Policies of Bretton Woods institutions including the World Bank and the International Monetary Fund (IMF) are said to have cost the nation severely, a study from the Institute of Economic Affairs (IEA) has revealed.
Ghana and most African countries have depended on these institutions for financial assistance for several years. Even though in 2007, the New Patriotic Part (NPP) government weaned the country from the IMF, the current administration secured loans from the Fund due to fiscal instability caused by high budget deficit and global financial crisis that hit the country.
Policy advice to African countries such as Ghana includes promotion of specialization in production and trade, elimination of state subsidies, particularly to industry and agriculture, external trade liberalization, macro-economic retrenchment among others.
However, the research underscored that there were costs to these �market� policies despite their claim to efficiency, since markets do not always work perfectly and may not always deliver maximum economic and social welfare.
Delivering the paper on �Mitigating the Costs of �Washington Consensus� Policies: Titbits for Ghana and Other African Countries� attended by policy-makers, Parliamentarians, among others, Dr. John Kwabena Kwakye, a Senior Fellow of the institute therefore called for necessary interventions to correct the associated market failings and mitigate the socio-economic costs involved.
�Washington Consensus policies also profess the superiority of private enterprise, considering the private sector is more efficient compared to �statism� that leads to low productivity, low efficiency and corruption, reflecting the notion that �government�s business is nobody�s business.�
The theory of comparative advantage, the study revealed, encourages countries to specialize in the production of products which they produce �more efficiently� than others.
Ghana and other African countries have therefore continued to produce traditional primary products such as cocoa, gold, and timber.
Dr. Kwakye said, �The push for African countries to continue to pay attention to their traditional primary products in which they are professed to have �comparative advantage,� has left the continent as the �hewer of wood and drawer of water� in the international production and trading system and stifled its development.�
He therefore urged African countries to break out of this liberal-orchestrated charade and rather follow the example of the South East Asian countries to diversify their economies and promote industrialization if they are to develop and break out of poverty. �Our recommendation is that there should not be out-right liberalization. If there is the need to raise tariffs to protect local industry, we should do so.�
Other recommendations included regulation of the financial sector to reduce high interest rates, macro-economic restructuring, selective privatization, among others.
�State subsidies often entail fiscal costs and may create moral hazard. Here too, a system of selective, targeted, rather than universal, subsidies is the best approach,� Dr. Kwakye noted.
On trade liberalization, he urged Ghana and African countries to use both tariff and non-tariff instruments to �shield� their industries from undue competition from imports and allow them to flourish.
On high interest rates, the economist urged the Bank of Ghana to regulate lending-deposit rate spreads to reduce cost of borrowing and attract people to transact business with the financial intermediaries.
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