Africa needs a fairer financial deal and more involvement in international economic decision-making, said Minister of Finance Trevor Manuel on Friday.
”Insufficient and badly directed development finance, poor advice on policy, difficult questions of trade protection, and inadequate international financial systems all point to the inadequacy of the current decision-making structures for international economic affairs,” said Manuel in a speech released by his office, for delivery at the Ditchley Foundation at Ditchley Park in England on Friday.
”Reform is necessary, and in my view, if developing countries had a greater say in the running of these institutions, there would be a greater sense of ownership and legitimacy.”
Manuel was talking on ”Balancing society and market: public policy and growth for Africa”, focusing on the current architecture of the state and market in Africa, international finance and the international financial system. At the conference were ambassadors and high commissioners, current and former UK ministers, members of Parliament, academics and business, said his office.
Manuel said that Africa still had huge problems.
”Poor infrastructure remains a severe impediment to more rapid growth and poverty reduction.”
He said infrastructure needs were becoming more pressing as China, the United States and other major economies focused ever more on Africa as a source of raw materials.
”African countries need market development, efficient and fair public institutions and leadership, and major communications and transport infrastructure that reflects African economies, not just the needs of the world’s greatest commodity importers.”
Manuel said institutions like the International Monetary Fund (IMF) and the World Bank couldn’t prevent financial crises or even materially help governments minimise the damage to their economies.
He said the developing countries should get a fairer deal from these institutions.
”The IMF and the World Bank should, at the very least, be at the forefront of efforts to help emerging market economies and developing countries to overcome the constraints they face in accessing international capital or in responding to large and rapid inflows and outflows of capital.
”Few developing countries can borrow in their own currencies. Borrowing costs can fluctuate greatly, especially for those countries borrowing in dollars. In the event of a currency crisis, interest payments in foreign currency rise, causing deeper recessions.”
He said depreciation of local currency thus increased the debt burden and the cost of servicing it. This was made worse by the high premiums developing countries were forced to pay for borrowing.
”The dependence created by the inability of developing countries to raise foreign debt in their own currency could be broken in various ways.
”Some analysts have suggested that the International Development Association lend to developing countries using an inflation-indexed domestic currency unit of account. This could be created from a basket of developing country currencies in order to spread risk, and would require only a very marginal increase in yields to compensate for the additional risk.
”In times of economic stress, debt burdens would not rise, GDP would be less volatile, and overall welfare significantly improved.”
Manuel said African countries were particularly vulnerable: 44 had suffered national disasters over the past 10 years; 28 were vulnerable to aid shocks due to high aid dependency; and 24 were vulnerable to export shocks as they were dependent primarily on a single product for more than half their export revenue.
Making their own institutions effective was a ”clear and critical need” for most African countries.
”For African states to balance the distribution of economic burdens and opportunities requires creativity and active, capable state institutions — governance reforms and technical capacity building should go hand-in-hand. They need to be inventive and devise new policies and new ways of resolving the problems caused by globalisation.”
Developing countries weren’t getting a fair aid deal.
”At the Gleneagles Summit — which occurred precisely a year ago — the G8 committed to increasing their aid to Africa by $25-billion per annum by 2010.”
He said G8 aid to developing countries increased by $21-billion in 2005. ”However, $17-billion of this went towards writing off debts in Nigeria and Iraq.”
He said it had been estimated that, to make progress towards the 2010 goal, ”G8 donors will have to increase their development assistance to Africa by $4-billion each year for the next five years.” – Sapa