The Economic Recovery Program

In 1983 the government launched the Economic Recovery Program (ERP) under the guidance of the World Bank and the IMF. The overriding purpose of the ERP was to reduce Ghana's debts and to improve its trading position in the global economy. The stated objectives of the program focused on restoring economic productivity at minimum cost to the government and included the following policies: lowering inflation through stringent fiscal, monetary, and trade policies; increasing the flow of foreign exchange into Ghana and directing it to priority sectors; restructuring the country's economic institutions; restoring production incentives; rehabilitating infrastructure to enhance conditions for the production and export of goods; and, finally, increasing the availability of essential consumer goods. In short, the government hoped to create an economic climate conducive to the generation of capital. The ERP was carried out in roughly three phases. Beginning in 1983, the government focused on reducing its expenditures while creating incentives for private production. Initial expenditure cuts and improved tax collection brought the budget deficit down from 6.3 percent of GDP in 1982 to 0.1 percent by 1986, relieving government pressure on the banking system, while a series of cedi devaluations boosted export activity. During the second phase, which lasted from 1987 to 1989, the government moved to divest itself of many assets through privatization and to institute radical foreign exchange reforms to devalue the cedi further. Although privatization was sluggish, the hard-currency black market was nearly eliminated with the introduction of foreign exchange bureaus in 1988. In the ERP's third phase, the government intensified monetary reforms and reduced private corporate taxes to boost private-sector growth. By the end of 1991, ERP efforts had improved the country's international financial reputation because of its ability to make loan repayments (although not wipe out foreign debt) and its first entry onto the international capital market in almost two decades. Critics maintained, however, that the ERP had failed to bring about a fundamental transformation of the economy, which still relied on income earned from cocoa and other agricultural commodities. Critics also contended that many Ghanaians had seem few, if any, benefits from the program. In addition to its focus on stabilizing the country's financial structure, the ERP also aimed to promote production, especially in the export sectors. In 1986 the government began to rebuild infrastructure through a US$4.2 billion program, more than half of which was provided by external sources. This amount was divided roughly equally among infrastructure repair, energy imports (oil for machinery), and export industries. Increased imports financed by the IMF, the World Bank, and other sources made possible the rehabilitation and repair of some key parts of the infrastructure through the supply of spare parts and inputs for industry, mining, utilities, and agriculture. Although the ERP was geared primarily toward restoring the country's international economic standing, it came under popular criticism inside Ghana for ignoring the plight of those not involved in the export sector. The overwhelming shift in resources was toward cocoa rehabilitation and other export sectors, not toward food production. Government employees, especially those in state enterprises, were actively targeted, and many lost their jobs. Farmers suffered as the percentage of the total budget devoted to agriculture fell from 10 percent in 1983 to 4.2 percent in 1986 and to 3.5 percent in 1988, excluding foreign aid projects. Although cocoa contributed less to Ghana's GDP than food crops, cocoa nonetheless received 9 percent of capital expenditures in the late 1980s; at the same time it received roughly 67 percent of recurrent agricultural expenditures because of its export value. In response to criticism of such policies, the government initiated the US$85 million Program of Action to Mitigate the Social Costs of Adjustment (PAMSCAD). Beginning in 1988, the program sought to create 40,000 jobs over a two-year period. It was aimed at the poorest individuals, small-scale miners and artisans in particular, and communities were to be helped to implement labor intensive self-help projects. As part of PAMSCAD, ¢10 billion was slated in the 1993 budget for the rehabilitation and development of rural and urban social infrastructure. The new program, organized through PAMSCAD and the new district assemblies, was designed to focus on improving water supply, sanitation, primary education, and health care. An additional ¢51 billion was set aside for redeployment and end-of- service benefits for those who had lost their jobs in civil service and parastatal reorganizations. In the early 1990s, the government was committed to continuing the policies of the ERP. New agreements were concluded with the World Bank to continue credit arrangements on condition that Ghana review and revise its various economic laws and regulations and support private sector development. In particular, the government agreed to revise or to repeal existing laws and regulations affecting private investment that undermine the spirit of deregulation, economic liberalization, and exchange rate reforms. The government also agreed to develop and to strengthen the institutional framework that would facilitate private investment. Key priorities for 1992 and afterward included giving new impetus to state enterprise reform, broadening the scope of banking-sector reforms, liberalizing the administrative framework, and strengthening public-sector management. Basic education and primary health-care services were to receive attention over the long term as well.