Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), this week made his third trip to Africa in a year, visiting Kenya, South Africa and Zambia between March 8 and 11. In Johannesburg, AllAfrica senior correspondent Charlayne Hunter-Gault put to him questions sent in by our readers.
Hunter-Gault: Thank you for joining us. You said in Nairobi this week that Africa is back and while noting that last year's slower economic growth caused enormous suffering, you commended African countries for policies that cushioned their people against the global recession, for example, reducing debt but preserving or even increasing public spending levels.
allAfrica.com invited site visitors to submit questions that they wanted me to ask you and several remarked that international financial institutions for decades promoted cuts in spending, including for agriculture, education and health. In retrospect, was that harmful? And also you said that era is over. Is it really over?
Well, it's not totally fair to say that international organizations - and I don't want to talk on behalf of the other organizations let's talk about the IMF - as we're in any way asking for a cut in a specific kind of spending.
Transforming Africa - Surviving Shocks & Fostering Stability
When we come to a country having a huge deficit, there's no other way to save the country than to reduce the deficit. Now you may do it in different ways: you may increase taxes or cut some expenditures. Cutting expenditures, you may cut one kind of expenditure or another kind of expenditure. This is the call of the government; it's never the call of the IMF. What the IMF does is to say, 'Look, to be on a safer way, this year you need to save X billion and then next year another Y billion. How do you want to do it?'
And the countries come with proposals and then we discuss. You say this measure will save 100 billion. We don't believe this; it will save only 50 billion. So we have a discussion and finally we find an agreement.
But the nature of the cut at stake is never decided by the IMF and the country has to decide itself what is more important, what is less important.
So many of the countries that I've been in have all talked about how they were forced to cut social spending.
But that's just human nature, you know. If I were in their shoes and have go on TV and explain to my people that I messed up here before, that now I have to cut expenditures, I will always say that it's the responsibility of the IMF. Of course, we are used to that. But the reality is that if we come in a country it is just because they asked us to come because they messed up. If not they don't ask us to come. So the real problem comes from what has been done before the arrival of the IMF, not after the arrival of the IMF.
But you also talked about how things have changed.
Right. The fact is one of the drawbacks of what has been done in the past, in my view, is that when the IMF had to deal with a country because the country was really in a bad situation, the IMF didn't try to solve only the problem at stake but to fix many other problems in the economy. And sometimes they were right: other problems needed to be fixed also, but it was not really the problem of the day and so they created a bigger problem. Let me give you an example. You have a deficit problem. You need to fix this deficit problem. [The] answer is either on the expenditure side or on the revenue side.
At the same time you may realize that there is a huge problem of land reform in the country and obviously it will be good for the country, for the future, to make the structural reforms and have land reform. That's a big political thing. It may be very difficult. It's not absolutely needed to fix the problem which is at stake at this moment. In the past, the IMF would come with a lot of conditions, not only the ones which are needed to fix the problem immediately, but also other conditions.
[They're] certainly useful for the country but not needed immediately and creating more political problems than solving questions. That we got rid of and now the number of conditions in the IMF programmes has been streamlined considerably. There are almost half the number of conditions compared to the past, and that's one way I had in mind when I say the IMF has changed.
You just gave an example, and people who wrote to us talked about failures of costly development programmes and say that there are more failures than success stories. Can you mention examples from both categories and talk about what makes some economic programmes succeed while others failed?
Well, I'm not going to make a list of failures, especially in looking backward. I prefer to look at successes and also to look forward. But it is fair enough to answer your question. You know during the last decade, African countries, not only western Africa, also eastern Africa, have experienced growth of about six to seven percent a year. It never happened in the past - over decades. Never. Why did it happen? Because finally those countries were forced [by events and world changes] to implement good policies. Why were they forced to do that? Because the international community set up a big programme of debt cancellation and the condition for this debt cancellation was to have a good track record in economic policy. So because of this carrot of debt cancellation, countries said, 'Okay we are going to follow what you say, we are going to implement the policy you say,' and the result was the highest growth ever. If this is not a success, what is a success?
Can they do that without the IMF now?
Hopefully.
Have they reached that point?
Hopefully. They have to take ownership of this policy and to implement the right policy. I mean the biggest success in the IMF is that nobody asks us to come. So I hope that in most countries the memories of this period where good policy has been put in place-which, by the way, was the reason they were able to cope with the crisis. They had built some fiscal room and made these countries able to spend more during the crisis to cope with the crisis. And that is one of the reasons why the crisis has not been as bad in Africa. I'm not saying that it has been good, of course, but not as bad as we could have expected because many countries had some fiscal room. This is also the reserve of the policies put in place years ago.
Now some people who wrote in talked about Africa's debt burden and about how it's a widespread concern with debt service siphoning off resources-not only from the social safety net, but also from investments in infrastructure and economic growth. And your own IMF survey, two years ago, found that poor countries were facing litigation from at least 46 commercial creditors. Civil society analysts want to know if the IMF will support curbs on commercial credit practices, such as the so-called 'vulture funds' that buy poor countries' debt and sue to collect it?
Well frankly it's not our job. We have a limited mandate and our mandate does not include that fact that we will be part of litigation between private creditors and debtors. But sometimes again, it's always the same thing, these kinds of problems may have macro-economic and macro-financial consequences and in this case we step in. There are many examples where the IMF was asked to give an assessment of the debt sustainability of the countries but then when we came to the real litigation then it's not the business of the IMF. We can provide advice but we are not part of this litigation.
But is it bad?
Well, everyone has to do his own job. I am happy when the people are asking the IMF to do more. It's not always consistent with the previous question, which was, when the IMF comes in, they messed up. So you have to choose your side. But I think that being a multilateral institution and a public institution, it is right for us to come in, to step in when countries have problems with other countries, even in private questions.
I have a good example about what happened in DRC last year. In a nutshell, the Democratic Republic of Congo had a big deal with Chinese companies which wanted to invest in mining. And our view was that the contract was not really fair and so we decided to help DRC to renegotiate this contract with the Chinese. It was from one point of view a private contract, between private companies in China and certainly the government of DRC on the other side. I decided to help the DRC because I really found that the deal was unfair and at the end of the day we got a much better contract, a much better deal for Congo. So it may happen when the investment is that big that it will have macro-economic consequences on a country, that we need to step in, but in general that's private business.
Just as a note, representatives Maxine Waters and Spencer Bachus this past summer in America introduced legislation that would prohibit sovereign debt profiteering from poor countries and require greater levels of transparency by creditors suing those poor countries. So you have an ally in the U.S. Congress.
I have had many discussions with Representative Maxine Waters already.
She's very much interested in this question and has a lot of knowledge about it. And it's very helpful to find in the U.S. Congress some support for the kind of policy we want to implement.
Some of the people who submitted questions ask why it is that the impoverished citizens, for example, of the DRC should repay IMF loans that were contracted under the dictator Mobutu Sese Seko?
What can I tell you? It's not IMF money; it's the money of the international community. IMF resources come from the other countries.
When a loan has been made to [the former] Zaïre, not Congo, this loan has been made by the other countries through the IMF and by other countries to this country. So it's just fair that the donor countries want to be repaid. I understand the problem for the poorest people in those countries who say, 'Why should I pay for this?'
Today, we have something [similar] in Iceland, where really some Icelandic bankers messed up in huge proportion compared to the GDP of this small country. And Icelanders - the guy in the street - says, 'Why should I pay because my bankers were so bad?' On the one hand it is totally understandable; on the other hand you have a kind of international commitment and you cannot withdraw yourself from the international community. If you do so, you cannot expect anymore that the international community will come and help you. So at the end of the day, repaying past debt is something which is almost unavoidable. But what I insist on is that formally it is a debt by the DRC to the IMF but the reality is that it is a debt from the DRC to the 185 other members of the IMF, which are providing us our resources.
But could they not be persuaded to do some debt forgiveness based on this issue of fairness?
Of course, absolutely, and as you know a huge programme called HIPC (Heavily Indebted Poor Countries Initiative) has been set up years ago and almost all poor countries on the continent have benefited from this debt relief. Congo, the DRC, was one of the last ones and just because it was stuck - because of the Chinese deal I was talking about a few minutes ago - now we are in the process where something as big as three billion dollars of debt cancellation will appear in the benefit of the DRC's people. So this programme you are asking for, debt cancellation, has been carried on, and is still going on for some remaining countries, including DRC. So that's absolutely right.
The problem then is not to go back to the same level of debt that they had before by new loans because then we really didn't solve totally the problem. On the other hand it would be totally unreasonable to believe that poor countries like DRC can develop without foreign aid and foreign aid may be foreign loans providing that these loans are very concessional. And that's why in the IMF, using the proceeds of the gold sale from the IMF that we made, which was the property of the membership, we created a new facility, which is a facility where the interest rate is just zero; we couldn't go below. We were asked to be as concessional as possible. We went to the lower boundary, which is zero.
So now until the end of 2011 - and we will see what happens for the years after - we are lending to countries like DRC at zero interest rate.
Do you have any concerns that loans are disincentives for governments to be responsible?
It's a very well known concern, and in some cases you may be right, but it sounds to me a little like people arguing that you shouldn't have any kind of social safety net in a country because it prevents people from looking for jobs. I'm not sure I share this view.
This is a follow-up but it comes from one of the people who wrote in.
Why does the IMF dump funds on the lap of corrupt governments in Africa without a rigorous follow-up on how those funds are spent? Why does the IMF ignore small- and medium-scale entrepreneurs on the continent whose businesses have a more direct impact on the poor? Why do you keep lending support to multinationals and corrupt government projects?
So there are many different questions.
I know, but they all came from one person.
Let's try to begin with the first question. We are very much concerned about corruption, not only in Africa. Let's be candid, corruption is not a specialty for Africa, but it does exist in Africa and sometimes at a very big scale. So we are concerned about that and that's why in most of our programmes, this so called conditionality, which seems to me has people so upset, has sometimes to do with improving governance. But it's not a general tale. "We're not saying, 'Oh, you bad guys, you should improve government and fight against corruption.' That's fine, but that produced no results.
What we say is, okay, we are going to have a programme over the three coming years. There will be a review by the IMF of the programme every quarter and the timetable is that in six months from now you will have passed a bill on public procurement, for instance, and that's one way of fighting against corruption.
So we do have conditions in our programme to fight against corruption.
Is it enough? Certainly not. Do we eradicate corruption this way? I don't have this pretension but it's certainly a concern we have.
Now about SMEs (small- and medium-sized enterprises) -again and again our role is a limited role. Our role is to deal with the macro-economic environment, helping governments to be able to create themselves the correct economic policies in their country. So we don't deal directly with SMEs, we don't lend to SMEs; we don't lend to any company, even multinationals.
You were talking about highly corrupt multinationals - I don't know if they are highly corrupt, but what I know is that we never lend to a company. We lend only to governments, then the question for the governments is to implement the right policy, and then the question for the civil society people rightly asking this question is to fight against their government to make them accountable. So we are providing resources to government, we are trying to control the use of these resources, to constrain those governments, to have better governance, but we don't have any kind of direct relationship with companies.
In Nairobi, you heard a Transparency International representative say that civil society needs to become more engaged. Does the IMF see that as something positive and desirable to help facilitate your own relations with governments?
Definitely, yes. It doesn't mean that we will always agree with what civil society organizations are saying but it is absolutely necessary and I try everywhere I go to have this kind of discussion with civil society organizations. I had it in Nairobi with 20 of them, discussing.
Some had very tough questions. But that's just fair and we have to explain to civil society what we are doing. They have to tell us the concerns they have, and certainly the action, especially in Africa, they have [been] trying to put governments on the right track is absolutely necessary.
Is it your sense that there's been some progress in eliminating corruption in countries across the continent? Or is it still a pretty serious problem?
Both of your sentences are true. There has been some progress; it's still a big concern.
We also have some questions about your proposals for a U.S. $100 billion a year Green Fund to mitigate and adapt to climate change, and they want to know about the relationship of climate to core development concerns. A malaria researcher mentions that the Lancet medical journal called climate change the biggest threat to global health in the 21st century and wants to know if the Green Fund could be designed to enable countries to make health-sector investments that prepare for climate change. Can the IMF help Africa cushion the projected effects of changing climate on health and will it?
Look, something which has to be clearly understood is that the IMF is not a development agency. We are trying in this problem to play our role, do our part, which is to help find a financing mechanism which makes it possible to have this $100 billion a year available in 2020, which was the request by the Copenhagen agreement. So our part is to say, ok, you need that much money, it's a huge amount of money which will have a lot of consequences on global stability, so we need to provide you with something which in our view makes it possible. There may be other ideas. There may be one challenged by another one and finally we will see what is a good solution.
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Our business is not, down the road, to know how this money will be used.
Of course, we may have an opinion. As a citizen I may have my opinion, you may have yours. A lot of the experts, economic experts at the IMF, may have their own views, but that's not our business. That's the business of our sister institution, the World Bank, and other development banks. We are not directly providing development policy. We are providing the economic environment, the financing, the stability of the economic environment, which makes development possible. That's true for development; it's true for climate change the same way.
What we try to do is provide a contribution, which may be helpful to find the right way for financing this huge amount, which is needed by developing countries to cope with climate change. The way it will be done has to be defined by other specialized agencies.
How much of a concern do you have about poor countries like Liberia, for example? It has a lot of forests and so forth but they also have a lot of hungry people and so there's a real clash between the need to allow those people to make a living by cutting down the trees but also by trying to maintain the forests.
One of the things which really makes me proud - there are not so many - is that one of the first things I was able to manage in the two weeks of my arrival at the IMF more than two years ago was to complete an agreement with Liberia. [It] was hanging for months and months and months, an agreement on debt cancellation. Liberia is a very poor country which absolutely needs to be helped.
Now the question you raise is a very good question - that in those countries people have problems just for living and the living of their kids. Do they care about environment and deforestation or things like this? It's absolutely understandable that it's not their main problem.
On the top of the agenda is what I'm going to eat today and what I'm going to give to feed my family, so that's why they need special help to mitigate and adapt to climate change. That's why the need at the global level is so big.
You were talking about $100 billion a year - can you imagine, can people imagine listening to us, what $100 billion a year means? It's a huge amount of money and it's needed by a country, a developing country, especially poor countries like Liberia, to be able to help people to take into account the problem which obviously for them is not the most important problem of the day. But deforestation in Liberia may have a lot of bad consequences for the future - look what happened to Haiti for instance.
So they need to fight for today's living, but they need to fight for the future generations of their own country too. For this they need help and that's the reason of our engagement in this problem.
Wangari Maathai in Kenya seems to have solved that problem to a certain extent with her tree planting and she was able to get people to grow enough trees to cut some for what they needed and-
Kenya's doing very well in this field.
Finally, there's interest in to what extent the IMF will support grants rather than loans for climate change adaptation. You opened the door to that approach in Nairobi, saying that much of this financing should come from grants or highly concessional loans. Ultimately these will have to come as budgetary transfers from developed countries. Will this idea get backing from the big donors?
Well, first the idea that more, a bigger part, has to come from grants is absolutely obvious. When you have to deal with adaptation you don't expect any kind of return. If you change your economy into a green economy, you expect that the investment you make will produce some return in the coming years and then you may build it starting from a loan - [it] has to be a very concessional loan but a loan nevertheless.
When you have to deal with things which have been destroyed and you need to rebuild without any kind of return which can be expected, only the fact that you will limit the consequences of climate change, then you need to do it through grants. There's no other way to get these grants at the end of the day and whatever the financial process you build, there's no other way but to transfer from advanced countries. Are they prepared to do that? So they say, now they will have to prove it.
Editors' note: This transcript differs slightly from the audio recording of the interview published on this site, which is slightly shorter.
See our full coverage of the IMF MD's trip: Transforming Africa - Surviving Shocks & Fostering Stability
