Vilified and reviled just a few years ago, the IMF now appears to be an ally of African countries, from the moratorium on their debts to emergency aid in the face of Covid-19. But old habits die hard. Has the IMF really changed?
The Tunisian economist, a former special advisor to the president of the African Development Bank (AfDB) who also served as former minister of economy and finance (2014-2015), has alternated between his roles under inspection and as an inspector. He gives some advice to African governments to protect themselves, a little, from the rigors of the IMF.
How does an annual visit by the IMF known as ‘Article IV’ take place?
Hakim Ben Hammouda: If the country’s situation is rather good, three or four of its experts spend a week in the country, analyse its situation, make some recommendations and propose technical cooperation, for example, to improve tax collection. The final communiqué of the mission is published with the agreement of the government and signed by the IMF.
If the country is ‘under program’, i.e. assisted and therefore under surveillance, the atmosphere is totally different. Around a mission leader, some 15 experts verify for a month the ‘structural benchmarks’, i.e. the conditions to be met to obtain the release of funds allocated by the IMF in tranches.
The support of the IMF is essential because it triggers the support of other international financial organisations such as the World Bank, the ADB or the EIB, and it also opens access to financial markets.
Is this review difficult?
Yes, because a month before the mission arrives, the finance minister checks the status of structural benchmarks, warns the head of government of upcoming difficulties, and pulls the ear of late ministers.
When the mission arrives, all the administrations from the finance minister to the Central Bank are mobilised to answer its questions: wage bill, amount of subsidies, tax collection, budget and current account deficits, health of public enterprises and the banking sector… This generates a lot of stress.
The Fund’s experts do not want to understand, for example, how a government can negotiate with the unions to increase the civil service wage bill, when it already weighs 13% of the budget and could reach 16%. All departments are on edge.
When things go wrong, we ask the IMF executive director who represents Africa on the Fund’s Board to plead our case. The most tense moment is when we have to write the final communiqué that concretises the agreement and allows the funds to be released. Sometimes we have to negotiate a new target or ask for a postponement to reach it.
What attitude do you recommend towards the IMF?
The Fund is mainly interested in the stability of the country’s public finances and current account. The country must ensure good macroeconomic management. This proves its willingness to negotiate and allows it to be firm with the IMF when it is in distress.
Second, one should not accept an agreement that is impossible to respect, as some ministers do – in panic. Furthermore, African countries put officials – of the ministry of finance and the Central Bank in front of the IMF experts – who do not have enough clout. I had recruited in my ministry the best Tunisian economists. They allowed us to stand up to the IMF, which wanted to impose an increase in interest rates to fight inflation, which risked breaking investment. Our economists demonstrated that this inflation was not monetary in origin, but was due to inadequate distribution channels. The IMF accepted their arguments. Our experts must be able to compete with those of the Fund, who are among the best in the world.
Finally, one must never be late. You don’t have a crisis meeting the day before the IMF mission arrives. I have seen government leaders angry at their staff because nothing had been prepared. I had organised my office to be aware of the structural benchmarks in a timely manner. I could look them up on my computer so that I could alert the head of government and allow him to speak firmly to his ministers.
Is the IMF still imposing the same remedies as in the past to avoid a financial crisis?
The Fund applies a very orthodox macroeconomic and financial stability to all countries, but since Dominique Strauss-Kahn’s tenure as head of the Fund and the financial and health crises of 2008 and 2020, it has loosened its constraints. During the pandemic, he turned a blind eye to the failure to respect the 3% public deficit rule.
This parenthesis has closed. I regret that the IMF is not more understanding of countries whose governments do not have the political strength to take difficult decisions. How can you privatise a public company – which will inevitably lead to job losses – when the country’s unemployment rate is over 16%?
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