Volume 3 Number 2 February 1982 U.S.$1.S0

February, 1982 MuhinatioAal Monitor Page II

Jerry Rawlings' second coup in Ghana-aresponse to "exploitation ... greed and

corruption," and the IMF

by Kassahun Checole

On December 31 in Ghana's capi-tal city of Accra, Jerry Rawl-ings staged his second success-

ful coup in two years, toppling thecivilian government of presidentHilla Limann.

Government corruption,economic mismanagement andwidespread smuggling ofagricultural crops and preciousminerals partly explain Limann'sdemise. When Rawlings spoke tothe nation on January 2, he pointeda finger at the "corruption andgreed" rampant throughout theLimann administration. And hederided the economic policy of theprevious government, claiming thatthe country's lack of foreign ex-change and high price of goodsrepresented "a clear denial of ourfundamental rights as a people toenjoy the wealth of our labor." Themass support accorded to Rawlingssince taking power suggests that hehas hit upon popular discontents.

But passing references to graftand economic troubles do not tellthe whole story of Limann's over-throw. The International MonetaryFund (lMF), unmentioned in theshallow mainstream press reports ofthe coup, was a prominent behind-the-scenes actor in the affair. -

The IMF played "a significantrole" in destabilizing the Limanngovernment, says one Ghanaian em-bassy official in Washington. In sodoing, the IMF has, ironically,helped to bring to power a leaderunsympathetic to Fund policies andthe Western corporations which

Kassahun Checole is the director ofthe Africa Research and PublicationProject, based in Trenton, NewJersey, which aims to informAfricans in the United States, as wellas U.S. citizens, of events on theAfrican continent.

they support.Limann's troubles with the IMF

began shortly after Rawlings hand-ed power to him in September 1979,in the aftermath of the 34 year-oldformer air force officer's first coup.The Ghanaian economy, hard hit bydropping prices of cocoa-the coun-try's chief export earner-and fac-ing steep oil import bills, was runn-ing low on foreign exchange. So inearly 1980, the Limann governmentbegan to negotiate with the IMF for$1.4 billion in loans over a threeyear period.

As is its custom, the IMF did notsummarily reject the request forloans; instead, it laid out strict re-quirements the government wouldhave to fulfill in order to receive themoney. Limann must increase theofficial producers' price for cocoa,lift government subsidies on fuel im-ports, reduce government expen-ditures and devalue the cedi,Ghana's currency, the IMF said.

These economic demands by theIMF tied the Limann government topolitically treacherous options.

Acceding to the Fund would havebeen destructive for Limann, sincethe IMF prescriptions would resultin increased food and fuel bills, aswell as higher unemployment.Limann could predict that such apolicy would provoke strongpopular opposition. "The Limanngovernment saw that if there was adevaluation, there would follow acoup," explains the embassy officialwho asked to be unidentified.

Rejecting the IMF's conditionswould have been risky as well, sinceit would likely prompt a total cut-off of Western aid. If he chose thisoption, Limann would have had tofind other sources of foreign ex-change in a hurry for his rapidlydeteriorating economy. Withoutother sources of assistance-whichwould be difficult to o b-tain-Limann would have faced a

severe economic crisis."Either way, the situation was

dangerous," says the Ghanaian of-ficial.

Caught between these two slip-pery paths, Limann opted for acompromise which he hoped wouldplacate the IMF. He increased theofficial price of cocoa, removedsubsidies on consumer goods, in-stituted cuts in social services andreduced tariffs. In addition, he pro-mulgated a new foreign investmentcode in July, 1981, "which wasvery, very liberal," according to theembassy source. "Some people call-ed it a sell out." (The code grantedtax exemptions, immediate repatria-tion of profits and investmentguarantees to foreign companies; italso dropped Ghanaian equity re-quirements for mineral projects,which mandated a 45070 state share.)

Even with these concessions, theIMF would not relent. It "insistedon devaluation," the Ghanaiandiplomat notes, and this Limanncould not agree to. The governmenthad already "taken measures thatamounted to a devaluation," suchas lowering tariffs, the official ex-plains, and Limann was unwilling torisk the additional political heat thata formal devaluation would bring.

As a result, the IMF did not comethrough with the loans. "The lack ofassistance hurt enormously," says theembassy official. It not only deprivedthe economy of needed foreign ex-change, but it also led to a long anddrawn out process of continuednegotiations with the Fund, whichonly added to Limann's reputationfor poor leadership.

Unwilling either to flout the IMFor to accept its conditions, andunable to govern effectively whilepursuing a middle path, Limann wasreplaced.

For their part, IMF officials weredissatisfied with Limann. His"government wasn't very sym-

Page 12 Multinational Monitor hbruar~. 19M2

Flight Lieutenant Jerry J. Rawlings, who seized power in Ghana in January, citing his disgust at the performance of the administra-tion of Hilla Limann - whom Rawlings had installed as president just over two years earlier

pathetic, when it comes down to it,"says one IMF official knowledgeableon the subject.

The IMF may not have reckoned,however, that Limann' s successorwould be even less sympathetic.

"I ask for nothing less than arevolution-something that willtransform the social and economicorder of this country." So spokeJerry Rawlings on the morning ofDecember 31, just hours after seizingpower.

In speeches over the following

vestment agreements and ensure alsothat in the future, investment is close-ly regulated by Ghana's needs-whether technology, capital orhuman expertise-with the view tomaintaining national sovereignty andthe interests of Ghana."

Limann's economic policy failed,Rawlings said, because it did notboost local, indu s t r ial andagricultural production. "It is clearthat the failure to encourage our ownproduction in both industry andagriculture is a cause of the immense

week, Rawlings made clear that thetype of "revolution" he was planningmay not please the IMF and Westernforeign investors.

Rawlings rejected Limann's "claimthat we need to attract foreign invest-ment to ensure development."Labelling "certain previous invest-ment agreements" as "examples ofexploitation," Rawlings promised totake measures "to ensure that this ex-ploitation should cease."

The new government, Rawlingssaid, "will examine past foreign in-

l-cbruary. I'IK2 Multinational Monitor Page lJ

strains on our foreign exchangereserves," he said in his January 5 ad-dress. "With the absence of adequateproduction, we are thrown into theclaws of powerful multinational in-dustrial and trading firms."

Rawlings has high hopes for localindustry. "Instead of putting ourfaith in foreign investors, we mustrather encourage our own in-dustrialists who are capable ofbuilding us a strong industrial base."

In promoting domestic agriculturalproduction, Rawlings intends to relyless on foreign aid. During Limann'srule, "government members werecrisscrossing the world, begging forforeign aid," Rawlings said, "andyet, within the country, foreign ex-change earners like cocoa and coffeehave remained [unexported] since1979." To remedy this problem,Rawlings announced that the newgovernment would immediately "seeto the evacuation of all the stocks ofcocoa, coffee and foodstuffs in therural areas."

This inward-looking economicpolicy is not the kind that is welcom-ed by the International MonetaryFund and Western business. Fromtheir perspective, the IMF may havemade a mistake by pushing Limanntoo hard to open up the economy tothe West. "The IMF must see now,"says the Ghanaian diplomat, "thattheir policies backfired completely."

Whether Rawlings can succeedwhere Limann refused to go-that is,by repudiating the IMF-remains tobe seen. Nationalistic economicpolicies are always risky when a coun-try is in a foreign exchange crisis,since they alienate Western sources offinancing. "You're essentially goingto pull your economy apart," if youdon't find "alternative sources of-funding," says Lindsay Mattison,director of the independent Centerfor Development Policy inWashington.

"Where can Rawlings turn?" Mat-tison asks, suggesting onlyLibya-which re-opened its embassyin Ghana in early January-or Franceas possible sources of funds. TheGhanaian embassy official says Rawl-ings "will look anywhere help is for-thcoming, except to the IMF," men-tioning Arab nations as possibilities.

Still, Rawlings' emphasis on self-sufficiency may get him part way outof the bind. "If he tightened up onsmuggling of cocoa," as he has pro-

Ghana at a glancePopulation: 12million Balance of payments: RoughlyevenLand area: 92,100 square miles, for 1980;1981figures not yet

about the size of Illinois and available, but a deficit is like·Indiana combined Iy because of a decline in the

Gross domestic product (1979): export cocoa crop.$10.2 billion at official ex- Principal exports: Cocoa (provideschange rates of 2.75cedis = 70% of the foreign exchange$1. $700mn at black market earnings even thoughexchange rates of 40 cedis roughly 20% of crop Is smug-= $1. gled into the Ivory Coast, ac-

cording to The Wall StreetGDPper capita: $896at official ex- Journal); aluminum; gold;

change rates; $62 at black timber; diamonds;market exchange rates(World Bank estimate: $400). prinCiP~ani~;:~::or;~troleum (ac

Literacy: 30% of adult population counts for 40% of imports(much higher for population according to The Wall Streetunder 15). Journal); food, industrial raw

Life expectancy: 48 years. materials; machinery andRate of inflation (1980):120% from spare parts; transportation

May, 1980to May, 1981. equipment.

(Ail information from U.S.State andCommerce Department sources ex-cept where indicated.)

mised to do, Mattison explains,"then he's got a source of foreign ex-change-unless Hershey and themboycott." 0

Kaiser won't exactly say how muchthose profits were.

VALCO's profitability dependson the cheap hydropower it has ac-cess to as part of its original agree-ment with the Ghana government.In 1979, while Ghana spent about$240 million, - or 25070 of thecountry's total export earnings forthe year - to import one millionmetric tons of crude oil, VALCOpaid Ghana about $15 million forusing nearly 70% of the total elec-tric power generated in Ghana fromthe Volta dam. The $15 million pay-ment also covered taxes and rent(see Multinational Monitor,February 1980).

Kaiser's corporate relationsmanager, Robert Irelan, said thatthe coup had affected VALCO's24-hour-a-day operations somewhatbecause workers could not get totheir jobs during the dawn-to-duskcurfew in effect for a few days afterthe coup. But Irelan said thatKaiser's investment plans would notbe affected by the political situationof the country.

Ghana produces bauxite, but theentire production is exported in itsraw form because there is norefinery to produce alumina (themid-product between bauxite andaluminum) in the country. Alumina

Corporationsin Ghana

Ghana is no stranger to V.S.traders and investors. Its bauxite,gold, oil, gas and hydroelectricpower lured $17.2 million in V.S.investments by 1978, the last yearfor which figures are available.

By far the largest V.S. investmentin Ghana is tied up in one project-the Volta Aluminum Company(VALCO) hydro-power dam andsmelter, owned 90% by KaiserAluminum and 10% by ReynoldsMetals.

About $400 million in V.S.government funds went into thebuilding of the Volta dam, smelter,and electric transmission lines,through the V.S. Agency for Inter-national Development and Export-Import Bank. Kaiser put $12 millioninto the project and ended up with a$200 million smelter which maderecord profits last year, according tothe V.S. government - though

I -!Wi f II

Page 14 Multinational Monitor February, 19H2

for the VALCO smelter is importedfrom Kaiser refineries around theworld.

Former Ghanaian president HillaLimann in March of last year signedan agreement with a consortiummade up of the Houston-basedengineering firm Brown & Root (asubsidiary of Halliburton Interna-tional), the Swedish Granges Inter-national Mining Co. and a BankersTrust subsidiary, to conduct afeasibility study for expansion ofbauxite production and construc-tion of an alumina refinery in thecountry. This would enable the fullcycle of aluminum production totake place within Ghana. TheBrown & Root group reportedly waspaid four million cedis ($1.45million at official exchange rates) tocarry out the feasibility study, withthe agreement that they would in-vest one-quarter of this amount inthe project itself if it were foundfeasible. As of January, Brown &Root's preliminary report was notyet completed, and a companyspokesperson would not speculateabout the effect of the Rawlingscoup on the company's plans.

Several international oil com-panies, including PhillipsPetroleum, Getty, Mobil, the Italiancompany Agip, Amoco, and theTulsa-based Agr i-petco , haveagreements with the Ghana govern-ment to explore for and produce oilfrom the high-grade deposits offGhana's western coast. Other firmswhich have expressed interest in-clude Compagnie Francaise desPetroles (CFP-Total), VoyagerPetroleum and Hudbay Oil Interna-tional of Canada, and HydrocarbonCorp. and R.J. Walker of theUnited States. _

Phillips reported in 1980 that ithad discovered a 55 billion cubicfoot natural gas deposit offshorenear the border with the IvoryCoast, which the Ghana govern-ment called one of the biggest inAfrica. But a spokesperson forPhillips would not comment onwhether the company has plans tobegin production or continuetesting, saying it "wouldn't be ap-propriate. "

Expanding Ghana's gold produc-tion was one of the priorities of theLimann administration. Ghana'sore reserves are, on average, twiceas rich per ton as South Africa's.But production of the government-

owned mines has dropped by two-thirds since 1960 and a significantportion of production is smuggledout of the country - some of it byhelicopter, straight from the mines.

may have no fondness for Rawlings,especially his tendency toward secrettrials and executions, there's a feel-ing that anything that might inducea clearcut consensus to be formedhas got to be good for the countryand the economy." But Ullman ad-ded, "I wouldn't expect anydramatic changes in the next year ortwo in terms of the economy .. .1don't think the alternatives open toRawlings are dramaticallydifferent" from those available tohis successors as Ghana's head ofstate.

Cocoa and food processing firmswhich purchase from Ghana - Her-shey, Mars, W.R. Grace, Nestle,and the cocoa brokerage firms Gill& Duffus, ACLI International, andGeneral Cocoa - were generallyreluctant to comment on howGhana's change in governmentmight affect their operations. ButALCl's spokesperson Craig Sloanenoted Rawlings' stated priority onrepairing roads in order to get nextyear's cocoa crop to port. "Rawl-ings has at least a decent chance ofturning the situation around," hesaid. "If he is able to control thecountry, he may be able to wield alot of power."

Talks with several internationalmining companies following aspecial conference on the country'sgold resources, organized by theGhana government in March, '1981,broke down late last year. "Thegold prospects looked attractiveenough, but given the state of theeconomy, the chances of obtainingbank financing were negligible," ex-plained William Ullman, vice presi-dent of Leon Tempelsman Inc.,which had explored the possibilityof gold-mining investments and alsobuys industrial diamonds in Ghana."The infrastructural decay in portsand roads, and the problemsbrought on by the enormous dif-ferential in the black market and of-ficial prices for the cedi, make italmost impossible for anyone whowants to do business legally," hesaid.

Asked how the Rawlings govern-ment may affect the attitude offoreign business toward Ghana,Ullman replied, "Even though some

A brief history of IMF meddlingin Ghana

by Atia Oogo

1957-1965Cocoa prices of about44 cents a pound in1957 decline to about17 cents a pound by1965. Balance ofpayments problemsensue, as Ghana's ex-ternal debts rise tofinance developmentprojects.

1965 Ghana approachesthe U.S. for loans; theU.S. refuses.Ghana contacts theIMF, which suggestscuts in governmentspending on social

Atia Dogo is a member of theAfrica Research and PublicationProject.

services, the military,and state enterprises,as well as a cut incocoa producingprices (from $8.16 to$5.60 per 60 poundload). IMF policiesanger the military,right wing absenteefarmers and tradition-al rulers.

1966 Military coup onFebruary 24, 1966.Kwame Nkrumah,Ghana's first presi-dent, was blamed forendeavoring todestroy the militarythrough budget cutsin defense spending.Nkrumah's suc-cessors, however,maintain IM.Fpolicies

February. 19H2 Multinational Monitor

of .ttberatlzlnq trade,granting incentives toforeign investment,.cutting governmentspending and remov-ing price controls. Thetwo-year "stabiliza-tion" program fails,as massive unemploy-ment occurs in theagricultural sector.

Oivillan governmentof Kofi A. Busia con-tinues IMF-style pro-grams. Decliningpri ces of cocoadeepen Gha nasbalance of paymentscrisis and budgetdeficits.Negotiations toreschedule debts tothe West are stalled,and an economic andpolitical crisis ensuesin 1971 as Ghana isseen playing the beg-gar nation role.

In December, Busiadevalues the curran-cy.

January coup againstBusia and his IMFpolicies. I.K. Acheam-pong and the militaryseize power and pro-mise an economic na-tionalist policy, in-cluding the repudia-tion of Western debts.

OPEC oil price hikesand the falling cocoaprices bring about thefailure of Achearn-pong's economic pro-gram. Acheampong isforced to go back tothe IMF/World Bank.

With the economystill in trouble,Acheampong isreplaced by F.W.K.Akuffo, who installs astau nch pro-I MFeconomic program.Akuffo devalues thecurrency and reducesthe money supply,along with liberalizing

• Page 15

Ghana was the world's secondlargest cocoa bean exporter for thecrop year ending in September,1980, with total exports of 195, 816metric tons (compared with 234,493metric tons for the Ivory Coast). OfGhana's cocoa bean exports, whichprovided about 70% of the nation's

1969

1971

1972

1974

1978

Cocoa, Ghana's main foreign exchange earner, being loaded for shipment at Tema Harbor

Cocoa producer for the worldforeign exchange, 280/0went to theSoviet Union, 19% to theNetherlands, 14% to the UnitedKingdom, 11% to West Germany,8070 to Japan, and 4% to the UnitedStates.

(U.S. Dept. of Agriculture Statistics)

trade and incentivesfor investment andeliminating govern-ment subsidies onconsumer goods andlocal industry.

devalue the currency,in spite of IMFpressure to do so. TheIMF denies Ghanaloans needed to earnforeign exchange 'forthe economy.

1979-1981 After Jerry Rawlingsseizes power in June,1979 for two months,he hands the govern'-ment over to HillaLimann. As theeconomy deteri-orates, Limann imple-ments most of an IMFprogram: removingsubsidies, increasingcocoa producerprices, cutting socialservices, liberalizingtrade and instituting anew "sell-out" invest-ment code.Limann refuses to

1981-1982 Rawlings comes backto power in a coup onDecember 31, 1981,promising to eschewforeign aid and invest-ment for a more self-reliant economicstrategy.

For more information aboutthe general role of the Interna-tional Monetary Fund and itsspecific actions in Ghana, seeCheryl Payer's, The Debt Trap:The International MonetaryFund and the Third World, (Mon-thly Review).