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Volume 3 Number 2 February 1982

U.S.$1.S0

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1982

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Jerry Rawlings' second coup in Ghana-a response to "exploitation ... greed and corruption," and the IMF
by Kassahun Checole

n December 31 in Ghana's capital city of Accra, Jerry Rawlings staged his second successful coup in two years, toppling the civilian government of president Hilla Limann. Government corruption, economic mismanagement and widespread smuggling of agricultural crops and precious minerals partly explain Limann's demise. When Rawlings spoke to the nation on January 2, he pointed a finger at the "corruption and greed" rampant throughout the Limann administration. And he derided the economic policy of the previous government, claiming that the country's lack of foreign exchange and high price of goods represented "a clear denial of our fundamental rights as a people to enjoy the wealth of our labor." The mass support accorded to Rawlings since taking power suggests that he has hit upon popular discontents. But passing references to graft and economic troubles do not tell the whole story of Limann's overthrow. The International Monetary Fund (lMF), unmentioned in the shallow mainstream press reports of the coup, was a prominent behindthe-scenes actor in the affair. The IMF played "a significant role" in destabilizing the Limann government, says one Ghanaian embassy official in Washington. In so doing, the IMF has, ironically, helped to bring to power a leader unsympathetic to Fund policies and the Western corporations which

Kassahun Checole is the director of the Africa Research and Publication Project, based in Trenton, New Jersey, which aims to inform Africans in the United States, as well as U.S. citizens, of events on the African continent.

they support. Limann's troubles with the IMF began shortly after Rawlings handed power to him in September 1979, in the aftermath of the 34 year-old former air force officer's first coup. The Ghanaian economy, hard hit by dropping prices of cocoa-the country's chief export earner-and facing steep oil import bills, was running low on foreign exchange. So in early 1980, the Limann government began to negotiate with the IMF for $1.4 billion in loans over a three year period. As is its custom, the IMF did not summarily reject the request for loans; instead, it laid out strict requirements the government would have to fulfill in order to receive the money. Limann must increase the official producers' price for cocoa, lift government subsidies on fuel imports, reduce government expenditures and devalue the cedi, Ghana's currency, the IMF said. These economic demands by the IMF tied the Limann government to politically treacherous options. Acceding to the Fund would have been destructive for Limann, since the IMF prescriptions would result in increased food and fuel bills, as well as higher unemployment. Limann could predict that such a policy would provoke strong popular opposition. "The Limann government saw that if there was a devaluation, there would follow a coup," explains the embassy official who asked to be unidentified. Rejecting the IMF's conditions would have been risky as well, since it would likely prompt a total cutoff of Western aid. If he chose this option, Limann would have had to find other sources of foreign exchange in a hurry for his rapidly deteriorating economy. Without other sources of assistance-which would be difficult to o btain-Limann would have faced a

severe economic crisis. "Either way, the situation was dangerous," says the Ghanaian official. Caught between these two slippery paths, Limann opted for a compromise which he hoped would placate the IMF. He increased the official price of cocoa, removed subsidies on consumer goods, instituted cuts in social services and reduced tariffs. In addition, he promulgated a new foreign investment code in July, 1981, "which was very, very liberal," according to the embassy source. "Some people called it a sell out." (The code granted tax exemptions, immediate repatriation of profits and investment guarantees to foreign companies; it also dropped Ghanaian equity requirements for mineral projects, which mandated a 45070 state share.) Even with these concessions, the IMF would not relent. It "insisted on devaluation," the Ghanaian diplomat notes, and this Limann could not agree to. The government had already "taken measures that amounted to a devaluation," such as lowering tariffs, the official explains, and Limann was unwilling to risk the additional political heat that a formal devaluation would bring. As a result, the IMF did not come through with the loans. "The lack of assistance hurt enormously," says the embassy official. It not only deprived the economy of needed foreign exchange, but it also led to a long and drawn out process of continued negotiations with the Fund, which only added to Limann's reputation for poor leadership. Unwilling either to flout the IMF or to accept its conditions, and unable to govern effectively while pursuing a middle path, Limann was replaced. For their part, IMF officials were dissatisfied with Limann. His "government wasn't very sym-

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

of the administra-

pathetic, when it comes down to it," says one IMF official knowledgeable on the subject. The IMF may not have reckoned, however, that Limann' s successor would be even less sympathetic. "I ask for nothing less than a revolution-something that will transform the social and economic order of this country." So spoke Jerry Rawlings on the morning of December 31, just hours after seizing power. In speeches over the following

week, Rawlings made clear that the type of "revolution" he was planning may not please the IMF and Western foreign investors. Rawlings rejected Limann's "claim that we need to attract foreign investment to ensure development." Labelling "certain previous investment agreements" as "examples of exploitation," Rawlings promised to take measures "to ensure that this exploitation should cease." The new government, Rawlings said, "will examine past foreign in-

vestment agreements and ensure also that in the future, investment is closely regulated by Ghana's needswhether technology, capital or human expertise-with the view to maintaining national sovereignty and the interests of Ghana." Limann's economic policy failed, Rawlings said, because it did not boost local, indu s t r ial and agricultural production. "It is clear that the failure to encourage our own production in both industry and agriculture is a cause of the immense

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strains on our foreign exchange reserves," he said in his January 5 address. "With the absence of adequate production, we are thrown into the claws of powerful multinational industrial and trading firms." Rawlings has high hopes for local industry. "Instead of putting our faith in foreign investors, we must rather encourage our own industrialists who are capable of building us a strong industrial base." In promoting domestic agricultural production, Rawlings intends to rely less on foreign aid. During Limann's rule, "government members were crisscrossing the world, begging for foreign aid," Rawlings said, "and yet, within the country, foreign exchange earners like cocoa and coffee have remained [unexported] since 1979." To remedy this problem, Rawlings announced that the new government would immediately "see to the evacuation of all the stocks of cocoa, coffee and foodstuffs in the rural areas." This inward-looking economic policy is not the kind that is welcomed by the International Monetary Fund and Western business. From their perspective, the IMF may have made a mistake by pushing Limann too hard to open up the economy to the West. "The IMF must see now," says the Ghanaian diplomat, "that their policies backfired completely." Whether Rawlings can succeed where Limann refused to go-that is, by repudiating the IMF-remains to be seen. Nationalistic economic policies are always risky when a country is in a foreign exchange crisis, since they alienate Western sources of financing. "You're essentially going to pull your economy apart," if you don't find "alternative sources offunding," says Lindsay Mattison, director of the independent Center for Development Policy in Washington. "Where can Rawlings turn?" Mattison asks, suggesting only Libya-which re-opened its embassy in Ghana in early January-or France as possible sources of funds. The Ghanaian embassy official says Rawlings "will look anywhere help is forthcoming, except to the IMF," mentioning Arab nations as possibilities. Still, Rawlings' emphasis on selfsufficiency may get him part way out of the bind. "If he tightened up on smuggling of cocoa," as he has pro-

mised to do, Mattison explains, "then he's got a source of foreign exchange-unless Hershey and them boycott." 0

Corporations in Ghana
Ghana is no stranger to V.S. traders and investors. Its bauxite, gold, oil, gas and hydroelectric power lured $17.2 million in V.S. investments by 1978, the last year for which figures are available. By far the largest V.S. investment in Ghana is tied up in one projectthe Volta Aluminum Company (VALCO) hydro-power dam and smelter, owned 90% by Kaiser Aluminum and 10% by Reynolds Metals. About $400 million in V.S. government funds went into the building of the Volta dam, smelter, and electric transmission lines, through the V.S. Agency for International Development and ExportImport Bank. Kaiser put $12 million into the project and ended up with a $200 million smelter which made record profits last year, according to the V.S. government - though

Kaiser won't exactly say how much those profits were. VALCO's profitability depends on the cheap hydropower it has access to as part of its original agreement with the Ghana government. In 1979, while Ghana spent about $240 million, - or 25070 of the country's total export earnings for the year - to import one million metric tons of crude oil, VALCO paid Ghana about $15 million for using nearly 70% of the total electric power generated in Ghana from the Volta dam. The $15 million payment also covered taxes and rent (see Multinational Monitor, February 1980). Kaiser's corporate relations manager, Robert Irelan, said that the coup had affected VALCO's 24-hour-a-day operations somewhat because workers could not get to their jobs during the dawn-to-dusk curfew in effect for a few days after the coup. But Irelan said that Kaiser's investment plans would not be affected by the political situation of the country. Ghana produces bauxite, but the entire production is exported in its raw form because there is no refinery to produce alumina (the mid-product between bauxite and aluminum) in the country. Alumina

Ghana at a glance
Population: 12 million Balance of payments: Roughly even Land 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 (provides change rates of 2.75cedis = 70% of the foreign exchange $1. $700mn at black market earnings even though exchange rates of 40 cedis roughly 20% of crop Is smug$1. gled into the Ivory Coast, according to The Wall Street GDP per capita: $896 at official exJournal); 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 Street under 15). Journal); food, industrial raw Life expectancy: 48 years. materials; machinery and Rate of inflation (1980):120% from spare parts; transportation May, 1980to May, 1981. equipment.

(Ail information from U.S.State and Commerce Department sources except where indicated.)

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for the VALCO smelter is imported from Kaiser refineries around the world. Former Ghanaian president Hilla Limann in March of last year signed an agreement with a consortium made up of the Houston-based engineering firm Brown & Root (a subsidiary of Halliburton International), the Swedish Granges International Mining Co. and a Bankers Trust subsidiary, to conduct a feasibility study for expansion of bauxite production and construction of an alumina refinery in the country. This would enable the full cycle of aluminum production to take place within Ghana. The Brown & Root group reportedly was paid four million cedis ($1.45 million at official exchange rates) to carry out the feasibility study, with the agreement that they would invest one-quarter of this amount in the project itself if it were found feasible. As of January, Brown & Root's preliminary report was not yet completed, and a company spokesperson would not speculate about the effect of the Rawlings coup on the company's plans. Several international oil companies, including Phillips Petroleum, Getty, Mobil, the Italian company Agip, Amoco, and the Tulsa-based Agr i-petco , have agreements with the Ghana government to explore for and produce oil from the high-grade deposits off Ghana's western coast. Other firms which have expressed interest include Compagnie Francaise des Petroles (CFP-Total), Voyager Petroleum and Hudbay Oil International of Canada, and Hydrocarbon Corp. and R.J. Walker of the United States. _ Phillips reported in 1980 that it had discovered a 55 billion cubic foot natural gas deposit offshore near the border with the Ivory Coast, which the Ghana government called one of the biggest in Africa. But a spokesperson for Phillips would not comment on whether the company has plans to begin production or continue testing, saying it "wouldn't be appropriate. " Expanding Ghana's gold production was one of the priorities of the Limann administration. Ghana's ore reserves are, on average, twice as rich per ton as South Africa's. But production of the government-

owned mines has dropped by twothirds since 1960 and a significant portion of production is smuggled out of the country - some of it by helicopter, straight from the mines. Talks with several international mining companies following a special conference on the country's gold resources, organized by the Ghana government in March, '1981, broke down late last year. "The gold prospects looked attractive enough, but given the state of the economy, the chances of obtaining bank financing were negligible," explained William Ullman, vice president of Leon Tempelsman Inc., which had explored the possibility of gold-mining investments and also buys industrial diamonds in Ghana. "The infrastructural decay in ports and roads, and the problems brought on by the enormous differential in the black market and official prices for the cedi, make it almost impossible for anyone who wants to do business legally," he said. Asked how the Rawlings government may affect the attitude of foreign business toward Ghana, Ullman replied, "Even though some

may have no fondness for Rawlings, especially his tendency toward secret trials and executions, there's a feeling that anything that might induce a clearcut consensus to be formed has got to be good for the country and the economy." But Ullman added, "I wouldn't expect any dramatic changes in the next year or two in terms of the economy .. .1 don't think the alternatives open to Rawlings are dramatically different" from those available to his successors as Ghana's head of state. Cocoa and food processing firms which purchase from Ghana - Hershey, Mars, W.R. Grace, Nestle, and the cocoa brokerage firms Gill & Duffus, ACLI International, and General Cocoa - were generally reluctant to comment on how Ghana's change in government might affect their operations. But ALCl's spokesperson Craig Sloane noted Rawlings' stated priority on repairing roads in order to get next year's cocoa crop to port. "Rawlings has at least a decent chance of turning the situation around," he said. "If he is able to control the country, he may be able to wield a lot of power."

A brief history of IMF meddling in Ghana


by Atia Oogo 1957-1965Cocoa prices of about 44 cents a pound in 1957 decline to about 17 cents a pound by 1965. Balance of payments problems ensue, as Ghana's external debts rise to finance development projects. 1965 Ghana approaches the U.S. for loans; the U.S. refuses. Ghana contacts the IMF, which suggests cuts in government spending on social 1966 services, the military, and state enterprises, as well as a cut in cocoa producing prices (from $8.16 to $5.60 per 60 pound load). IMF policies anger the military, right wing absentee farmers and traditional rulers. Military coup on February 24, 1966. Kwame Nkrumah, Ghana's first president, was blamed for endeavoring to destroy the military through budget cuts in defense spending. Nkrumah's successors, however, maintain IM.F policies

Atia Dogo is a member of the Africa Research and Publication Project.

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of .ttberatlzlnq trade, granting incentives to foreign investment,. cutting government spending and removing price controls. The two-year "stabilization" program fails, as massive unemployment occurs in the agricultural sector.

1969

Oivillan government of Kofi A. Busia continues IMF-style programs. Declining pri ces of cocoa deepen Gha n as balance of payments crisis and budget deficits. Negotiations to reschedule debts to the West are stalled, and an economic and political crisis ensues in 1971 as Ghana is seen playing the beggar nation role. In December, Busia devalues the currancy. January coup against Busia and his IMF policies. I.K. Acheampong and the military seize power and promise an economic nationalist policy, including the repudiation of Western debts. OPEC oil price hikes and the falling cocoa prices bring about the failure of Achearnpong's economic program. Acheampong is forced to go back to the IMF/World Bank. With the economy still in trouble, Acheampong is replaced by F.W.K. Akuffo, who installs a stau nch pro-I M F economic program. Akuffo devalues the currency and reduces the money supply, along with liberalizing

Cocoa, Ghana's main foreign exchange

earner,

being loaded for shipment at Tema Harbor

Cocoa producer for the world


Ghana was the world's second largest cocoa bean exporter for the crop year ending in September, 1980, with total exports of 195, 816 metric tons (compared with 234,493 metric tons for the Ivory Coast). Of Ghana's cocoa bean exports, which provided about 70% of the nation's trade and incentives for investment and eliminating government subsidies on consumer goods and local industry. foreign exchange, 280/0went to the Soviet Union, 19% to the Netherlands, 14% to the United Kingdom, 11% to West Germany, 8070 to Japan, and 4% to the United States.
(U.S. Dept. of Agriculture Statistics)

1971

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devalue the currency, in spite of IMF pressure to do so. The IMF denies Ghana loans needed to earn foreign exchange 'for the economy.

1979-1981 After Jerry Rawlings


seizes power in June, 1979 for two months, he hands the govern'ment over to Hilla Limann. As the economy deteriorates, Limann implements most of an IMF program: removing subsidies, increasing cocoa producer prices, cutting social services, liberalizing trade and instituting a new "sell-out" investment code. Limann refuses to

1981-1982 Rawlings comes back


to power in a coup on December 31, 1981, promising to eschew foreign aid and investment for a more selfreliant economic strategy. For more information about the general role of the International Monetary Fund and its specific actions in Ghana, see Cheryl Payer's, The Debt Trap: The International Monetary Fund and the Third World, (Monthly Review).

1978