Changing Role of IMF

After reading this article on the changing role of the IMF in Ghana, should this not apply even more so in Iraq with it rich oil reserves? Thoughts please.

The link is at the bottom.

ACCRA, Ghana - The economy here turned as hot as the local pepper soup earlier in the decade, with soaring global demand for the nation's riches -- gold, cocoa and bauxite -- sparking a rush to modernize Ghana's decaying roads, rails and power grid. But when the government hatched a plan last year to rebuild the national infrastructure by selling $750 million worth of bonds, its minders at the International Monetary Fund balked.
As in so many other developing countries, the IMF had for years served as banker, bean counter and financial consultant to Ghana, its authority stemming in part from the $1.3 billion over 20 years it lent this once financially troubled country. In dire need of that cash, officials here had cooperated with the fund's requests, agreeing to slash gasoline subsidies, trim spending and open markets to cheaper foreign imports.
But this time, there was a big difference. Ghana had joined a long list of developing countries in Africa and beyond enjoying record periods of growth, with the robust economy leaving it no longer in need of more IMF cash. The government rejected the fund's calls for a far smaller bond sale. The IMF, officials here say, grudgingly agreed, dispatching a liaison to help it carry out the complicated offering.
Economies roaring to life
That decision underscores the changing role of the IMF as developing economies have roared to life in recent years, with the fund increasingly becoming more adviser than lender.
In 2003, fund lending reached an all time high of $116.9 billion. But as developing nations have capitalized on surging commodity prices and shared in the economic coming of age in China and India, more countries are forgoing IMF loans and the strict demands that come with them. Booming Brazil, Argentina and Indonesia -- all recipients of IMF lifelines in the past, and where critics had blamed the fund for forcing painful cuts in health care and education -- have paid back their loans early and signaled no interest for more. Angola, flush with oil cash and billions of dollars in aid from China, rebuffed IMF overtures to become a client last year. By the end of 2007, IMF lending had shrunk to $16 billion.
"It takes a while for your parent to realize that you are mature enough to make your own decisions, but they eventually do because they have no choice," said Sam Mensah, one of Ghana's senior negotiators with the IMF. "Ghana has outgrown the fund's money just as many countries have. . . . And I think the big question for the fund now is how is it going to stay relevant. To do that, it needs to operate very differently than it has in the past."
The IMF, founded in 1944 to foster the reconstruction of the global economy in the wake of World War II, is entering its largest period of upheaval since the fall of the Berlin Wall. Over the next year, the Washington institution will slash its 2,900-person workforce by 13 percent through a combination of buyouts and some layoffs, reflecting a loan portfolio shrinking so fast that the IMF is seeking to sell off $6 billion in gold reserves to create a new long-term source of income.
Yet the IMF was never intended to serve as a global bank for developing nations. That role is reserved more for the World Bank, the fund's sister organization, which focuses on longer-term development projects. Instead, the IMF has been an overseer of structural adjustment and a temporary lender to nations in financial crises, of which there have been fewer and fewer in recent years.
Now, especially in Africa -- the region still most heavily dependent on the IMF -- a picture is emerging in some of the stronger economies of what the future of the fund may look like. As robust economies in Uganda, Tanzania and Nigeria have moved away from reliance on IMF cash, they have adopted new "policy support instruments" -- or official advisory programs in which the fund's staff provide intensive guidance on economic policy. Countries such as Kenya and Ghana have embraced a less formal structure, welcoming the IMF in the role as chief consultant on major fiscal and financial decisions.
"The fund's role in low-income countries is changing as these countries grow and mature," Dominique Strauss-Kahn, who took over as IMF president last year, said at the fund's annual meeting last month. "We must speed up the progress made in focusing more on helping low-income countries secure and maintain macroeconomic stability and less on structural issues outside of the fund's core mandate."
Top fund officials describe a "new IMF" that will be less focused on forcing nations to adopt tough cost-cutting measures and more on ensuring that they don't make mistakes that could generate the kind of financial crises that washed over Asia in the late 1990s and South America in the early 2000s. The fund will refocus its efforts on current economic issues, monitoring global currency imbalances and the rise of sovereign wealth funds, the investment arms of nations from Singapore to Kuwait that have bought up big chunks of mega-institutions including Citibank and Merrill Lynch.
IMF officials say it speaks at least in part to the fund's success at teaching countries like Ghana good fiscal and economic policies, as well as the wisdom of an internationally backed effort earlier this decade to forgive massive amounts of African debt.
But critics say it also heralds the fund's diminishing importance in a world where developing nations have more lending options than ever before. That is particularly true as the Chinese and the Indians lavish Africa and other regions with billions of dollars in low- or no-interest loans, often in exchange for access to oil and minerals but carrying no demands for fiscal restraint or free-market reforms. In Latin America, Venezuela's leftist leader, Hugo Chávez, has sought to provide an alternative to the IMF, offering massive aid that has enabled some of the region's countries to pay back loans early and has made them less susceptible to fund demands.
"To be perfectly blunt, their influence is tied to their lending," said Marcus Noland, senior fellow at the Peterson Institute for International Economics in Washington. "If you're not worried about getting more cash from them, then you're going to say, 'Hey, talk all you want, IMF, but I don't have to do everything you say anymore.' "
The weakest nations in Africa remain the most subject to IMF policies because the fund represents one of their few financial lifelines. But even in better-off countries like Ghana -- a West African nation of 23 million -- the IMF still wields clout. Lenders including the World Bank and foreign-aid agencies in Europe and the United States continue to look to the fund to certify a nation as being fiscally responsible before offering grants or loans.
"The poorest countries in sub-Saharan Africa, the non-oil-producers that don't have new cash flow, are still under the thumb of the IMF," said Rick Rowden, senior policy analyst for ActionAid, an IMF watchdog and critic.
In Ghana, the IMF has been credited with helping to promote less wasteful government spending and worked with the World Bank to forgive Ghana's $381 million debt earlier this decade. It allowed Ghana to shift funds once earmarked for debt payments to social spending. Schools that had operated in the open air were moved into classrooms while new medical clinics cut infant mortality and the deaths of women at childbirth, according to the Social Enterprise Development Foundation of West Africa, a regional nongovernmental organization.
Some policies difficult
Yet other fund-backed policies have proven difficult for the population. As Ghana sought to increase water access, the IMF recommended "full cost recovery." Ghana's water company moved to install prepaid meters and disconnect nonpaying customers, according to a report from Jubilee USA, an anti-poverty nonprofit group in Washington. As a result, Ghanaian women, who traditionally bear the burden of providing water for household use, were forced in some instances to dig unsafe, shallow wells to access drinking water.
It has stung people like Maame Ama Fosuwaa, 43, a single mother of four. "Before, I used to pay less than [$30]" per month for water, said the woman, wearing a sleeveless blue dress and selling tomatoes and cassava in a lively Accra market. "But now I have been paying close to [$60]. I don't know anything about the IMF . . . but I hear on the local radio station that they are to blame for our difficulties."
Some critics here say the IMF has become too lenient, expressing only tempered concern, for instance, about the surge in the national budget deficit, now 9.1 percent of GDP. IMF officials disagree. "We still voice concerns as needed, but Ghana has come a long way," said Arnold McIntyre, the IMF's Ghana representative. "But, of course, we still have our recommendations."
These days, however, Ghana has more flexibility to accept the IMF policies it likes and reject those it doesn't.
Just north of Accra, workers are laboring in the red West African earth, assembling a massive power station financed by the government's recent bond sale. The huge transmitters are designed to add 126 megawatts of electricity to the national grid to help relieve chronic power shortages -- power that is still subsidized by the government.
The IMF has insisted that Ghana eliminate those subsides and pass the full cost of electricity production to its people. It would mean higher power bills just as residents are trying to cope with increases in gas and food prices. The government has opted for a Solomonic solution. It will begin passing the higher costs to corporate users by later this year but has provided no timetable for extending the burden to individual users.
For some here, even that is too much. "The IMF has been pushing us for years," said Leticia Osafo-Addo, chief ****utive of Samba Processed Foods, a maker of hot pepper sauces, juices and spices that will likely see its electricity bill soar by year's end. "We can and should manage on our own. It is time for that to stop."
Special correspondent Anny Osabutey in Accra contributed to this report.
© 2008 The Washington Post Company

IMF recedes as global wealth spreads - Washington Post - MSNBC.com