IMF report chiding Meles’s economic & financial
polices not to see light of day
29 August, 2011 | By Keffyalew Gebremedhin
--------------------------------------------------------------------
observations tough for the government to swallow this time is not
mainly what it said—since we already have an idea of the mission’s
expressed concerns from the May 31 IMF Press Release no. 11/207.
It is rather how the report said it, according to the weekly paper.
IMF’s Executive Board, under the chairmanship of its Managing
Director Christine Lagarde considered the report on 26 August 2011.
The Reporter has indication through its contacts that the Board has
taken a position. However, it is unlikely the Board’s conclusions
would be made public, with the government officials insistent on the
Mission’s report being shelved away.
As to the reasons for the Meles regime’s fury, the Reporter wrote:
“ሪፖርቱ ጠንካራ ቃላትን በመጠቀም የኢትዮጵያ መንግሥትን ክፉኛ
የተቸ በመሆኑ፣፣ ሪፖርቱ ብስጭት የፈጠረበት የኢትዮጵያ
መንግሥት ለአባል አገሮችና ለሕዝብ በኢንተርኔት እንዳይሰራጭ
ያገደ መሆኑን ምንጮች ጨምረው ገልጸዋል፡፡). Unofficial translation:
“Since the language used to criticize the Ethiopian government has
infuriated the officials, IMF has been asked not to release the report in
any form to member states and the public on the Internet.” Certainly,
a member state is within its rights to ask reports for which its
concurrence is required cannot to be circulated.
However, such privileges come with a huge price—the knowledge by
its citizens in some form and also other countries through their sources
that the government has something to hide. Therefore, when it comes
to this it is a bad exercise of rights, without any success in stopping
others from hearing about its conclusions, or putting their hands on the
report itself, as the Reporter is reporting now and I too am writing
about it.
Frankly speaking, the fact of the matter is that, as far as what I
gleaned from the report through quotes on the Reporter are
concerned, I am inclined to think that government has rather become
extremely edgy and more jittery than before, say for instance since last
May, when the staff Mission and government had serious differences
of views.
The government’s reaction seems to be reflection of its worries about
inflation running wild and food prices continuing to rise since from 32
percent at the end of May to nearly 40 percent by first week of July.
Therefore, with the kinds of comments and observations by the IMF
that go into the media, the regime worries that it cannot get its way to
say and claim whatever it wants by way of its achievements and get
away with it.
For instance, I have tried to compare what is quoted from the report
with the May press release, cited above, and with the more
straightforward remarks by the outgoing Country Directors to
Ethiopia Sukhwinder Singh of IMF and the World Bank’s Ken
Ohashi I see nothing new. On top of that, many Ethiopian experts
who have been writing on the Ethiopian economy both from home and
abroad also share most of it. What then is the regime is trying to
suppress in that report? This simple answer is: Nothing in terms of
issues, but a lot in terms of EGO!
control measures and the not so carefully planned salary increments to
civil servants that made their contributions to severe dislocations in
Ethiopia’s macroeconomic performances. This was also bitterly
admitted by the prime minister when he held meeting with members of
businesses in the Addis Ababa Chamber of Commerce, where he put
the blame on them.
The reality, however, it that the report highlights that today Ethiopian
inflation is four-fold higher, compared to inflation situations in Kenya,
Uganda and all of Sub-Saharan African economies added together,
according to the Reporter.
It is clear that in a very strong language unheard of before, the IMF
rightly holds the government responsible for the country’s
macroeconomic ills, according to the Reporter, citing World Bank
sources that anonymously spoke to it. The worries on the World
Banks side are that these situations would adversely affect all citizens,
but some more than others, especially those that of late have begun to
benefit from the poverty reduction measures.
As mentioned above, the report puts all the blame on government’s
‘loose money policy’, which has seriously impacted Ethiopian citizens
and businesses. In that respect, it is reported that the Fund is critical
of the operations of the National Bank of Ethiopia (NBE), especially
its excesses in the printing and distribution of money. It also made
criticized the central bank’s policy failure to set appropriate rate of
returns to depositors.
The IMF rejected NBE’s attribution of Ethiopia’s inflation as basically
originating from foreign inflations, according to the Reporter. It
underlined that the main source of inflation in Ethiopia basically is the
sum of money printed by NBE, which of late has shown an increase
of 42 percent, and the money the banks advance for government
operations that have increased by 45 percent. At the end of the third
parliament, at least, that much the prime minister has also admitted
that money supply grew by 40 percent.
Moreover, the IMF report also severely criticizes government policies
that force all private banks to make available 27 percent of their
loanable funds, depositors put in these banks at a rate of 5 percent
interest rate toward purchases of the Renaissance Dam bonds at a
rate of 3 percent — which means at a loss to them. The IMF
considers it unjust.
It is indicated, even if this measure temporarily strengthens the
government owned development and commercial banks, it does not
mean it is free of other dangers that would affect the overall economy.
This is, in a country where the embryonic private sector and the small
shoots of a budding middleclass are targeted as hunted animals, the
growth of the private sector is heading against the wall. This could be
seen initially with privately owned financial intermediaries stifled over
time. As a policy measure, this would also have serious ramifications
for the development of the financial sector in the country.
This indicates that the Meles regime is concerned only about ensuring
its control over government owned banks, as its money fountain. It
knows that it cannot get its way in the privately owned banks,
although it has made its first inroads, commanding the direction of 27
percent of their assets at this very moment. Could this be an overflow
of Meles’s ideological and visceral hatred of the private sector, he
could not overcome, even if after 2001 or around he had claimed to
pursue ‘white capitalism’?
That is why it has increasingly become difficult to make sense of
Ethiopia’s economic and financial policies that have long lacked
anchor and clear direction. Yes, there is a great deal of efforts and
some successes to in attracting foreign investors. But domestic
investors are being denied of opportunities to develop and compete
with foreign investors. This is detrimental to the national economy’s
growth and competitiveness of domestic investors.
Amongst consequences of these adverse actions is that the economy
has grown only by 7.5 percent in 2010/11, instead of the 11.4
percent the government has targeted, according to the report. I see
the rationale for IMF’s new growth targets of the economy at 6.5
percent on annual basis for the period from 2011 – 2015. They are
reduced growth trend indicators, due to problems discussed above,
but not necessarily statements of facts.
Last December, in a commentary entitled Driving Economy at Max
Speed without Overheating It Key to Steering GTP Eyob Tesfaye, an
Ethiopian macroeconomist close to the government, acknowledged:
Reflecting on Ethiopian reality, the problems of youth unemployment
and the country’s future growth path, Eyesuswork Zafu, President of
the Ethiopian Chamber of Commerce and Sectoral Associations and
CEO of United Insurance, expressed serious worries about the future
of the private sector in Ethiopia in an interview on the Reporter
(English) of 27 August 2011. He disclosed:
“Well, that the private sector is the engine of growth is mentioned in
the Plan [Growth and Transformation Plan]. And this has been said so
many times by so many people that it is becoming more or less a kind
of cliché. It has lost its meaning and significance. For me I still see a
very serious and threatening crowding out of the private sector. The
GTP is mostly talking about the government doing this and that.
Government must make or take affirmative actions so that the private
sector will have a chance to grow and have share in generating
employment. I do not believe the private sector has received the kind
of attention it should. The government has to put indicators it is going
to use what it has done positively to help the private sector. In this
country there is confusion even as to who represents the private
sector. There is a need for planners to be aware of this. And there isn’
t much in the GTP for the private sector. It is much about the
government and some foreign investors or investment. The domestic
sector is not likely to have its legitimate share. But when it comes to
contribution of funding to projects like the Renaissance Dam, it is the
private sector that took the front row. And had the private sector
been made stronger, the contribution would have doubled.”
Dr. Wolday Amha, Executive Director of the Association of Ethiopian
Microfinance Institutions, and a close adviser to the government was
asked in an interview (Ethiopian Reporter (English), 20 August 2011)
why inflation has become so persistent in Ethiopia. His response is
brutally frank, exposing the economy’s lack of appropriate policy
leadership and anchor. Here is what he said:
(http://transformingethiopia.wordpress.com/)
---------------------------------------------------------------------------------
The writer was a former civil servant and diplomat in the Ethiopian
government. Later he served as International Staff with the United Nations
and is currently in retirement, devoting his time for research and writing.
He can be reached at kef730@gmail.com.
polices not to see light of day
29 August, 2011 | By Keffyalew Gebremedhin
--------------------------------------------------------------------
- The latest IMF report,
synthesized after a staff
mission to Ethiopia from 18-
30 May 2011, strongly
underlines that Ethiopia’s
macroeconomic performance
“has deteriorated markedly”,
according to the Ethiopian
observations tough for the government to swallow this time is not
mainly what it said—since we already have an idea of the mission’s
expressed concerns from the May 31 IMF Press Release no. 11/207.
It is rather how the report said it, according to the weekly paper.
IMF’s Executive Board, under the chairmanship of its Managing
Director Christine Lagarde considered the report on 26 August 2011.
The Reporter has indication through its contacts that the Board has
taken a position. However, it is unlikely the Board’s conclusions
would be made public, with the government officials insistent on the
Mission’s report being shelved away.
As to the reasons for the Meles regime’s fury, the Reporter wrote:
“ሪፖርቱ ጠንካራ ቃላትን በመጠቀም የኢትዮጵያ መንግሥትን ክፉኛ
የተቸ በመሆኑ፣፣ ሪፖርቱ ብስጭት የፈጠረበት የኢትዮጵያ
መንግሥት ለአባል አገሮችና ለሕዝብ በኢንተርኔት እንዳይሰራጭ
ያገደ መሆኑን ምንጮች ጨምረው ገልጸዋል፡፡). Unofficial translation:
“Since the language used to criticize the Ethiopian government has
infuriated the officials, IMF has been asked not to release the report in
any form to member states and the public on the Internet.” Certainly,
a member state is within its rights to ask reports for which its
concurrence is required cannot to be circulated.
However, such privileges come with a huge price—the knowledge by
its citizens in some form and also other countries through their sources
that the government has something to hide. Therefore, when it comes
to this it is a bad exercise of rights, without any success in stopping
others from hearing about its conclusions, or putting their hands on the
report itself, as the Reporter is reporting now and I too am writing
about it.
Frankly speaking, the fact of the matter is that, as far as what I
gleaned from the report through quotes on the Reporter are
concerned, I am inclined to think that government has rather become
extremely edgy and more jittery than before, say for instance since last
May, when the staff Mission and government had serious differences
of views.
The government’s reaction seems to be reflection of its worries about
inflation running wild and food prices continuing to rise since from 32
percent at the end of May to nearly 40 percent by first week of July.
Therefore, with the kinds of comments and observations by the IMF
that go into the media, the regime worries that it cannot get its way to
say and claim whatever it wants by way of its achievements and get
away with it.
For instance, I have tried to compare what is quoted from the report
with the May press release, cited above, and with the more
straightforward remarks by the outgoing Country Directors to
Ethiopia Sukhwinder Singh of IMF and the World Bank’s Ken
Ohashi I see nothing new. On top of that, many Ethiopian experts
who have been writing on the Ethiopian economy both from home and
abroad also share most of it. What then is the regime is trying to
suppress in that report? This simple answer is: Nothing in terms of
issues, but a lot in terms of EGO!
- From the Reporter’s piece, it appears that the central issues are:
(a) Since November 2010, the government’s ‘loose money
policy’ has induced persistent inflation, which has affected the
lives of millions of people and endangered the future of
businesses in the country;
(b) In a country with an interest rate significantly below the rate
of inflation, this has created a state of ‘highly negative real
interest rate’ that discourages savers and undermines growth;
(c) This situation has immensely benefitted only government-
owned development agencies that borrow substantial amounts
of money from government owned commercial and
development banks at horrendously cheap rates; and
(d) Government control and regulatory polices that of late have
misdiagnosed the sources of inflation itself have severely
‘damaged private sector confidence in Ethiopia.’
control measures and the not so carefully planned salary increments to
civil servants that made their contributions to severe dislocations in
Ethiopia’s macroeconomic performances. This was also bitterly
admitted by the prime minister when he held meeting with members of
businesses in the Addis Ababa Chamber of Commerce, where he put
the blame on them.
The reality, however, it that the report highlights that today Ethiopian
inflation is four-fold higher, compared to inflation situations in Kenya,
Uganda and all of Sub-Saharan African economies added together,
according to the Reporter.
It is clear that in a very strong language unheard of before, the IMF
rightly holds the government responsible for the country’s
macroeconomic ills, according to the Reporter, citing World Bank
sources that anonymously spoke to it. The worries on the World
Banks side are that these situations would adversely affect all citizens,
but some more than others, especially those that of late have begun to
benefit from the poverty reduction measures.
As mentioned above, the report puts all the blame on government’s
‘loose money policy’, which has seriously impacted Ethiopian citizens
and businesses. In that respect, it is reported that the Fund is critical
of the operations of the National Bank of Ethiopia (NBE), especially
its excesses in the printing and distribution of money. It also made
criticized the central bank’s policy failure to set appropriate rate of
returns to depositors.
The IMF rejected NBE’s attribution of Ethiopia’s inflation as basically
originating from foreign inflations, according to the Reporter. It
underlined that the main source of inflation in Ethiopia basically is the
sum of money printed by NBE, which of late has shown an increase
of 42 percent, and the money the banks advance for government
operations that have increased by 45 percent. At the end of the third
parliament, at least, that much the prime minister has also admitted
that money supply grew by 40 percent.
Moreover, the IMF report also severely criticizes government policies
that force all private banks to make available 27 percent of their
loanable funds, depositors put in these banks at a rate of 5 percent
interest rate toward purchases of the Renaissance Dam bonds at a
rate of 3 percent — which means at a loss to them. The IMF
considers it unjust.
It is indicated, even if this measure temporarily strengthens the
government owned development and commercial banks, it does not
mean it is free of other dangers that would affect the overall economy.
This is, in a country where the embryonic private sector and the small
shoots of a budding middleclass are targeted as hunted animals, the
growth of the private sector is heading against the wall. This could be
seen initially with privately owned financial intermediaries stifled over
time. As a policy measure, this would also have serious ramifications
for the development of the financial sector in the country.
This indicates that the Meles regime is concerned only about ensuring
its control over government owned banks, as its money fountain. It
knows that it cannot get its way in the privately owned banks,
although it has made its first inroads, commanding the direction of 27
percent of their assets at this very moment. Could this be an overflow
of Meles’s ideological and visceral hatred of the private sector, he
could not overcome, even if after 2001 or around he had claimed to
pursue ‘white capitalism’?
That is why it has increasingly become difficult to make sense of
Ethiopia’s economic and financial policies that have long lacked
anchor and clear direction. Yes, there is a great deal of efforts and
some successes to in attracting foreign investors. But domestic
investors are being denied of opportunities to develop and compete
with foreign investors. This is detrimental to the national economy’s
growth and competitiveness of domestic investors.
Amongst consequences of these adverse actions is that the economy
has grown only by 7.5 percent in 2010/11, instead of the 11.4
percent the government has targeted, according to the report. I see
the rationale for IMF’s new growth targets of the economy at 6.5
percent on annual basis for the period from 2011 – 2015. They are
reduced growth trend indicators, due to problems discussed above,
but not necessarily statements of facts.
Last December, in a commentary entitled Driving Economy at Max
Speed without Overheating It Key to Steering GTP Eyob Tesfaye, an
Ethiopian macroeconomist close to the government, acknowledged:
- “In its current shape and form, the financial system is not
considered a growth catalyst because it is incapable of
allocating resources efficiently and effectively. With a distorted
allocation of resources and a fragile financial system, it is hardly
possible to ensure sustained growth, let alone bring a
fundamental economic transformation.
Basic reform measures, such as unabashed cleaning of the
balance sheets of banks as well as the introduction of a
standard liquidity and reserve management, are nonexistent. It
makes little sense to put a racing engine in a car with flat tires.
Ethiopia’s capacity for growth has certainly increased over the
past seven years. Policymakers, thus, believe that it is possible
to register an annual growth rate of between 11pc and 14pc;
the popular argument is that Asian countries, such as China,
grew by more than 11pc for long periods.
Why not Ethiopia?
The breathtaking growth some Asian countries have seen was
based on productive growth, high savings, a robust private
sector, a vibrant financial sector, and high quality education.
Although Ethiopia has made economic progress, it needs faster
and further growth to create more jobs for its increasing
population, better infrastructure and quality of education, as
well as high savings to overcome abysmal poverty. Addressing
the issue of prevalent supply constraints, running the economy
within its maximum speed limit without overheating it, and
mobilising sufficient resources to finance development efforts
are the essential factors to realise the GTP objectives” (Addis
Fortune, 12 December 2011).
Reflecting on Ethiopian reality, the problems of youth unemployment
and the country’s future growth path, Eyesuswork Zafu, President of
the Ethiopian Chamber of Commerce and Sectoral Associations and
CEO of United Insurance, expressed serious worries about the future
of the private sector in Ethiopia in an interview on the Reporter
(English) of 27 August 2011. He disclosed:
“Well, that the private sector is the engine of growth is mentioned in
the Plan [Growth and Transformation Plan]. And this has been said so
many times by so many people that it is becoming more or less a kind
of cliché. It has lost its meaning and significance. For me I still see a
very serious and threatening crowding out of the private sector. The
GTP is mostly talking about the government doing this and that.
Government must make or take affirmative actions so that the private
sector will have a chance to grow and have share in generating
employment. I do not believe the private sector has received the kind
of attention it should. The government has to put indicators it is going
to use what it has done positively to help the private sector. In this
country there is confusion even as to who represents the private
sector. There is a need for planners to be aware of this. And there isn’
t much in the GTP for the private sector. It is much about the
government and some foreign investors or investment. The domestic
sector is not likely to have its legitimate share. But when it comes to
contribution of funding to projects like the Renaissance Dam, it is the
private sector that took the front row. And had the private sector
been made stronger, the contribution would have doubled.”
Dr. Wolday Amha, Executive Director of the Association of Ethiopian
Microfinance Institutions, and a close adviser to the government was
asked in an interview (Ethiopian Reporter (English), 20 August 2011)
why inflation has become so persistent in Ethiopia. His response is
brutally frank, exposing the economy’s lack of appropriate policy
leadership and anchor. Here is what he said:
- “With little efforts, it has been made possible to significantly
increase saving and deposit. If the government takes concerted
efforts to put the inflation at bay, it [the inflation] could as well
be controlled. But I don’t see that would come to pass. It is not
merely the monetary measures or policies that the National
Bank of Ethiopia takes that will do away the inflation just by
themselves. It should rather be the concerted efforts of all
government agencies that could curb the inflation. If the central
bank takes some measures to mitigate the inflation while the
Ethiopian Revenues and Customs Authority (ERCA) comes up
with some new tax system or that the Ministry of Trade (MoT)
introduces new regulation that may give way to rising inflation,
the right job is not done at all. As such a task undertaken to
curb the inflation may entail political risk, an institute led by the
prime minister or a higher authority, which will put in place
prudent and concerted efforts all focused on curbing the
inflation, should be established to do away with the prevailing
inflation. As the basis for the fulfillment of the GTP is saving, the
saving culture should be sustainable. And for that to happen,
utmost concerted efforts comprehensively focused on curbing
the inflation should be exerted while more has to be done to
nurture the slowly but surely growing saving culture. And the
policy should be more consistent than the one that frequently
changes to meet some needs here and there.”
(http://transformingethiopia.wordpress.com/)
---------------------------------------------------------------------------------
The writer was a former civil servant and diplomat in the Ethiopian
government. Later he served as International Staff with the United Nations
and is currently in retirement, devoting his time for research and writing.
He can be reached at kef730@gmail.com.
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