Cocoa warehouse in Gonate, Cote d’Ivoire, which has $565 million IMF loan to support reforms and hosts IMF head Strauss-Kahn in May (photo: Luc Gnago/Reuters)
GLOBAL ECONOMIC CRISIS
IMF Managing Director Dominique Strauss-Kahn, underlining the importance of the continent to the Fund, is heading for his second trip to Africa in just three months, with visits to the Democratic Republic of the Congo and Côte d'Ivoire May 23–27.
Hurt by the impact of the global economic recession, growth in sub-Saharan Africa is projected to decline from just under 5½ percent in 2008 to 1½ percent in 2009 before recovering to about 3¾ percent in 2010—still below its precrisis level, the IMF says in its regional outlook, released on April 24.
Innocent victim
Briefing more than 100 African ambassadors and diplomats in Washington ahead of his trip, Strauss-Kahn said that Africa was in many respects an innocent victim of the global crisis. In response, the IMF is stepping up its lending to Africa and other low-income countries.
• By end-May 2009, new IMF lending to sub-Saharan Africa has already topped $1.5 billion, double the level for 2008, and further lending to other countries is under discussion.
• Plans to more than double concessional assistance. The IMF expects to boost concessional assistance in 2009–10 to $3 billion a year to assist low-income countries in dealing with the fallout from the global crisis.
• Higher access. Country limits on access to concessional Fund financing have been doubled.
• The Fund is reforming its concessional lending instruments to make them more flexible and tailored to the needs of low-income countries.
• 24 low-income countries have received debt relief from the IMF totaling about $6 billion.
Advocate for Africa
At a conference in Tanzania in March, Strauss-Kahn was asked to be an advocate for Africa at international meetings, particularly at the Group of Twenty (G-20) industrial and emerging market countries.
In Washington, Ambassador Roble Olhaye of Djibouti thanked the Managing Director on behalf of the African community for his “relentless engagement” with Africa’s economic issues. “[Strauss-Kahn’s] credible and consistent advocacy for the plight of developing countries, particularly Africa—insisting that the amount of money required is tiny compared to the stimulus packages in many developed countries—is exemplary,” Olhaye said.
“With an economic forecast barely above 3 percent—half the average of the last decade—and with the risk of millions of people being thrust into deeper poverty, some are arguing that what started out as a financial crisis may be threatening to become a humanitarian crisis,” noted Olhaye, emphasizing the need for further support.
Countering the crisis
During his remarks, the Managing Director reaffirmed the Fund’s commitment to working with its African members. “We are keenly aware of the challenges facing your countries, and we are doing our best to meet the needs of the continent during these trying times,” he said.
The vulnerability of populations in Africa meant the stakes in tackling the crisis were higher there than elsewhere. African governments should use fiscal stimulus and monetary and exchange rate policies where possible to offset the effects of the crisis. He noted World Bank research indicating that almost 50 million people could be pushed below the $2-a-day poverty line this year if financing needs were not met. “As many as 3 million additional children may die between now and 2015 if the crisis persists. We cannot allow this to happen,” he said.
More financing needed
Urging further action by the international community, Strauss-Kahn said that Africa needs more financing to cope with the crisis. “This is not the time for development partners to go back on the commitments they made at Gleneagles to scale up assistance to Africa,” he said.
In addition to doubling its lending capacity, he said that IMF financing has become more flexible. “Already, we have doubled all loan access limits, including for low-income countries,” he said. “Our revamped Exogenous Shocks Facility allows us to respond rapidly to countries with large upfront disbursements if necessary, and we are in the process of modifying our concessional lending facilities.”
Regarding the streamlining of conditionality, he said that “policy conditions in recent programs have been more tightly focused on core reform objectives and more attuned to the circumstances of each individual country.” Fiscal targets in about 80 percent of African countries with active Fund programs have already been loosened, he added.
On average for all sub-Saharan Africa, fiscal deficits are being widened by 2 percent of GDP in 2009 (7.5 percent if oil producers are included).
“We remain committed to protecting the poorest and most vulnerable in all of our lending programs,” he emphasized, stressing that the Fund never pushes to cut health and education spending. “About a third of our low-income country programs contain explicit targets for preserving or increasing social spending. We take these responsibilities very seriously.”
Strauss-Kahn also spoke of the Fund’s technical assistance as a “major part of our engagement with Africa.” With one third of technical assistance going to the region, he noted that the IMF will open two additional technical assistance centers there.
“When it comes to assisting Africa, the IMF does not stand alone, cannot stand alone,” Strauss-Kahn concluded.. “To help countries weather this crisis, all development partners need to follow through with their commitments.”
New loans
The Democratic Republic of the Congo is one of the countries that have recently received a loan from the IMF. In March, the Executive Board approved $195.5 million under the Rapid-Access Component of the IMF’s Exogenous Shocks Facility. The loan will help mitigate the impact of the adverse effects of the global financial crisis, which has translated into a severe drop in the country’s terms of trade and in foreign direct investment, particularly in the mining sector.
For Côte d’Ivoire, still recovering from conflict, the IMF approved in March a loan for $565.7 million) under the Fund’s Poverty Reduction and Growth Facility to support the authorities’ economic program aimed at achieving sustainable growth, reducing poverty, and advancing the country’s economic reform agenda.
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