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France and the IMF

Kenya and the IMF

Niger and the IMF

Zambia and the IMF

Conditionality

Heavily Indebted Poor Countries -- A Factsheet

The IMF and the Millennium Development Goals -- A Factsheet

The IMF's Poverty Reduction and Growth Facility (PRGF) -- A Factsheet

Policy Support Instrument (PSI)

What does it mean?
Debt

World Bank

Conditionality

Debt Relief

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Transcript of the African Finance Ministers Press Briefing
International Monetary Fund
Washington, D.C.
September 24, 2005

Participants:
Ali Lamine Zeine, Minister of Finance for Niger
David Mwiraria, Minister of Finance for Kenya
N'gandu Magande, Minister of Finance for Zambia

View this event using Media Player

MS. HARDIN: Good morning, and welcome to this briefing of the African Finance Ministers. I am Frances Hardin, one of the senior press officers of the International Monetary Fund. We are missing one Minister at the moment, but we will certainly introduce him as soon as he arrives. To my left, then, is the Honorable Ali Lamine Zeine, Minister of Finance for Niger. To his left is the Honorable David Mwiraria, Minister of Finance for Kenya, and then to his left is the Honorable N'gandu Magande, Minister of Finance for Zambia.

Simultaneous translation is available for you. Spanish is on Channel 2, French on Channel 3, and English on Channel 4.

Before we open the floor to your questions, we will hear brief statements from each of the Ministers. Minister Zeine, would you begin, please.

MINISTER ZEINE [Interpreted from French]: Thank you very much.

Ministers, ladies and gentlemen, for me it is a great honor to take the floor on behalf of the African Fund Governors in order to exchange with you ideas on a number of subjects of mutual interest for Africa as a whole. Although some of these issues concern the world as well, there are problems which are more acute for African countries. Among these various subjects, I would like to choose simply three: first of all, the limits linked to fulfilling the development goals, Millennium Goals; secondly, debt and financing, which is a very current topic; and thirdly, we will attempt to talk about conditionality at the IMF.

Concerning limits linked to the fulfillment of the Millennium Development Goals, all of the Mid-Term Reviews that we have had to date show that the Africa region remains practically the only one in the world where fulfillment of those Goals appears to be impossible by 2015 if we continue on the present track.

This shows, I think, the need to pay even more attention than in the past to infrastructure development, to trade and promotion of the private sector on the African continent. To that end, we are fully aware of the World Bank's commitment, which has given tangible fruit with the setting up of major projects such as the gas pipeline in West Africa, the West African Energy Pool, et cetera, et cetera.

We've seen an acceleration of economic development in these projects which in turn can represent an important motor for the realization of the MDGs. This means that in Africa we must eliminate market distortions caused by subsidies and trade barriers. In that context this is, I think, an opportunity to ask the Bretton Woods Institutions to play a bigger role in articulating the position of our states so that the Doha Round can conclude successfully.

I would also like to—very rapidly—go over the second main point, which is debt and financing. In terms of debt and financing, we welcome the recent G-8 initiative to cancel entirely the multilateral debt of countries that have arrived at the completion point for the Heavily-Indebted Poor Countries program.

We know that this debt initiative will be linked to strong mobilization of resources to try to develop our countries, which can in turn accelerate the fulfillment of the Millennium Development Goals. To that end, we would wish—we would wish—for immediate implementation of that proposal and for a definitive decision to be made while we are still here altogether. It is still an open question for our countries, for our public sectors, for our populations, for everyone dealing with debt which has been cancelled, forgiven. We do not know exactly, concretely what will happen.

We had some good news yesterday evening, rather encouraging news, and our wish here would be for us to make a decision before we leave the Annual Meetings. We know that there are countries which are not presently involved in the proposals made by the G-8 even if their income levels and poverty levels are quite similar to those of HIPC countries. We would suggest therefore the extension of the application of the G-8 proposal to the countries I have just mentioned.

Last, I would also like, if I may, to talk about conditionality and the role of the IMF in low-income countries. You will agree, I feel sure, that although encouraging progress has been made with the IMF in rationalization and program conditionality, it is still below our countries' expectation. In fact, systematic recourse to these programs, particularly reference programs, continues to prevail. We have observed the tendency to impose politically delicate measures which are also slow to apply, legally speaking, and this all rather difficult. It will be hard for these programs to resolve countries' problems in this way.

The Bretton Woods Institutions therefore are called upon to rationalize the process, rationalize conditionality, to bring about a greater degree of harmonization and to limit themselves to policy measures which have a direct effect on the macroeconomic and structural results that they are trying to achieve.

Hence our wish would be for conditionality to be simplified, rationalized, and made easier to apply. We think that in the specific case of my country upon which, with your permission, I should like to expand for a few moments, one of the conditionality problems in the execution of its reform program—particularly vis-à-vis the Bretton Woods Institutions including the IMF—is the limits that are imposed upon us regarding access to new funding.

The country can only have recourse to loans which have grant elements of at least 60 percent—at least 60 percent. That means, therefore, that the country is entirely limited, confined to a sort of ghetto. I mean it is a financial ghetto—I am choosing my worlds carefully—where we cannot have access to many forms of financing to fund our own development. We are making this point with the IMF during these meetings. We want to do this in partnership with the Bretton Woods Institutions so that together we can try to find a way forward that will allow us to make certain that resources are available. The present situation simply means that we are condemning our countries to have recourse only to grants, and these do not fall out of the sky every day.

That was what I had to say by way of preliminary comments, and we are obviously available to you for any further elements that you may wish to render.

MINISTER MWIRARIA: Thank you very much, Madam Chair. I will also be very brief.

I just want to start off saying that Kenya has a Poverty Reduction and Growth Facility with the IMF which we have been implementing since the end of 1973.

Like my colleague who has just spoken, the PRGF has certain limitations, and Kenya has similar limitations, though perhaps a little less tight. We are only allowed to take loans with a 35 percent grant element, and we have had cases where we get good loans, offers of good loans, with 30 percent grant element, but we cannot take them because of the understanding we have reached with the IMF.

The important thing as far as I'm concerned which the IMF has done recently is to develop the Policy Support Instrument, the PSI, which will do very much the same as the PRGF because it will be an explicit endorsement of the development policies of any country by the IMF. Once this is done, the donors, creditors, markets, and even members of the public, are given clear signals that the country has sound economic policies and can therefore borrow in the open market.

The issue of borrowing is critical because, for us to develop, we need to borrow. It is for this reason that many of us have got local borrowing which is fairly expensive compared to what we can borrow from outside.

So I really would also like to appeal that the IMF reexamine this item; but in the meantime, as a country, we are examining the possibility of moving over to the PSI.

The second issue I want to mention is the impact of increasing oil prices on some of the poorer African economies. Apart from having the normal increases in cost of transportation and therefore increasing the cost of living and making life almost impossible in the poorer countries, in Kenya, we have had a very special problem in the sense that most of our electricity is generated through the hydro process. During the last two years, we have had very dry weather with the result that the dams have almost run dry. To compensate for that, to generate adequate electricity for use in our industrial sector, we have had to use some regeneration, and that of course becomes very expensive and makes electricity almost out of reach for many people and makes even the goods produced in Kenya very expensive.

There's a third point which I think needs reexamination: in Kenya, we have accepted that the business of the present government is to get the government out of business, because we don't think the government fares very well when it is involved in businesses, parastatals, and so on.

However, as we introduced the law—we have got a new law on privatization—our Parliament came up very heavily on the need to privatize and ensure that the wealth we are privatizing is transferred to Kenyan hands. So that when we are looking for a strategic partner, we should trust and foremost look for Kenyan strategic partners. If we can't find them, we look elsewhere. But we are also expected to float the companies in the local stock market so that Kenyans who wish can buy shares.

My other point is to support the excellent proposal made by the G-8 at Gleneagles. I think that really, for the first time, the developed world is beginning to show a very keen interest in getting the poor developing countries out of the rut they are in.

Kenya, however, doesn't benefit from the debt relief that is being given to countries which have been HIPC or have reached the final stages of the HIPC. However, as a country which wants to achieve the MDGs, we have the same problems that our other colleagues have. For instance, if we want to achieve the MDGs, we have to get at least a GDP growth rate of 7 percent plus for the remaining period to 2015. At the same time, we also need to develop our human capital by investing fairly heavily. We have already given free primary education, we have increased our health budget from 4 percent when we took over in 2003 to 10 percent this year, and we cannot do it, really, without additional financial support. Lack of finances is our major constraint. Therefore, while appreciating what is being done to our HIPC brothers, we think we should be considered, given consideration, for that waiver as well as for increased aid.

Let me say finally that we have invited the IMF and the World Bank Group to hold their 2009 Meetings in Kenya, and it is our hope that our invitation will succeed.

MS. HARDIN: Thank you, sir. And now, Minister Magande.

MINISTER MAGANDE: Thank you very much for giving me this opportunity.

Let me say that Zambia is very pleased that we are members of these two institutions. We are shareholders, and I think we are up-to-date with our subscriptions, and therefore, we believe it is the role of our own companies to advise us if we need any kind of help.

What we expect from the IMF is to bring best practice to Zambia because we are not in Kenya, we are not in Niger, therefore, when we invite them, they should come and tell us how best the other people did it.

Let me at this moment say that Zambia has been on structural reform since 1985. That is when we started. When in fact the copper prices started going down, our revenues started going down, and we thought we needed to go for some restructuring arrangement.

Unfortunately, since them, we have been "slipping off," like we say in our jargon. There have been a lot of slippages--we come on and we go off--until only some three years ago when we had the new government, which recently decided to abide by the conditions of the Structural Adjustment Program.

Now, it is our belief that the conditionalities in these programs cannot be from Washington. They have to be our own, and the purpose of these conditions is to make sure that we focus our attention to the priority areas, and apart from that, that we actually use whatever resources we have in the best manner to get the most out of those programs.

So I want to say that the program which we have been implementing since December 2000 when we went on decision point of the HIPC initiative has had a lot of Zambian input. It dealt with issues of HIV/AIDS. It dealt with issues of education, with issues of malaria, issues of TB, and we believe that by abiding on these programs, we got the confidence of the international community, not only the IMF. We reached the HIPC completion point in April after assessment by the two Bretton Woods Institutions—but beyond that, because of what we have been doing, we have now gotten the confidence and the trust of the international community to an extent that I have a Memorandum of Understanding for Harmonization in Practice in Zambia, where all the donors apart from two are still outside. I have a program in Zambia at the moment where I am getting direct budget support. This coming budget, which will start in January, most likely I will get 90 percent of the donors to give me direct budget support. This means they believe that even if the money goes into this basket, I will not be going to buy scripts for my children—I will go and buy food for the children.

So I think this is the only way. I want to say that these programs, once you commit yourself to them and you follow them, I think it also gives you confidence that you are able to apply the resources that you need.

What, therefore, do we want to do for the future? Out of the HIPC completion point which we attained in April, I have about 64 percent of my foreign debt to be written off. I am now signing agreements with most of my creditors, and I hope that therefore the savings that I will make from there, I will apply the savings to education, I will apply them to health.

Beyond that, we are one of the 18 countries that are going to be perhaps beneficiaries of the G-8. If that comes by July, Zambia's foreign debt is going to be reduced by about 98 percent. And therefore, to me, this is an opportunity that we must sit down, reflect on the past, where did we go wrong, what do we need to do for the future?

So what we are doing right now,? We are actually drafting a Fifth National Development Plan which will cover the next five years from next year. We are also now drafting and conceptualizing a vision in 2030—we don't want to think about Zambia in the next 20, 30 years.

Why is that important? Because part of the MDGs—for example, infant mortality—we are saying let's save the children now. But unless we have a long vision of what those children are going to be used for, how they will find their country when they are 20 years, when they are 30 years, then we are only giving them a way to survive as children; we are not giving them the perspective of the future when they become adults or when they leave college.

So as far as we are concerned in Zambia, we have had conditionalities, yes. But I want to say that I feel comfortable that when I see an IMF mission arriving in Lusaka, they don't have a draft agreement for me to sign. They first discuss with me; I tell them the environment, and then we sit down and draft what shall become a mutually binding agreement on their assistance.

So I want to say that, really, perhaps we should look to the new ideas that are coming up now. The idea of the PSI—I think that's a very good idea, because I think what we should be doing and learning is that Japan exited from borrowing from here.

I would like to come here, if I am still around in 2025, and tell you that Zambia is no more a borrower from the Bretton Woods Institution. I am looking for an exit strategy, and that exit strategy means I have to put investment now where it is going to be productive, and I think that is the purpose of trying to meet the Millennium Development Goals.

Thank you very much.

MS. HARDIN: Thank you all for your thoughtful comments.

We'll now take comments from the floor. When I call on you, please identify your news organization.

QUESTION: Mr. de Rato, in outlining his Medium-Term Strategy for the Fund, has talked about increased representation and voice for Africa. Can the panel please comment on that, and is there a unified position from African members in terms of what that representation and increased voice should entail?

MINISTER MAGANDE: I have to rush for some other appointment, but let me perhaps take the opportunity to make a comment on that. I think we have been talking about the voice. I introduced the subject—these are our own institutions. We are members. We are shareholders. I think in any company, if you have a majority shareholder who wants to monopolize the board discussions at the shareholders meeting, the company starts being weak, because the other members start reducing their support for the company.

So I think it is in the interest of the institutions themselves, it is in the interest of the majority shareholders, that those others who are in the company and are allowed to participate must be heard.

What happens after that, you have a resolution of the board. That's a different issue. But we must bring before them our views so that they can obviously take those into account in working out company strategy.

I think it is extremely important and that we have been discussing this matter for too long. We must be given space to be heard.

QUESTION: Mr. Minister from Niger, can you tell us what the state of the food supply is in Niger this is something that has been a concern throughout the world. How do things stand today?

MINISTER ZEINE: Thank you very much. The food crisis which we had in Niger followed a situation that we experienced in 2004, which itself was basically a drought due to insufficient rain. The small harvest that we had was attacked by various insects, and all of those phenomena together meant that starting in 2005, we were confronted with a food crisis.

The country, as you know, has an 80 percent rural population. Most of the economy stems from farming and crop-raising, and that's why, when you have such an exogenous shock, you immediately feel these difficulties.

But what I would like to say to you is that with all we have seen in the international media, you should know that Niger is coming back to life. It was a very difficult situation—no doubt about that—but rain has fallen this year; the situation is getting off to a good start. We are starting to have a good harvest, and we feel that in the coming weeks, the result will be good.

But above and beyond others' discussion, there is a real problem we have to look at which is a structural one. We need to find a way to attract investment in areas which would allow Niger to increase production. We have been discussing this for some days here with our partners, especially at the Fund, to see how we can raise the funds to make the needed investments in agricultural production in order to have a greater degree of food security. We want to realize Niger's agricultural potential so that it too would be able to export and mobilize resources.

QUESTION: Mr. Zeine, sir, you said that in the G-8 communiqué that there was good news on debt. But do you think that there is enough G-8 resource available to improve your situation concerning the debt?

MINISTER ZEINE [Interpreted from French]: I should like, again with your concurrence, to put that in context. I talked about good news but basically I was quoting what we heard in the big meeting room yesterday. But I think we have to remember that in my position as a minister from a recipient country I'm not really the person who can say whether those resources exist or not. It's up to the G-8 to see how resources may mobilized in order to bring about the promised debt relief.

But I think that above and beyond this problem of debt forgiveness, we also have to look at questions of funding and financing. We are completely convinced that institutions such as the World Bank, the African Development Bank, should have resources to allow our countries to go on working. Because if we look at the link between debt relief and what that will do for our countries and the financing conditions that we receive for our own development then the problem will continue to exist as it has in the past. I think it's up to the G-8 to tell us exactly how they intend to finance debt relief, how to work in such a way that debt reduction will also be accompanied by greater resource availability to allow our countries to set up real programs to fight against poverty and to invest, to create the necessary conditions for strong durable growth.

QUESTION: I basically have two questions for the two minister. They say in Africa when the hunter goes in the bush to hunt, the expectations are high. The people in the town are waiting for the catch. When debt forgiveness was announced this summer, all of Africa rejoiced. You've been in Washington now. Is it your feeling that there will be some deliverance; that you will be able to return to the town in Africa that, yes, what was announced, you've brought it home? Is that your feeling right now?

And two, the World Bank's new action plan, I was reading, it says here, it is a matter of performance for assistance. The honorable minister from Kenya, I think earlier somebody talked about the peer review system. That is based on performance. What is the performance at least from your country? I was reading the other day that the peer review for your country, there was some suggestion of manipulation. So please clarify for us, please.

MINISTER ZEINE [Interpreted from French]: I thank you for that question and let me start with the debt forgiveness question first.

You're absolutely right, when that announcement was made the people in general said, "thank you, thank you, G-8". Civil society, social partners and workers, rightly asked that there be provisions that would increase income - especially for workers. But we remained calm, at least in Niger. We explained clearly that this is an initiative of which we had no details; that we were waiting to see how things were going to develop. We are waiting to see how to retain the balance within our economies.

With your permission, however, I would like to say that a country such as Niger, even with debt forgiveness would still need resources to finance development.

Let me give you an example. In order to obtain the MDGs we need $900 million a year. To date, we are only receiving, on average, $120 million. So we are far off. What is needed then beyond debt forgiveness? The problem is quite simple. It's investment, as I said earlier. States need to be able to have trade access in order to develop their own potential, and this is what we are trying to do.

Focusing once again on Niger, where we all would like to see something, yes, we absolutely do desire it. Our Governors would like the G-8 to make a decision very soon. We don't want to force their hand, but if they want to forgive our debt then we hope that they will do so, and as soon as possible. There are expectations, no doubt about it. Our wish, however, is to implement as I've said, a fair partnership. That is the solution. It is nowhere else.

MINISTER MWIRARIA: On the hunt, when I left Kenya I didn't come hunting for what the G-8 had say, but I suppose I should be able to go back and tell the Kenyan people that our relationship with the IMF and the World Bank are much better because I'm spending time to talk to them, discuss whatever issues are outstanding.

Regarding the peer-review, I want to state categorically that Kenya accepted to be one of the first countries to undergo peer review under NEPAD because we believe it's the only way we can really change from our past work and become a country where people do things right, a country where the government is committed to the rule of law, to good governance, to proper financial management, to accountability and transparency.

Now you can only do that if you accept open peer review, and that's what we did. I may have missed the bit about manipulation but I know there is one NGO leader who wasn't very happy with one of the government ministers and there was a disagreement. I don't know whether that's where the word manipulation came from but we approved, opened the investigation completely to Mrs. Mandela who was leading the peer review.

QUESTION: A question for Minister Mwiraria. As you've said, Kenya is not getting the benefit of the G-8 debt agreement and you've already been assessed by the IMF as having a sustainable debt position. Do you feel that in some way you are being punished for managing your debt burden better than some of your colleagues have done?

MINISTER MWIRARIA: We definitely do feel that because our debt is sustainable, because we've able to keep servicing the debt over the years—servicing it as if forced to and not in carrying too heavy debt. But I think we do not want to become dogs in a manger. We want our colleagues to continue benefiting through the HIPC system.

What we would like, however, is due consideration too because once you start—you've already given the HIPC countries debt waiver from bilaterals. You are now opening debt waiver from the multilaterals including the Bretton Woods institutions. We feel that we should be considered. But while that consideration is going on, we like to be given special consideration for additional aid which I think the G-8 agreed they'll try and look.

QUESTION:. I wanted to know about the quotas. I understand that Africa wants to have one more constituency to the two it has. What do you say to the economic contributions? Would they also—I mean, would you sign some debt agreements, that I understand you do if you raise your contributions? That is the first question.

The second is, these peer reviews, I've been asking about them for quite some time. Are they open and can we read about them on NEPAD's web site? And how many peer reviews have actually been made up till now?

MINISTER MWIRARIA: Well, let me start with the last question first. I believe that maybe Kenya's peer review was the first one to be carried out, and I really can't answer whether it's in the NEPAD web site. One has to check to find out.

MINISTER MWIRARIA: No, it is not secret. In fact the reason why we call them peer reviews is because we are allowing other Africa peers to come and see what we are doing, right and wrong, to criticize us. This is really the essence of NEPAD. We want Africa to look after its own states properly, to enforce some display, and I think it's a very good thing. Definitely not secret. Now on the constituencies, really we have a constituency—I belong to one constituency which has got 23 states, and those are far, far too many for one executive director and his assistant and a few assistants to look after. We are asking, because we genuinely believe that the Bank and the IMF need to give us more attention.

But on the question as to whether we are willing to contribute more, I'm sure in another 10 years we will be able to answer that question positively, because I believe Africa is on the march to development and there is no reason why we shouldn't contribute as our economic situation improves.

QUESTION: I'd like to address this to the Kenyan minister. This year you read a budget which I believe had minimal foreign aid written into its calculation and you were confident that that budget would go through without significantly raising the budget deficit. I wanted to ask you whether you were still confident that's going to be achieved?

And you mentioned earlier today the need for new resources to achieve the Millennium Development Goals. Could you outline what are the outstanding issues between you and the IMF and the World Bank which are preventing you from getting World Bank and IMF funding again?

MINISTER MWIRARIA: I have no problems at all with the IMF and the World Bank. We have been slow in implementing one conditionality. Like my Zambian friend said, there has been a misunderstanding that we get conditionalities imposed from Washington. On the contrary, what we do, we prepare our own economic development strategy, we show it to the Bank and the IMF. We tell how we intend to implement it, and what they normally do is to say, yes, this is a good proposal, but time limits can be put to it so that you have a target to work to, which is a very helpful thing.

Now the only item where we have not met our requirements is on the amendment to the law, on the public ethics act, where we wanted to require every public servant to declare their wealth and do so every year and have it open to public inspection. The reason why this has not been done is because we are now working on a new constitution which we hope will become effective by December, beginning of December, middle of December. That requires public servants to declare their wealth. So we felt that maybe we should introduce the other bills which are more urgent and get them passed through Parliament instead of taking this one where we can see it becoming law and becoming a requirement of the constitution in the next few months.

On budget support, the European Union withdrew its budget support because there was a disagreement with one of the ministries. They wanted on us to fulfill certain conditions. We have in fact had two laws in Parliament since 2003, the privatization bill and the public procurement bill. Both of them have now become law. They were passed during the last session of Parliament. So I really don't think we have very much outstanding as we sit here.

MS. HARDIN: I have one quick announcement for you. The new president of the African Development Bank, the Honorable Donald Kaberuka, will hold a press briefing at 2:00 this afternoon in Room B-610 and he's going to talk about the need for more focused assistance to Africa. I would like to thank you all for—I'm sorry, please.

MINISTER ZEINE [Interpreted from French]: Before we adjourn, I would like to thank you and also talk a little bit about the performance of our countries, in particular my own. I would like everybody to understand the situation. Please recall that in 1999 the situation in Niger was characterized by a lack of administration that could be qualified by the absence of administration as we had seen in the past when we'd had military coups, armed rebellion, strikes within administration, even the unemployed went on strike, and a situation of 12 months in which salaried workers were not paid, and major external debt, and $300 million in domestic debt, and in the treasury there were barely 600 million francs. This is in late 1999.

Since then we have had elections. The current president, Mamadou, was elected and we have renewed our relations with most of our economic partners. We were able to implement a reform program with the World Bank, IMF and other partners. We settled all the salary arrears. We have implemented a structure that gradually enabled us to have a more democratic army, a structure that we are calling "army and democracy" which has operated very well. We have a national dialogue in place that has made it possible to anticipate political and social conflict. We have also settled our debt situation. We were able to take advantage of the HIPC situation.

We also strengthened regional integration in that process. The result was that—after five years—we were able to hold elections in which the president was reelected. And since early this year we have new agreements with the International Monetary Fund and the situation is such that we see a drastic reduction in resources. With the Fund it's 80 percent reduction, with the World Bank it's 10 percent. We other partners we are also seeing a pullback in financing.

So this brings me back to the earlier comment I made and that is that we need a true, real mechanism where our administrations will ensure that they can develop their own potential. We do need financing, we do need a well-balanced, fair partnership, and we have taken action so that the private sector can come and invest and play an important role. The climate is favorable and that is why I said that when we meet in a scenario such as this one we need to speak very openly and candidly.




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