La revolución industrial como transformación de la sociedad moderna

This chapter analyses the interaction that took place between foreign aid and endogenous factors during Phase II (1983-92). This is the phase when Ghana began to shed many of its post-independence economic and political problems, with foreign aid being a major factor in the drive towards that change. The chapter is divided into seven sections. After this introduction, section two provides a snapshot of the endogenous and exogenous factors that catalysed to rescue the Ghanaian economy. The section further lists all the covariables and shows the outcome of the process tracing that links the causes and effects of Ghana’s transfor- mation. Section three analyses the antecedents or events that led to the challenges at the beginning of the period, based on which a rescue plan was inevitable. Section four summarises discussions on ways to rescue the economy, the negotiations that took place between members of the ruling coalition and the final decision to seek financial and policy assis- tance from the World Bank and IMF. Section five traces the various in- teractions that took place between foreign aid and endogenous factors, while sections six and seven trace how the interaction contributed to economic and political reforms and answer the question of whether aid was a catalyst to economic and political transformation during the peri- od. The last section draws conclusions.

5.2 Tracing How Foreign Aid Rescued a Failing State

At the beginning of 1983, the economy was on its knees and in political chaos. GDP was 4.6% below zero and inflation was 122.8%. The pro- duction of the country’s two major commodities that earned foreign ex- change (gold and cocoa beans) had declined steeply to their lowest levels

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in decades. The literature review and accounts of many of the expert in- terviewees show that three endogenous factors and four exogenous shocks were the main causes of Ghana’s economic paralysis (Tsikata, 1998; Leith and Soldering, 2000; Aryeetey and Cox, 2002). The process tracing analysis also shows that the IMF and the World Bank injected substantial foreign aid into the Ghanaian economy. That, coupled with endogenous factors that were predisposed to making aid work, enabled the economy to recover from its downward trend and start to grow.

On the basis of process tracing analysis, which links history, policies, aid, and endogenous factors, this study identified the 22 factors below that interacted to change Ghana’s economic and political situation. The factors are listed below in three covariables and Figure 5.1 connects the cause and effect in the form of process tracing.

A : Historical Factors

A1: Deportation of 1m Ghanaians from Nigeria.

A2: Severe drought and bushfires, which caused temporary famine compelling Ghana to seek food aid.

A3: Departure of bilateral and multilateral donors and refusal by friendly nations to provide temporary relief (bailout). A4: Poor economic policies over three decades.

A5: Endemic corruption as part of the Ghanaian fabric.

A6: Existential threat of military coups if there was no solution to economic hardships.

A7: Desperate economic situation with no credible endogenous and preferred external solution.

B: Aid

B1: Substantial amount of aid made available by IMF and World Bank to fill financing gap.

B2: Improved quality of aid (more grants and fewer loans, while substantial part was directed towards production, and high disbursement rate.

B3: Aid conditionality.

B4: Return of bilateral donors. C: Endogenous factors

C1: Strong and committed political leadership that was ready to accept aid. conditionality and implement economic reforms. C2: Change of economic policies (from socialism to neoliberalism).

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C3: Corruption/rent seeking become high risk activities (Economic and moral reforms pursued jointly).

C4: Authoritarianism as political settlement needed for the pursuance of radical economic reforms.

C5: High sense of collective responsibility among the citizens. C6: Centralisation of economic management.

C7: Decrease in the role of interest groups.

C8: Cocoa and gold provide fulcrum of economic recovery. C9: Skilful economic management and negotiation team. C10: Deterioration in civil service.

C11: Rehabilitation of existing industrial plants and equipment. Y: Economic and Political Transformation

Y1: Availability of foreign exchange.

Y2: Increase in production of traditional exports (cocoa beans and gold).

Y3: Economic stability and recovery.

Y4: Availability of essential goods and services. Y5: Increase in export of non-traditional products. Y6: Development of pro-democracy forces.

Y7: Political stability and transition to liberal democracy. Y8: Increasing debt burden.

Y9: Moderate economic structural transformation. Z: Outcome: relatively improved standard of living

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Figure 5.1

Tracing Ghana’s developmental trajectory, 1983-92 (Phase II)

5.3 Antecedents of Ghana’s Economic Atrophy and Political Disorder

As shown in Figure 5.1, at the beginning of 1983 Ghana was confronted with three endogenous challenges and four exogenous shocks. These critical junctures that worked together to cause economic atrophy and political chaos at the beginning of the period are discussed below. 5.3.1 Poor macro-economic policies over three decades (A4) The first endogenous factor that led to economic paralysis at the begin- ning of 1983 was Ghana’s brand of socialistic economic policies imple- mented over three decades since independence. The policy provided

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many disincentives to production and incentives for rent seeking. The policies included inflexible exchange rate controls, currency over- valuation, state control of market prices of commodities, over-taxation of agricultural exports to subsidise goods and services for urban con- sumption, and non-performance of over 300 state-owned enterprises. The government held majority shares in 200 of the 317 state-owned en- terprises; minority shares in 29, and equity shares through state-owned banks in 88. The government acquired its equity interest in 62 of the en- terprises through confiscation of private properties. The state enterprises operated as a bureaucracy without an eye to profit or even to break even (Tsikata, 1999; Aryeetey et al.; 2000; Aryeetey, 2008).

By 1982, cocoa production had become so unprofitable that farmers preferred to leave the crop to rot in the bushes. The fixed exchange rate policy made the price that farmers obtained for their cocoa beans far lower than their actual value in the parallel market. As a result, produc- tion of cocoa beans and gold dropped to less than 50% of the levels that pertained in the 1970s; cocoa bean production fell from about half a mil- lion tons to 150,000 tons, and gold production from almost 800, 000 ounces to less than half of that quantity. The value of exports amounted to only 5% of GDP (Leith and Soldering, 2000:45). The reduced produc- tion of the two commodities coincided with worsening terms of trade due to a drop in cocoa prices in the international market and a rise in oil prices (Leechor, 1994; Fosu, 2009:6). Many Ghanaians resorted to smug- gling goods across the borders and trading in the black market. Because of the exchange rate differences, it was profitable to smuggle. As a result government revenue fell to less than 5% from about 20% in 1970s, mak- ing it impossible for the state to offer any meaningful public services. This parallel market also deprived the state of foreign exchange to im- port essential goods. The macro-economic situation was therefore beg- ging for some remedy at the beginning of 1983.

5.3.2 Endemic corruption as part of the Ghanaian fabric (A5) The second endogenous factor that had become part of the Ghanaian fabric by 1983 was corruption, which was perceived as an outcome of failed economic policies. Rent seeking had made productive ventures unprofitable, and hence people resorted to short-term means of getting money. Access to state resources, including goods and services provided by state enterprises guaranteed easy profits for public officers and their

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families. In the harsh economic conditions, government workers pre- tended to work but moonlighted in the informal sector. Various political regimes, both democratic and military, saw corruption destroying the economy but attempts to reduce it through radical and extra-judicial measures, including summary killing of three former Presidents, failed to eradicate it.

5.3.3 Existential threat of military coups because of poor economic policies and deteriorating living conditions (A6) As economic conditions deteriorated, Ghanaians became impatient and those who had access to guns threatened to overthrow the government. There were several attempted military coups between 1982 and 1983, involving the regime’s own ranks, supported by powerful international forces, including the CIA. Two former members of the PNDC, Chris Atim and Alolga Akatapore, staged an abortive coup in 1982 and it was alleged that the American embassies in Ghana and Togo had funded the uprising. According to Martinson (2000:144), a female African-American CIA agent who served in Accra until 1985 divulged CIA intelligence to her boyfriend, who happened to be Rawlings’ cousin. She was later con- victed in the United States of having divulged CIA secrets. The constant threats of military takeovers increased the political pressure on the PNDC to hasten efforts to find solutions to the country’s economic problems (Ninsin, 1991).

The above endogenous factors that caused deteriorating living condi- tions in Ghana were worsened by three exogenous events: prolonged bushfires, deportation of Ghanaians living abroad, and departure of bi- lateral and multilateral donors from Ghana.

5.3.4 Prolonged drought and bushfires (A2)

While Ghana’s economy was paralysed by 1982, a prolonged drought accompanied by strong harmattan winds resulted in widespread, uncon- trollable bushfires that destroyed approximately 154,000 tonnes of cere- als, about 35% of the crop, (USAID, 1985:31; Arthur and Arthur, 2010). Large areas of cultivated tubers (yams, cocoyams, and cassava) used to compensate shortfalls of cereals were also destroyed. Cash crops such as cocoa and timber also suffered, resulting in extensive loss of foreign ex- change to the Ghanaian economy. The effect was substantial and food

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shortages compelled Ghana to request temporary food aid (USAID, 1983).

5.3.5 Deportation of an estimated 1m Ghanaians (A1)

Ghana’s food shortages in 1983 were worsened by an influx of about 1m Ghanaians expelled from Nigeria. Over a two-week period, Ghana’s population swelled by 10%, significantly increasing the demand for food. In response to the government’s request for food aid, the USA provided emergency assistance totalling US$ 21m, and Australia, Canada, Germa- ny, the UK, Japan, the Netherlands and Spain also provided food reliefs (USAID, 1983).

5.3.6 Departure of bilateral and multilateral donors from Ghana (A3)

By 1983, many bilateral donors had left the country and the few that re- mained had only desk officers. The multilateral donors, especially the IMF and World Bank, did not have any offices in the country. Rawlings sent a delegation to the Soviet Union, Cuba and Libya for aid, but they returned empty handed.

The above endogenous and exogenous factors (A1+A2+A3+A4+ A5+A6) coalesced to make living conditions unbearable for many Gha- naians -(A7). There appeared to be no viable endogenous solution. The following quotation from the Minister of Finance during that period summarise the conditions in which Ghanaians found themselves:

Frankly, the country was on the brink of social and economic disintegra- tion. There was almost a state of breakdown. Our debt stock had gone up significantly; nobody would lend us any money. There were shortages of everything; people would queue for uncooked kenkey (corn dough); people would travel to Ouagadougou [in Burkina Faso] and Lome [in Togo] to buy common soap. It was a period of great hardship. The country was flat on its back, and at the same time the government was ideologically Left oriented. I was the Minister of Finance in the government and a Marxist intellectual; we were not World Bank and IMF lovers initially, but we looked at the situation the country was facing at that time. On the one hand we had price control, significant state enterprises that were all un- profitable. Our national reserves had sunk to less than a month’s imports, our debt stock was high, we owed about US$ 600m to Nigeria just for the

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supply of oil alone. As a result of our arrears, Nigeria had cut us off supply of oil. Bushfires raged throughout the country and at the same time the country suffered a sudden 10% increase in population—because during that period of hardship two million people had fled to Nigeria and Côte D’Ivoire, and just when we were on our knees, Nigeria sent back a million people. Those were the circumstances in which we had to decide how we were going to revive the economy. (Interview with the Finance Minister who initiated Ghana’s structural adjustment programme, 13 July 2013). According to the Finance Minister, the PNDC developed a National Reconstruction and Development Plan, which sought to combine social- istic and market-oriented policies. A Ghanaian World Bank official who witnessed the economic crisis at that time said:

The economy was completely collapsed…. maybe you were one of those who ran away and left us here [referring to the author]. We queued for every- thing…. walked long distances to get to school because there was no fuel for vehicles to run. When you saw people gathered in one place you joined them, hoping that they would be selling something you could buy (Inter- view with a World Bank official, 20 August 2015).

5.4 Desperate Economic Conditions with Unviable Endogenous Solutions (A7)

The living conditions at that time meant that Ghana needed not only economic remedies but also the right political institutions for state stabil- ity. The PNDC government knew where it wanted to go with the Gha- naian economy, but the endogenous financial resources were inadequate to carry them out their plans. In December 1982, the Finance Minister announced a ‘home-grown’ Reconstruction and Development Plan, which was aimed at achieving stabilisation and transformation of the economy. The plan was based on what the PNDC identified as the chal- lenges of the Ghanaian economy. A former member of the PNDC, who and currently heads a major policy think-tank, summarised the intentions of the plan:

If you have a classical colonial economy, which is dependent on a few baskets of exports, and yet you import everything, your economy suffers every day because there will not be adequate foreign exchange to import what your people demand. So, what we were looking at was how to get money to feed our people today, knowing we wanted to get out of de-

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pendency tomorrow. This was what we wanted to do with our Stabilisa- tion and Reconstruction Plan. The tension was between stabilisation ver- sus transformative requirements, because we wanted to get out of our de- pendency on a few commodities and transform the economy (Interview with a former member of the PNDC, 9 July 2013).

The Reconstruction and Development Plan contained ideas on what the nation ought to be doing to plug the structural deficiency that had bedevilled the economy, but there was no costing and timeline on many of the items in it. The plan envisioned structural change of the economy over the long term, but in the short term the key challenge was obtaining foreign exchange to import intermediary materials so that the manufac- turing industries could run at full capacity. As noted earlier, by 1982, most of the state industries were running at 10% of their capacity. In ad- dition, there was a need to rehabilitate the transport infrastructure to en- able cocoa beans that were rotting in the rural areas to be conveyed to the country’s ports for export.

To the regime and many analysts, there was no endogenous remedy to Ghana’s economic malady. Corruption had become endemic in Gha- naian society and Rawlings had failed to eradicate it through brutal measures. Government expenditure had been reduced to only 11% of GDP and the government was unable to carry out its basic responsibili- ties, such as payment of salaries to public sector employees, and inflation was above 100%. The PNDC sought a catalyst and the only options were the IMF and World Bank. Various studies on the political economy of Ghana (Rothchild, 1991; Leith and Lofehie, 1993; Gyimah-Boadi and Jeffries, 2001) suggest that by the time the PNDC made the decision to go to the IMF and the World Bank, Ghana’s economy was such in bad shape that there was no argument left against reform.

Nevertheless, the decision to finally go to the IMF and the World Bank was not made without acrimony. There were disagreements among the members of the regime on how to proceed with economic reforms. Adoption of Economic Recovery Programmes (ERP) and Structural Ad- justment Programmes (SAP) had to be negotiated at both, domestic and international levels. The domestic negotiation was within the regime, with the inclusion of civil servants, while external negotiation was be- tween a small team of the regime and the IMF and World Bank. The civ- il servants were being blamed of contributing to the collapse of the economy, so they did not have the same influence as PNDC members.

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