Ethiopia & IMF: Drawing lances or lines? 2OCT By Keffyalew Gebremedhin

October 2nd, 2012 Print Print Email Email

At the completion of its Article IV consultations with Ethiopia on September 12, 2012, the just released IMF Executive Board conclusion reveals not only how far apart Ethiopia and the Fund have gone. But also the IMF has written a contentious report on the cooling of the Ethiopian economy that for a few years has enjoyed acclaim as one of the few fastest growing in the world.

In Ethiopia, the Executive Board’s conclusion would be taken with great concern and consternation, even by the general public. This does not mean that ordinary people may not agree with some of the Fund’s conclusion, given the difficult and worsening economic conditions in the country.

What would be difficult for this proud people is the possible end of the party, in which they have not even been participating. However, they have been made to believe that the growth of the past years have helped slightly improve the country’s image that always has been associated with drought and famine. Their fear could be that this would bring about possibility of drying of foreign investments from near and afar, unseen and unheard of before in the country’s long history.

The official response to the IMF is rather very well-known. It has been familiarized since 2005, mostly through the late prime minister who used to cherish every minute of his IMF tongue-lashing, as one of his detractors. The Government Spokesperson Bereket Simon is quoted in this week’s Addis Fortune, showing that the country still has enough aces at tongue-lashing. No less, he said, “Ethiopia, today, is a country whose arm could not easily be twisted.”

Addis Fortune states that Bereket’s is a response to the 13 September remark by Jan Mikkelsen, IMF’s Country Representative. It is alleged that he had urged Ethiopia to slow down the construction of the Grand Renaissance Dam on the Nile River – a cardinal sin! In a correction he requested from Bloomberg, probably prompted from headquarters in Washington D.C., he was refused and both sides are holding their grounds. Ethiopia is still fuming from that.

To add insult to injury, the IMF Executive Board is now saying the economic performance of Ethiopia during 2011/12 has been mixed. Accordingly, contrary to the projection of double digit growth rate by Ethiopian authorities, the Executive Directors have trimmed nearly by half of the government’s forecast. To make matters worse, this new forecast is not only for the coming year, but also for the medium-term. In that regard, the Board firmly states:

“Absent increased role of the private sector to leverage the large public infrastructure investment and efforts to improve the doing business conditions, IMF staff project that real GDP growth will slow down to 6.5 percent in 2012/13 and over the medium term.”

The economy’s grimmer picture, as far as the Board is concerned, has its roots on one hand in the inflation that surged to 40 percent in August 2011 and on the other in the increased imports of capital goods and consumer goods the consequent effect of which has weakened the country’s services account balance.

Moreover, the Directors pointed out that, despite the continued robust increases in goods exports and remittances, since the first half of 2011/12 the current account has deteriorated in contrast to the surplus recorded in 2010/11.
The IMF has also looked backwards in making its assessments. While the Executive Directors acknowledge the country’s “strong, broad-based growth”, they estimate the growth rates over the six years to 2010/11 to about 7 percent. As consolation, they tacked alongside poverty reduction from 38.7 to 29.6 percent, as measured by poverty head count and reported by the government last March.

Returning to their constant theme, the Directors indicate that their continuing concern is the fact that the country’s continuing macroeconomic imbalances has its origin in the public sector-led development strategy.

As evidence, for instance, the Board recognizes the efforts made in tightening the federal government budget in 2011/12, based on a strong tax revenue increase and slower execution of budgeted recurrent expenditures. At the same time, however, the it could not hide its displeasure with the public sector (including state-owned enterprises) having strong fiscal impulse through the substantial capital expenditures of state-owned enterprises, financed by borrowing from the Commercial Bank of Ethiopia (CBE) and foreign sources.

In the circumstances, by way of recommendations hoping to help control inflation and sustain robust growth in the coming years, the Executive Board has called attention in the following areas:

(i) The need to exert efforts to achieve appropriate pace for public investments, reconstitute official reserves and promote financial sector stability;

(ii) The National Bank of Ethiopia is requested to pursue tighter monetary stance by avoiding further deficit financing. The Directors also underscored the importance of revamping the market for government securities to be able to foster private saving and investment. In addition, they urged greater exchange rate flexibility to safeguard foreign exchange reserves, strengthen external competitiveness, and mitigate external vulnerabilities.

(iii) The Directors pointed to further scope in revenue mobilization, including the development of medium-term debt management strategy encompassing both domestic and external debt.

(iv) The Directors advised the authorities to consider participation in the Financial Sector Assessment Program which would help identify vulnerabilities in the financial system and suggest corrective actions as appropriate. Directors encouraged the authorities to address the remaining deficiencies in Ethiopia’s AML/CFT regime [Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)].

(v) The Directors stressed the importance of creating a more favorable business environment and enhancing the role of private sector in the economy.

Why should a country show its books to the IMF?

The simple answer is that it is an international obligation. By international agreement, the IMF says it has been mandated to oversee the international monetary system and monitor the economic and financial policies of all its member countries- big and small. This activity has come to be known as surveillance.

As part of this process, which takes place both at the global level and in individual countries, the IMF is required to highlight possible risks to stability and advises on needed policy adjustments. In this way, it helps the international monetary system serve its essential purpose of facilitating the exchange of goods, services, and capital among countries, thereby sustaining sound economic growth.

Article IV has five sections. For purpose of the discussion above and also clarity, Section 1 on General obligations of members has been reproduced* hereunder:

Section 1. General obligations of members

“Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:

(i) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances;

(ii) seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions;

(iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and

(iv) follow exchange policies compatible with the undertakings under this Section.”

* Source: Articles of Agreement of the International Monetary Fund

Transforming Ethiopia TE

  1. selamta
    | #1

    I am sorry, but your point is? Why do we harp on every little thing that comes out of a western establishment as if it is the word of GOD.I can not understand why so called educated people have to stroke their key board every time something is written or said about ETHIOPIA as if that would help whatever their beef is with the government. Silence is golden sir.
    cheers

  2. TRUTH
    | #2

    #1 selamta: You are a TPLF agent obviously. Exposing the lies of TPLF of double-digit economic growth for several years is a noble undertaking. The Etthiopia people should know the truth and find solution to their sufferings of the last 21 years.

    You advice the writer “Silence is golden sir”. Why were you not silent?

  3. tewbel
    | #3

    I think that yoyu are right the Ethiopian growth is around 26 (twentysix)percent of GDP. It is the enemy of the IMF and WB(???)who dliberatly minimize the figures given by the great economist bereket simon and aka Meles.
    Actually Ethiopian have an abundance of food the 10.4 million starving are because they choose suicide by famine.

  4. love
    | #4

    Selamta, Ethiopians need to know everything whether it makes sense to you why Kefyallew wrote this article or not.

    Malawi was following its own economic system and was doing super 3 years ago refusing IMF and World Bank’s loan. Then what Malawi found itself was a civil war all of the sudden started and we finally learned that IMF and WB is back on board with Malawi and is it coincidence that its president who did good job died as well? So you are either at mercy of IMF and WB or face wars, famine, etc.

    Rumors has it that Western coprporations want to the take over communication, banks and municipality especailly Nile. that is why IMF and WB perhaps trying to force on the government. Providing the government of Simon Bereket are sincere that is.

    While you are at it read: Sowing the Seeds of Famine in Ethiopia then you already understand that Ethiopia is already hijacked by World Bnak and IMF the minute TPLF took over in Ethiopia. Which I say it is better to have your own dictators than foreign installed dictators.

  5. EriRat
    | #5

    The late Michealy Manely who was a leader of Jamica for decades once said lamentably, ” We produce what we do not consume, we consumed what we do not produce.” How apt and relevant is his remark when Ethiopia find itself under the rubric leadership of a narrow Tigryean the late Negassie Meles Zenawi. He sold Ethiopia down the drain for IMF, World Bank and Indo-Arab Moghals making sweet deals at ran away prices. May his soul burn in blast furnace for ever in the religious history of our beloved country.

  6. Endalkachew
    | #6

    Though I have lots which I don’t agree with government I agree with their position on opposing the views of IMF.I stopped believing what the consultants of IMF say since they had no clue when the banking financial/ banking crisis happened under their noses and they failed to see it. their suggestions and advice should be taken with pinch of salt. I am not economist but I feel that their previous advice of devaluing BIrr contributed a lot to the rampent inflation now we are witnessing in the country. Many countries routinely ignore their advice. The building of the grand dam Is very crucial for Ethiopia’s development and it’s once in a life time opportunity which needs tobe completed at any cost. Who knows the consultants may have other interests/influences and may not have Ethiopia’s interest at heart.

  7. Tekle
    | #7

    I have not talked to you all for a little while now. That is why you forgot what I told you before. We fought a bitter war with the fascist Mengistu regime just to liberate you which had cost us more than 60,000 lives. I am here to tell you one more time that we are not going anywhere. You were whining before about our Most Benevolent and Eternal PM Meles just because he was from Tigray. We showed our selflessness by transferring the power of leadership to our adopted son Haile Mariam and you still complain and moan. What kind of creatures are you? No wonder why 99.6% of our people spat you like a bitter pill. No doubt about it and you should count on it. We will keep the leadership role for the next 1,000 years. I have already given you the formula for this conclusion a million times before. So shut up and watch us the real pros do the job!!! I say shut up!!!!

  8. Dawi
    | #8

    IMF said:

    [[...Ethiopia’s macroeconomic performance in 2011/12 has been mixed. Strong, broad-based growth continues at a pace of about 7 percent and poverty reduction measured by poverty head count declined from 38.7 to 29.6 percent during the six years to 2010/11....]]

    Keffyalew nixed all the positive from the IMF board consultation report.
    Why?

    Over looking “Poverty reduction” as it affects the poor the most and it going down from “38.7 to 29.6 percent” is a big deal IMO however, the author doesn’t think so.

    Other than that it is a good commentary on the subject.

  9. Borsamo
    | #9

    The fascist and racist Meles Zenawi accepted and implemented the Structural Adjustment Programmes of the IMF to get money from this organization. The devaluation of the Bir and privatizations were among the reforms the IMF has imposed as conditions for giving money to the ethnical fascist regime.

  10. love
    | #10

    @EriRat
    You are Eritrean trying to distract Ethiopians away from the real architetcs to this policy, the Eritrean groups in main power in TPLF. Those who talk about “Tigray, Weyane, A@ame, etc” are those Eritreans trying to distract us from the real groups in khaoots with the WB and IMF. These TTPLFites who are using Tigray name but actually are Tigrayans work policies with foreingers then they come out in public making themselves victim of outside aggression or talking posiitive about their policies. This has be their tactic against Ethiopians for 21 years. Again the issue is that why are Eritreans in power in Ethiopia when they voted indpendence in Eritrea is the question. Thus, here is the result and suffering of Ethiopians. Let us stop the propoganda coming from Eritreans against Tigray because the tactic has worked for them while they are raping Ethiopia, our attention is on Tigray.

  11. Zerayakob Yared
    | #11

    love, “Providing the government of Simon Bereket are sincere that is.”

    ይሄ አረፍተ ነገር ጊዜውን ያልጠበቀ ነው:: ሊሆን አይችልም ማለት ሳይሆን, ግን አሁን አይደለም!
    And after all, There is only one King-maker in Ethiopia in this time. that is, Sebhat Nega, the “ABO-WOYANE!” ማለትም: “ፎቲኽን’ዶ ንጉስ ትምርቓ” በሚለው ፈሊጣችን! ማንኛውም ኢትዮጵያዊ በኢትዮጵያው የስልጣን ኮርቻው ላይ የመፈናጠጥ መብት አለው:: ግን አሁን ኢትዮጵያ በምትገኝበት ደረጃ ላይ, ከፈለገውም “በጎዳና ሕሹኽ-ሹኽ” በኩል አድርጎ ይሁን, ካፈለገውም በቀጥተኛው መንገድ አድርጎ ስብሓት ለሹመት ማብቃቱን ነው ለመስማት እየተጠባበኩኝ ያለሁት:: በመሃከሉ, ሌላ እንደ እኔው የትም የተሽቀነጠረ ሁሉ kings-maker ሆኖ ሳነብ, ልቤን ምንም ደስ አላለውም:: ስልሆነም, ቢያንስ ፊውዳላዊው ስነስርዓትን ያከበረ ቅደም ተከተልን እንጠብቅ! comes SEBHAT, then can come B.S. አለበለዚያ “ታዕሊም” ሊወረድ ነው!! You know what i mean by “ታዕሊም”, እህህእ! “ትግራይ-ኢትዮጵያ ሆኒ-ምዓረኒ, እፈትወኪ እየ!!!”

    ቀስ እያልን kings-makers ወደማያስፈልጉንና ፊውዳላዊ አስተሳሰብ ወደ ተወገደበት ዘመናት ለመተላለፍ ያብቃን!

  12. BE
    | #12

    The IMF is just covering itself so it can say ‘I told you so’ when the economy goes down. It’s not going to take any action because it and all Western donors don’t want to take any action. They’ll let the Ethiopian government take their money and do whatever it wants.

    For what it’s worth, the IMF is right. The Ethiopian government has been ‘borrowing’ (getting free money) and spending too much. That’s why inflation is so high and domestic supply cannot keep up with domestic demand. The EPRDF is trying to imitate China but via borrowing!

    Well, the Chinese gave Meles some advice a few months ago – all we got out of our artificial forced growth is pollution and inequality – don’t do the same. That is what they told him. But it doesn’t look like the EPRDF will listen. They are addicted to the free money.

    But they will be forced to listen when the next major drought happens and food supply goes down. Maybe then they will consider real policy improvements like privatizing land and promoting growth via people entrepreneurship instead of mega-projects and government contracts.

  13. Amare
    | #13

    A simple question to the article writer: What is the point? Let’s assume your accepted forcast of 6.5% is true. So what? Do you know the growth rate of the US? By the way you seem to cheer the slow rate of growth. I wonder why? The more One knows the world of DIASPORA the more one understands the corrupt thinking of the few but vocal & atrocious DIA SPORA. The cruel but obvious truth is most of these idiotic & hard core DIASPORA will perish in exile.

  14. henok
    | #14

    I want to state my faith, we have made it so far by the mercy of God, and i belive he will see us through!
    I saw a documentery in english by Al jaizara, which showed that when Egypt prisident changed his policy towards the west, please guys look at this, in june 1974 the american president Nixion visited cairo and in september Hiale Silase ( Janihow) was diposed!!!!! cant we see the conextion, i thuely believe Melese was poised by the …., because of the way he challenged them and made a real difference on the NILE!

  15. AWEKE
    | #15

    In my opinion,
    opportunity is also missed.
    It is not only the EPRDF to be blamed for
    wrong application of governance but also
    the opposition and the MEDIA.Eprdf has for
    a while droped the diamond ball on the ground
    but no opposition and media was able to see it
    or find it though some isolated voices who saw
    it rolling on the ground were crying loud.

  16. love
    | #16

    @Tekle

    Meles is Eritrean not Tigrayan. If he is half, it doesn’t matter he does things for Eritrea. The only he could better than Eritreans is because perhaps he is married to an Ethiopian, Azeb. Therefore, you are here to instigate between Ethiopians and Tigryans. you are Eritrean.

    while at it, read “Sowing seeds of Famine in Ethiopia” That should be enough news we get from WB and IMF

  17. The Eritrean one!
    | #17

    Ethiopian brothers and sisters wake-up and live by reality with-in Ethiopia and its surroundings: IMF and many other NGO’s like Ethiopia and the Ethiopian people for reasons that are known to them but here is prooven fact: 1- in the name of Ethiopia IMF can extract billions of dollars from its banking institution so all IMF representatives in Ethiopia can reset or continue their employment for many years to come ($1 dollar for weyanes $million dollars for IMF reps), 2- NGO’s representative would like the flow of aid to Ethiopia in the name of, “hunger, starvation, education, infrastructure, roads” to exploit Ethiopians young and old for their own pleasure (again $1 for weyanes $millions for the paedophiles NGO reps), and 3- IMF and other NGO’s would like the flow of aid to Ethiopia because the illegitimate government in Ethiopia is willing to sacrifice Ethiopians all over so called “anti-terrorist” missions be it in Somalia and Eritrea. Ethiopia needs a government that will have a love affair with its own people not 10,000 miles away in NY or DC.

  18. love
    | #18

    @henok

    It is the same thing why under Carter Admin. Somalia was told to occupy Ogaden and Ethiopia was refused the arms that it bought from U.S. that is why Mengistu turned to Soviet Union and Ethiopia would not have been communist. So the question is, if Haile Selassie was deposed, he was deposed by his own people. This means as usual there were Ethiopians working for the West that is the only one. Obviously Mengistu/Dergy and EPRP must have been the one working for them because they were the ones who deposed HIM.

    Let us face it, if Egypt is to attack now, the West will back it up due to their history and Israel. Bascially Ethiopia has no one except hereself and her children have been betraying since the over throwing of HIM. We like to blame Eritrea when Ethiopians are also betraying Ethiopia. Egypt is stronger than Ethiopia that is why the West and Arabs will protect her over Ethiopia. However, since Egyptians never like Israel, doesn’t it make sense to weaken Egypt than to weaken an ally Ethiopia? What will save Ethiopia should be from her own children not even outsiders.

  19. Anonymous
    | #19

    The worst things that happened to Ethiopia–the two cursed days the two evil cousins, Esayas and Meles were born in Ethiopia, period!

  20. Anonymous
    | #20

    Ethiopia has never been weak to Egypt ,Itali or to any foriegn forces let alone now even since time of immomorial. coz GOD is with us always.

  21. Tamiru
    | #21

    Ethiopia has nver weak to Egypt, Itali or to any forigen forces let alon now but since time of immemorial. coz GOD is with us.

  22. መፈጃጀት?
    | #22

    ለጸሀፊው

    ለመሆኑ ግሪኩ ጣሊያኑ ስፔይኑና ሌሎችም ኢሮፓ ምሁሮችና ሰራተኛው ሕዝብ የ IMF ቀጭን ትዕዛዝ አንቀበልም ሲሉ
    ርስዎ IMF ከፍ አርገው የሚናገሩት ምነው?

  23. Confused?
    | #23

    @ Love

    Eriat is quite right in his #5 Comment despite the fact that he can/can not be Eritrean. We have to expect that one day even our local Teff will be exported and then again imported back again with no change or some minor changes in it.The reason we produce what we do not consume and we consume what we do not produce is the result of Globalization.And in doing so every day to day business transaction is systematically designed to pass through a common elitist controlled international trade cartels ruled by Ponzi-Scheme business schemes. Neo-Liberalism is Modern Feudalism where you extract unfair unearned advantage by making Ponzi-Scheme and monopoly control of resources. If some interest groups control every resource on earth using Financial Ponzi-Scheme backed by military might then I tell you we are in modern day slavery. And I tell you that the Mafia style rule of Meles/TPLF system is such compliant and surrogate modern day slavery of such global social order. So Modern Global Capitalism in its gradually evolved Neo-Liberal, Imperialistic and Neo-Colonialism phase is a combination of system of intricately well interconnected departments of:
    IMF/World-Bank/WTO + NATO/MIC/Military +System of Bogus Electoral Democracy and Human Rights+ Compliant Technocratic Bureaucracy of Politicians/Economists/Professionals+ Compliant Neo-Liberal Academy+ NGO+ Mainstream Media+ Entertainment Industry + finally Compliant Stooge Client-Regimes like Meles/TPLF in 3rd world nations. This is how the intricate system of modern day Global Capitalism works. Finally making the usual stereotypically so shallow, naïve and gullible analysis based on mere black and white terms regarding Socialism/Communism Vs Capitalism is now days, is not only so worthless that does no hold water but also so harmful as well. And hence our Ethiopian Intellectuals in all realms better make the required critical thinking that enables them to have the required awakening, enlightenment and paradigm shift to come out of our tragic stalemate.

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