosis of Africa's ills with significant resources. The World Bank initiated lending for structural adjustment in 1980–81 to promote economic reform. In addition, in 1985 the bank created the $1 billion Special Facility for Sub-Saharan Africa. In 1987, seventeen donor countries pledged $3 billion in additional aid to debt-distressed low-income countries.[59] The International Monetary Fund also had large amounts of funds available, especially since most African countries had not availed themselves of the IMF's financing facilities in the 1960s and 1970s. In addition, the IMF authorized members to make cumulative purchases outside the special facilities of 500 percent of the members' quotas in 1981, further increasing the resources available to Africa. Finally, in 1986, the IMF created the Structural Adjustment Facility to provide debt-distressed, primarily African countries with medium-term, highly concessional aid. A year later the Extended Structural Adjustment Facility was created to provide even more generous terms for debt-distressed nations.[60] The importance of these resources should not be underestimated, especially when so many analysts are arguing that the power of ideas alone is responsible for many of today's trends toward economic liberalization and democracy. Ideas count, but the Ghanaians would not have been so fast to embrace the World Bank's views if the money had not been available.

The Rawlings regime's decision to adopt a reform program came at a fortuitous moment, just as the international community was increasing resources to Africa. Indeed, after the World Bank's highly controversial report, it needed a success story to justify its new approach and the resources Western countries were committing to economic reform in


Africa. Ghana, a notorious basket case but with a new, committed government, fitted the World Bank's requirement for an exemplary case. Indeed, at the pledging conference in 1987, Ghana received $818 million in commitments even though it had asked for only $575 million.[61] As will be noted throughout this book, the World Bank's need for a success story did not mean that the conditionality requirements were eased for Ghana; in fact, many PNDC officials were bitter about the World Bank's lack of faith in their commitment to reform in the years immediately after 1983. Also, the IMF did not particularly need a success story, and its conditionality programs were, as usual, quite difficult for a country like Ghana to adopt. However, Ghana could be assured that if it made the required reforms, large amounts of funds from international donors would be available.

The intellectual and financial clout of the World Bank and the IMF had a profound impact on domestic Ghanaian politics. First, the positions of those favoring stabilization and adjustment were strengthened because they could point to the availability of real resources. Ghanaian officials reported that a considerable portion of the initial stabilization program they adopted had been on the shelf for some time as senior civil servants had long ago diagnosed the major problems in the economy. The multilateral organizations were crucial in providing support so these officials could forcefully advocate within the government the policies they had designed. At the same time, the fact that the Ghanaians could argue that at least part of their reform program was locally developed may have helped somewhat in convincing the public to swallow the IMF's bitter medicine.

In addition, once Ghana started accepting money from the IMF and the World Bank, radical suggestions were made untenable. As Dr. Botchwey noted, "We had to pay a political price for our external ties. . . . you don't go to borrow money and say you are going to nationalise the lender's local assets."[62]

Finally, World Bank and IMF officials were crucial in providing much of the administrative and analytical resources necessary to make the program work, especially given that the Ghanaian state had all but collapsed.[63] As Dr. Joseph Abbey noted, "A critical element that facili-


tated the success of the adjustment program was the very close and fruitful, even if at times acrimonious, dialogue that was established with successive [IMF] missions."[64] As noted throughout this book, while there are many problems with the public diplomacy of the World Bank and the IMF, the provision of technical expertise was absolutely crucial to the adoption of the Ghanaian program.

The next three chapters review in depth the Ghanaian experience of stabilization and structural adjustment in two key areas—exchange rates and the prices of basic goods—and then explore the regime's ability to construct durable political constituencies in the rural areas as it continues with economic reforms.


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