Wednesday, March 11, 2009

IMF conference to mull strategy as global crisis hits Africa

By Jean-Marc Mojon - March 9, 2009

With the full force of the global financial crisis starting to hit Africa, leaders will gather Monday in Tanzania for an International Monetary Fund conference convened to tackle the issue.

When what many consider the worst economic crisis since the 1930s Great Depression erupted last year in the West, analysts initially believed Africa had a chance of weathering the financial storm with only a few scratches.

African banks invested little in the so-called "toxic" assets that sparked the crisis, shielding the continent from the credit crunch.

But with no hope of recovery from the global downturn before 2010, a bitter cocktail of dwindling remittances, shrinking export markets and looming investment cuts is threatening to poison the world's poorest continent.

Presenting a study last week in Washington, IMF Managing Director Dominique Strauss-Kahn painted a bleak picture of Africa's immediate future.

"After hitting first the industrial countries and then emerging markets, a third wave of the global financial crisis is now hitting the world's poorest and most vulnerable countries, and hitting them hard," he said.

The IMF conference taking place in Dar es Salaam on Tuesday and Wednesday is entitled "Changes: Successful Partnerships for Africa's Growth Challenge."

Before the global crisis, the continent was home to some of the world's fastest expanding economies but the IMF's 2009 growth forecast for sub-Saharan Africa has been halved to 3.3 percent since last year.

Strauss-Kahn said the main impact on low-income countries would be through declining trade but he also predicted a 20 percent drop in foreign direct investment.

He said that while most African countries were better prepared to absorb the shock than they would have been a few years ago, those countries with high inflation or fixed exchange rates had little room for maneuver.

The IMF chief said the number of countries in need of concessional financing could soon rise to 50 and vowed to make $11 billion available over the next five years.

But a World Bank paper released on Sunday said developing countries are short between $270 to 700 billion in 2009.

It said that "only a quarter of vulnerable developing countries have the ability to finance measures to blunt the economic downturn, such as job-creation or safety set programs."

Strauss-Kahn said he hoped to get a clearer idea from the conference's 300 participants on how to defend the interests of the developing world at a G20 summit in London next month.

The IMF meeting in the Tanzanian capital is likely to confront diverging approaches on how best to soften the blow for Africa.

For example in Uganda, once a fast emerging economy, Finance Minister Syda Bumba said she would call for immediate stimulus funding at the conference.

International institutions "need to extend short-term aid that can be dispensed quickly" to mitigate the impact of the crisis, she told AFP.

However Lawrence Bategeka of Uganda's Economic Policy Research Center argued emergency rescue packages might not be the solution.

"We need programs with a mid-term focus that are targeted to deal with infrastructure, job creation, power generation — things that can maintain the stability of the economy," he said.