Fiscal austerity has failed; It’s time for change

Jan - 10 - 2015 , 03:20

The National Democratic Congress(NDC) and New Patriotic Party(NPP) have cumulatively governed our nation for 32 years. They have, during these years, pursued consistently, the International Monetary Fund(IMF) development policy dictate of inflation targeting under a structural adjustment programme of stabilisation, privatisation and liberalisation.

The hardships, misery and loss of development opportunities as the result of an implementation of the policy measures of structural adjustment and inflation targeting have been incalculable.

Fiscal austerity

The deception by the political parties of structural adjustment is that they canvass the policy as being in the national interest and that we all stand to gain from the policy of inflation targeting by the measures of fiscal austerity.

The truth, however, is that any choice of economic development policy has its gainers and losers or that the policies affect us differently. Inflation, for example, affects borrowers and lenders differently. Lenders lose in times of high inflation and gain in low inflation times. The reverse is true for borrowers.

Again, every economic development policy choice has a trade-off. This is noted by Dr Nii Kwaku Sowah, a former Deputy Minister of Finance and Economic Planning and of the Centre for Policy Analysis (CEPA), who advised the NPP government to not stifle growth in the fight against inflation.

Growth

The former Managing Director of the IMF, Dr Dominque Strauss Khan, suggested that the policy interventions of the IMF in slumped economies should focus on growth rather than austerity measures to sustain demand and avert a global contagion. (He was subsequently shoved off in scandalous circumstances by those in the United States(US) financial sector who gain from austerity measures and largely decide who becomes the Managing Director(MD) of the (IMF).

The trade-off in fiscal austerity and the fight against inflation is the retention of the capacity of government for an intervention in the economy to promote strategic investments for a reform of the colonial economy, create jobs and sustain demand for economic growth.

Social protection

The other trade-off is the maintenance of subsidies and social support programmes for workers, the poor and vulnerable groups. Employment creation, social protection, sustainable growth and reform of the colonial economy are the major trade-offs in the policy of fiscal austerity in the fight against inflation.

The development relevance of either pro-growth or anti-inflation policy is a determination of what people cannot afford to live without in relative comparison to what we can afford to live with. It is obvious that while we can afford to live with rising prices, we cannot afford to live without incomes. The import is that employment creation and not inflation targeting by fiscal austerity is the primary objective and responsibility in economic growth and development management. Our people, in recognition of this preference, say in Twi that "ényé koraa énte sé pay day." Literally meaning, (If One’s financial situation is bad at all, it will get better on pay day).

Alternate develpment

The position of the Convention People’s Party(CPP), therefore, in an alternate development policy presentation, is that an inflation-targeting policy does not necessarily serve the purpose of national economic growth and development or that it is not a development imperative but like the exchange rate, an economic development management tool to be used in accordance with development objective.

The laissez- faire and structural adjustment parties of the NDC and NPP have adopted within the policy framework of a free market economy, the IMF policy prescription of tight monetary policy and fiscal austerity in the fight against inflation for economic stability. They receive in exchange for the adoption and pursuit of these policies paltry gifts and misdirected development assistance that diverts from the fundamental objective of job creation and economic reconstruction. An implementation of these external policy dictates in accordance with the principles of a free market economy has, however, been selective for obvious reasons.

Adjustment

The structural adjustment governments do not in compliance with free market intervene in the productive sector to promote strategic investments for necessary economic reforms. They also do not intervene in the liberalised trade sector to protect our infant industries from external competition for the development of their competitive capability and capacity.

The parties of structural adjustment, however, use balance of payment support loans to intervene in the liberalised financial market to practically insure the "hot money" investment of western investment bankers against exchange risk. This cover for their investments is provided in spite of the high interest rate they earn on the purchase of our national treasury bills and other debt instruments.

Investment bankers

As the single largest buyers of our national debt instruments, the western investment bankers and their representative body, the IMF, have a financial interest in the policy of an intervention in the financial market, inflation targeting and a tight monetary policy. The tight monetary and fiscal policy they prescribe supports the high interest rates they earn in the name of fighting inflation. In fact a greater percentage of IMF loans, if not all, are given as balance of payments support while their affiliate, the World Bank, gives infrastructure loans.

Double usury

A western investment banker who enters the 90-day treasury bill market with a million US dollars, for example, at the exchange rate of Gh¢ 3.40 to US$ 1.00 and exits at Gh¢ 3.10 to US$ 1.00 as a result of an intervention in the forex market makes an extra Gh¢ 0.30 on every dollar. This will be in addition to the high interest rate he will hardly get anywhere but our country. This is not creative capitalism but usury and a virtual legitimisation of capital flight.

The intervention policy in our financial market is anti-growth, because it salts away scarce development funds. It is also contradictory and discriminatory. The transaction is a double jeopardy and a clear case of "kwaseabuo (swindling) par excellence".

The policy justification is, perhaps, the deceptive and false reliance on the exchange rate and not unemployment levels as the indicator of government economic performance that illustrates another evasion of government's employment creation responsibility.

Prosperity

After all said and done, inflation remains a recurrent fixture in our economy. The sacrifices of our people as objects of the austerity measures in the fight against inflation have been in vain.

It was not intended for our prosperity but for an expropriation of our financial resources with our governments as willing accomplices.

After 32 years of an implementation of fiscal austerity for economic stability, we remain an import-dependent mono-cultural raw material-exporting economy dominated by peasant production. It is this structure of our economy that delivers the trade deficits that cause the inflation we fight by fiscal austerity at the expense of economic reconstruction.

Beneficiaries

Our people are without doubt the losers with empty bowls after the experience of austerity measures in the fight against inflation for economic stability. The greatest beneficiaries are the western investment bankers with pot lodes of cash and gold sucked from our heavy lading of debts.

Our people should suffer no more under the governments of structural adjustment parties who sap our energies for development.

The electoral choice of the nation within the context of development policy options is between the CPP, the party of economic reconstruction and job creation and the structural adjustment parties of fiscal austerity and unemployment.

Our electoral responsibility is to vote to move our nation towards the necessary economic reforms for the prosperity of our nation.