Andrew Maykuth Online
The Philadelphia Inquirer
June 26, 2005

Ghana addresses poverty in a bid for debt relief

Frazier Essuman, stands outside the nearly finished public restroom built with money Ghana saved from debt relief.

ACCRA, Ghana _ There are few public conveniences in Abofu, an impoverished neighborhood in this West African capital. So when the government recently built a 20-seat restroom on a squalid lot filled with trash, most residents welcomed the project.

"A few people have toilets in their houses, but most of us have to walk a quarter-mile to the nearest restrooms," said Victoria Agbo, who operates a four-seat tavern in a wooden shed near the new washroom.

The washroom is one small element of a grand poverty-relief project. Across this former British colony, the Ghanaian government is busy building schools, roads and other public projects - all financed with savings from debt relief. Last year, Ghana completed a reform process in which industrial nations agreed to cancel about $2 billion in debt, provided that Ghana invested its savings into poverty-alleviation programs.

Now Ghana expects a new windfall. As the world's big industrial powers meet next month at the Group of Eight summit in Gleneagles, Scotland, Africa's intractable poverty will be at the top of the agenda. The G-8 nations have agreed to forgive about $40 billion in debt from international lenders such as the World Bank. Ghana, among the 18 countries in line for relief, would get most of its remaining debt wiped out.

Organizers of the Live 8 concerts next Saturday in Philadelphia and Europe are attempting to build public pressure on the G-8 leaders to boost aid to Africa. While the U.S. government has signed on to the debt-forgiveness plan, it has resisted signing on to an ambitious British proposal to double about $50 billion in annual aid that rich nations give to poor countries.

Still, debt relief alone would make a difference.

"If there is cancellation, there will be an immediate cash benefit to this economy of $100 million a year," said Mahamudu Bawumia, special assistant to the governor of the Bank of Ghana. "That is quite huge. You're making these savings yearly. There is going to be more poverty relief."

Ghana is frequently cited as a model nation that has implemented democratic reforms and worked hard to get its fiscal house in order.

"In some parts of the West, there is still an amount of skepticism about aid to Africa," said Gordon Wetherell, the British ambassador to Ghana. "But things have really changed, and Ghana demonstrates it is possible in Africa."

But the depth of Africa's problems, the slow pace of reforms, and the limitations of debt relief are apparent in Ghana's seaside capital, where about 1.7 million of Ghana's 21 million people live.

They're especially visible in Abofu, where the public restroom was finished six months ago. But it is still unusable because the contractor neglected to connect the water supply.

"We're waiting for the plumbing to be completed," said Frazier Essuman, who worked as a painter on the project and now lives in the restroom as its watchman. He is using the stalls to hang his laundry.

Just a few feet from the restroom, Comfort Embra lives in a 10-by-10 wooden shack that is furnished with three pieces of frayed furniture. She is the mother of six children. Her husband is unemployed. She supports her family by selling plastic sachets of pure drinking water at 3 cents a bag.

"A toilet is fine, but you see the place where I live," said Embra, as a radio from the adjoining shack blared through their shared plywood wall. "What I need is a house and a job."

Ghanaian officials say that since President John Kufuor was elected in 2000 - a rare African example where an opposition party took power peacefully - Ghana has quickly instituted management reforms to liberalize the economy. They say it is only a question of time before growth speeds up.

"The economy was really in bad shape when government came in," said Anthony Akoto, deputy minister of finance and economic planning.

Parliament has approved new laws to govern public procurement and audits. A profligate borrower on domestic markets, government can now borrow no more than 10 percent of its revenue. And, in a move that has sparked some public outcry, Kufuor has ended subsidies for gasoline, which cost $200 million a year, or more than 5 percent of its budget.

By far Kufuor's biggest challenge was to address the external debt, which stood at $6 billion in 2000.

Some of the debt carried over from Ghana's early decades after independence in 1957, when the country went through experiments with socialist and military governments, most of them characterized by fiscal mismanagement that eventually led to political crises and coups.

But Ghana, like most African countries, accumulated the bulk of its debt in the last two decades. In Ghana, Lt. Jerry Rawlings took over in 1981 after a coup and began a so-called structural adjustment program monitored by international lenders. He privatized the country's gold mines and allowed its currency to float on the open market.

It was also under Rawlings that Ghana made its transition from a military regime to a constitutional democracy; Rawlings twice won multiparty elections in the 1990s before his party lost power in 2000.

Though the debt had a stranglehold on Ghana's economy, Rawlings declined to apply for relief from international lenders under the Highly Indebted Poor Countries initiative. The HIPC process requires indebted countries to implement market-based reforms while channeling their savings from debt relief into programs that benefit the poor - schools, clinics, rural roads and water projects. Some big debtors like Nigeria, Kenya and Indonesia have refused to accept the terms.

But Kufuor, an avowed free-market enthusiast, agreed to the debt-relief bargain - making Ghana one of 36 countries to have accepted the HIPC terms.

Political opponents in Ghana decried the "humiliation" of being classified as a poor country and having to suffer the intrusion of international lenders. The government has tried to draw public attention to the benefits Ghana is receiving from debt relief. High-profile infrastructure projects, such as the bathroom in Abofu, carry large signs labeling them a "HIPC Benefit."

"We're building a lot of schools, health clinics and roads," said Akoto, of the finance ministry. "It's easier to see those, so that people can understand."

Some local observers are wary about how the government is spending its debt-relief dividend, saying that most of the money is being spent on construction whose maintenance is too easy to neglect. In other countries, like Tanzania, critics complained that the debt relief allowed governments to revert to old form and spend the money on extravagances, such as a private jet for the president.

"I'm just afraid what the government will do with the money," said Baba Tuahiru, Ghana's national advocacy officer for the aid agency Oxfam. "Will it be spent appropriately?"

Meanwhile, the term "HIPC" (HIP-ick) has entered the Ghanaian vocabulary as an expression for anything of poor quality. Advertisers even proclaim their products are better than a "HIPC standard."

Despite the political risks - Kufuor's government was reelected last year with a bare majority - the new policies have effectively brought inflation, interest rates and exchange rates under control.

Ghana's reforms have generally received good reviews, though international monitors are concerned Kufuor's government is beginning to lose momentum when it should be picking up the pace.

"The way public monies are being used is improving," Mats Karlsson of the World Bank said about the country's direction. "There is some misuse of money. But the biggest problem so far is that the money is not being used strategically or efficiently enough."

But the economy, while growing at a robust rate of more than 5 percent, is still not generating sustained growth rates exceeding the 7 percent per year that economists say Ghana will need to ascend to "middle-income" status in 10 years. Per capita earnings are still below $400 a year. Job growth is mediocre.

The U.S. government has encouraged Kufuor to speed up the transformation to take advantage of the debt relief and the country's flush economic times - prices of Ghana's two biggest exports, cocoa and gold, are relatively high right now.

The World Bank's Karlsson dismissed calls for debt relief to be extended to all countries rather than those that have elected to accept the HIPC process.

"When some people say, 'Just forget the debts,' I say, 'Look at the exact consequences of what you're saying, because money is in limited supply, and if you're asking me, I want to put the money in countries that are using it well,' " he said. home page   
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