28 February 2014

Gambia: From the Ashes of World War II, IMF Leads Global Economic Stabilization

The intellectual founding fathers of the International Monetary Fund (IMF), who also created the World Bank (WB) on the same day at the Bretton Woods Conference in 1944 (in the United States), would have been rested by now in the world of no return for having left a legacy that is today leading the economic stabilisation of the global economies.

At a time when the world was still flaming seriously due to the devastating World War II, eminent economists, John Maynard Keynes, a British and Harry Dexter White, an American had used their intellectualism to put their lives on the line for the creation of institutions that would restore global economic order to avoid a replica of the 1930s Greet Depression.

Seventy years today, this 188-member global financial organisation could point out to some outstanding achievements in spite of the continued global economic crisis. Just as its current executive director, Christine Lagarde has recently stated during her lecture at the Dimbleby Lecture, the past seven decades have seen unprecedented economic and financial stability, diseases eradicated, conflict diminished, child mortality reduced, life expectancy increased, and hundreds of millions lifted out of poverty.

The institution continues work towards consolidating its gains so that the overall objectives set by its founders are achieved for this and generations yet unborn.

Headquartered in Washington DC, it is represented in The Gambia by a resident representative. I caught up with him recently to discuss the Fund's broad operations, its relations with The Gambia and the challenges it continues to face.

Please read on. Bt: Sir the IMF was initiated in 1944 at the Bretton Woods Conference with a membership of 29 countries with the aim of assisting in the reconstruction of the world's international payment system in post-World War II among other goals. Do you think the institution has been making an impact vis-à-vis the realisation of its objectives?

Gaston: The "International Monetary Fund" or the IMF, was born from the ashes of the 1930s Great Depression and World War II. Like its sister institution, the World Bank and the UN System, its creation is grounded in the principle that peace and prosperity flow from cooperation, not from the pursuit of narrow self-interest. As the name reflects, the IMF's membership is global - currently at 188 countries, including The Gambia. Its mandate is to ensure the stability of the "international monetary" system-- that is, the system of exchange rates and international payments that enables countries and their citizens to transact with one other. It also acts like a credit union for the world, where member countries pool resources together, through a quota system, from which members with actual or potential external payment problems can borrow temporarily.

Since its inception, the IMF worked tirelessly to support its members in firefighting economic and financial crises. First, it helped countries recover from the devastating effects of the Great Depression and the Second World War.

A couple of decades later, it helped the newly independent countries during decolonization. When the Berlin Wall fell, the Fund supported Eastern Europe's efforts to transform from centrally-planned economies into market economies. In between, the IMF has helped its members to overcome economic crises--in Latin America in the 1980s, Asia in the 1990s and, most recently, in the Eurozone.

Today, the world is a better place than it was in 1944, thanks in large part to increased cooperation, trade and financial integration. But as the world evolves, new challenges emerge and so too the IMF constantly refines its purpose, its methods and its instruments. Bt. Christine Lagarde became the first woman to head the IMF as its executive director, replacing DSK. What are your special admirations for her and her resolve to move this global body amidst serious economic challenges of recent times?

Gaston: Our Managing Director, Mrs. Lagarde, is a world leader, for a world class institution. She is the Chairperson of our Executive Board; she is leading a highly qualified professional staff of approximately 2,670 from more than 150 countries; all of us working as a team to respond to our global membership needs. As the first woman to head the IMF, she is a role model for many, especially to women around the world. Bt: The IMF was established as a cooperative international organisation, do you think the institute's relationship with its members is one of symbiosis nature? Gaston: Every country that joins the IMF accepts the obligation to subject its economic and financial policies to the scrutiny of the international community. IMF staff visits member countries on regular basis to discuss economic developments and policies with national authorities. We consider the impact of fiscal, monetary, financial and exchange rate policies on the member's domestic and balance of payments stability, as well as on global stability. We assess risks, vulnerabilities, and drawing experience from across the IMF membership, we also offer advice on needed policy adjustments.

To be effective, we are called to give an independent professional analysis and advices and to speak the truth as we see it, even when that truth is inconvenient. Very often, we agree with the national authorities; but sometimes we may not. This doesn't necessarily gain us any popularity. The good thing is that in all cases, we are open on what we do and how we operate. The views of the IMF staff and those of the authorities are always reflected in our reports, which are published on our website for the global audience. Bt:The issue of who benefits more from the partnership between IMF and its member countries is always debatable. Some believe that the institution benefits more than its members. Is that the case?

Gaston: Member countries own the IMF; thus, our activities are for one and one single purpose: to help members make progress. First, the IMF supports members by offering policy advices - we encourage policies that help foster economic stability, reduce vulnerability to economic and financial crises, and raise living standards. We give to country reports a global audience, which is very often useful for example for attracting foreign direct investment. Second, the IMF extends loans to countries in economic difficulty or likely to face economic crisis. Third, IMF mobilizes resources and provides Technical Assistance (TA) to help member countries strengthen capacity to design and implement effective policies. In case of The Gambia, we have as we speak a Resident Advisor who is working full-time with The Gambia Revenue Authority (GRA) on the implementation of VAT. Another IMF Resident Advisor is helping the MoFEA on building capacity for budget and expenditure management. Every year, upon the Gambian authorities' request, the IMF deploys TA missions to provide technical know-how and expertise on specific issues they are facing. The Central Bank of The Gambia (CBG), MoFEA, GRA and the Gambia Bureau of Statistics (GBOS) are major beneficiaries of such technical assistance.

Bt: How flexible is the payment system when members borrow funds temporary from the organization?

Gaston: A member country may request assistance if it cannot find sufficient financing on affordable terms to meet its international payments - for example for imports or repayments of external debt - while maintaining adequate reserves for use as shock absorber going forward. The terms of IMF loan are tailored to countries' varying strengths and circumstances. The financing needs can be of short, medium and long term in nature. They may be required for crisis prevention or crisis resolution. Financing facilities are offered at non-concessional (that is, at market-related interest rates) or concessional, depending on the level of the country's development. For instance, for low income countries (LIC), such as The Gambia, with protracted balance of payment needs, access to financial resources under the Extended Credit Facility (ECF) currently carries a zero interest rate, with a grace period of 5.5 years, and a final maturity of 10 years. Bt: Having been working with the organisation for several years now, has the institution been transparent with members about its operations and guidance?

Gaston: Member countries own and through their representatives govern the IMF. At the top of the IMF organizational structure, we have the Board of Governors. This consists of ministers in charge of finance or the head of the central banks. For instance, The Gambian Minister of Finance is a member of this Board, with the Governor of the Central Bank as alternate. They vote on behalf of The Gambia on every major issue pertaining to the life of the IMF. Our day-to-day work is overseen by the Executive Board, which represents the entire membership. Here again, Mr. Saho, the former Governor of the Central Bank of the Gambia, is one of the 24 executive directors; he represents one of the two African constituencies. Beyond membership representation, the IMF has policies to ensure that meaningful and timely information on its role and activities is provided in real time to its global audiences. We have also established an Independent Evaluation Office (IEO) that provides objective and independent evaluations on issues related to IMF policies and operations. We have open communication with private sector organizations, civil society, and the media and this interview falls in this context. Bt: How is the institution promoting good governance, especially in developing countries?

Gaston: In its work with low-income countries, the IMF advocates for economic governance issues that fall within its mandate and expertise. We support for example reforms to strengthen expenditure controls or for public sector efficiency; we provide technical assistance to build capacities in key economic governance institutions - the ministry of finance, central bank, revenue administration, etc. This is because we strongly believe that good governance is very essential for socio- economic stability and for the long-term development of our member countries. Bt: The IMF and the World Bank were both created at the Bretton Woods Conference in 1944 in the US to accelerate global growth through different mandates. From personal experience, how collaborative are the two institutions? Gastonr: The World Bank and IMF are sister institutions, created on the same date, with same global membership. They were given two different, but complementary, mandates. The World Bank promotes long-term economic development and poverty reduction through technical and financial support, to help countries reform particular economic sectors or implement specific projects--for example, building schools and health centers, providing water and electricity, fighting disease, and protecting the environment. The IMF's core responsibility is to provide loans that enable countries to rebuild their international reserves, stabilize their currencies, continue paying for imports and restore conditions for strong economic growth, while undertaking policies to correct underlying problems. Unlike the World Bank, the IMF does not lend for specific projects. But Staffs of the two institutions collaborate closely on country assistance and policy issues that are relevant to both institutions globally, regionally and at country level. Bt: Sir locally, what is The Gambia's financial position in the Funds as of last year?

Gaston: As of January 31, 2014, The Gambia's quota (shareholding) amounts to SDR 31.1 million (about US$48 million). Under the financing arrangement approved in May 2012, The Gambia's total access would amount to about US$28million over three years, of which USD 16.1 million has been already disbursed. Bt: What's IMF's projection of The Gambia's GDP in 2014?

Gaston: Growth is expected to reach around 7½ percent in 2014. This is good, but it needs to be sustained over a couple of years to claim an impact on job creation and poverty reduction. The Gambia has potential for a higher growth if all right conditions are put in place. Bt: Comparatively, how compliant has The Gambia been to the IMF and its policies designed to address major economic bottlenecks?

Gaston: Actually, it is misleading to portray the relationship in term of whether or not "The Gambia complies to IMF policies". The policies the IMF supports are those of the national authorities, not the opposite. Regarding progress with The Gambia's program supported under the Extended Credit Facility (ECF), our assessment is that 2013 has been a very difficult year, particularly the second half. The macroeconomic situation deteriorated - the fiscal and external deficits continued to widen; spending pressures led to large fiscal slippages; T-bill interest rates sharply increased - with now government spending more than 25 percent of its revenue to cover domestic interest costs; and the Dalasi has been under depreciation pressures.

An IMF mission visited the Gambia in November 2013. It assessed the potential risks and costs if no credible corrective measures are undertaken. It also discussed with the authorities steps to restore macroeconomic stability. The understanding that was reached has been broadly reflected in the Minister of finance's budget speech and in the 2014 budget estimates approved by the National Assembly. The Gambian authorities expressed determination to take these necessary difficult steps to restore stability. The mission will visit again in coming weeks to assess progress. Strong implementation would serve as the basis for completing the second review of ECF program in the second half of 2014. Bt: What would you single out as the biggest challenge facing The Gambia, economically?

Gaston: There are both short-term and long-term challenges. On short-term, the challenge is to restore macroeconomic stability. In medium to long-run, the challenge is sustaining the growth - given the population growth of around 3 percent, an average real GDP growth of 7 percent or higher over several years could have strong impact on the ground in terms of job creation and poverty reduction. Bt: What is the way forward in tackling it?

Gaston: To realize The Gambia's strong economic potential, it is imperative to restore macroeconomic stability. To that end, fiscal policy should be tightened using a combination of revenue and expenditure measures. This will result in lower domestic borrowing; allow the Central Bank of The Gambia to loosen somewhat the tight monetary policy stance; domestic interest rates to decline; Addressing the fiscal imbalances will help reduce inflationary pressures and ease the pressures on the exchange rate. The resulting lower domestic interest payments will create room for spending on priorities identified in the PAGE. It will also provide room for credit growth to the private sector and thus boost GDP growth.

Since The Gambia is a small open economy that is vulnerable to a wide range of external shocks, rebuilding international reserve buffers, to serve as a shock absorber, should be a priority. With good implementation and sound financing of the PAGE and infrastructure projects, there could be some upside potential for longer-term growth rates, especially if structural reforms in key areas of infrastructure--such as competitive international telecommunications and a comprehensive national energy strategy--are adopted.

Bt: What sectors would you like The Gambia government to invest in more, if economic progress is anything to go by?

Gaston: Improving agricultural productivity is a key area - both for job creation in the rural area, for food security and for export. More private sector participation is necessary for agricultural transformation. There is also the need to attract more private investors in the tourism sector - to raise tourist spending, but also to smooth its seasonality.

The Gambia River is an open highway for transport, which together with port, has the potential to make the country a competitive transit hub for the countries in the region. This could help narrow the external deficits. A steadfast implementation of reforms will be needed to further reduce the cost of doing business in the Gambia and to mobilize partnership with private businesses and development partners.

Bt: Recently, you visited the Daily Observer to strengthen partnership. What other ways and means do you hope to involve the media in the country not only to popularise the activities of your office in The Gambia, but to also understand modus operandi of the IMF?

Gaston: Partnership means two-way streams of communications. Our interaction with the media offers an opportunity to tell a larger audience why the IMF is here; what are our activities; and how that is important to the development of The Gambia. As indicated during my visit, the IMF's website is a huge source of information for journalists. We have invited journalists to discuss in more details the role of IMF; how it operates in an attempt to bridge the information gap. Bt: Any other final words before taking leave of you?

Gaston: Tomorrow is the Gambia's Independence Day; so I would like to congratulate and wish the government and the people of The Gambia a happy holiday. Since 1967, the IMF has been a strong partner with The Gambia. The Gambia has made remarkable progress during these past years; but the road to development is still long, and requires implementation of sound and consistent policies and structural reforms. The IMF remains always ready to support its member country-The Gambia, to accelerate its pace toward more prosperity and development. . Bt: That does it for this interview and thank you for your time. Gaston: Many thanks to you too for the interview About IMF Rep Gaston

Mr. Kagabo Gaston Mpatswe - a citizen of Rwanda - arrived in The Gambia on August 23, 2013 to take up his assignment as the Resident Representative of the International Monetary Fund (IMF) in the Gambia.

Prior to his current assignment, Mr. Mpatswe served in the African Department of the IMF, working on various countries' economic programs supported under Fund's financing facilities. He served as Desk Economist for Senegal and as the principal economist for the Republic of Congo. He also served as Advisor to the Executive Director for Africa, including but not limited to, assisting the African Chair to represent Guinea-Bissau and Benin's voice at the IMF.

Before joining the IMF in March 2007, Mpatswe held senior positions in the Office of the President of Rwanda for over 6 years, serving first as the Director in charge of economic reforms and then as the Director General, Head of the Economic Affairs department. His responsibilities involved providing executive briefings and advising the President of Rwanda on economic matters, as well as working closely with various government institutions, in particular the Ministry of finance and economic planning, and the National Bank of Rwanda, to spearhead the economic development of Rwanda.

He led and served on boards of directors of various public agencies, including as Chairman of the Board of Directors of the Rwanda Development Bank, and on high- level committees in charge of spearheading the design, implementation, and monitoring of economic development policies that were key to Rwanda's successful post-conflict recovery and economic development process.

Kagabo started his economist career in academics at the National University of Rwanda (NUR) and Kigali Independent University (ULK). His research works related to the effectiveness of foreign aid to Sub-Saharan Africa, fiscal policy, financial sector development, and economic reforms and development. He co-authored an IMF Working Paper on "The Cyclicality of Fiscal Policy in the CEMAC Zone" (www.imf.org/external/pubs/ft/wp/2011/wp11205.pdf), which was published as a chapter of the book on "Oil Wealth in Central Africa: Policies for Inclusive Growth". He authored analytical notes on "Economic Growth performance and outlook" and on the "Fiscal Costs of Electricity Subsidies" in Senegal.(http://imf.org/external/pubs/cat/longres.aspx?sk=40675.0 ).

Mr. Mpatswe holds a graduate degree in quantitative development economics from the University of Warwick (UK) and a Masters of Art in Mathematical Economics from the University of Kinshasa, the Democratic Republic of the Congo - which is also his country of birth. He is fluent in English, French and Kinyarwanda, and has knowledge of Swahili and Lingala.

For comments and suggestions please call: (+220)3658213 or send to email hatabfadera@yahoo.com

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