BAAH-WIREDU PICKS A BONE WITH VICTOR SMITH...Over 'cocaine money' and inflation

By Ebenezer Hanson

The Special Aide to ex-President Rawlings, Mr. Victor Smith has stirred a huge debate by publicly asking the International Monetary Fund (IMF) to be skeptical about rate of inflation figures given by the Ministry of Finance and Economic Planning.

His premise for that proposition was that, given the alleged whopping ‘cocaine money’ in circulation in the country, inflation rate figures ought to be higher than the current figures. Presently, the rate of inflation is about 10.8 percent. Smith thus dismissed the downward trend of inflation as cosmetic.

Mr. Smith was reacting to the Minister of Information, Mr Kwamena Bartels’ response to former president Rawlings’ recent comments on national issues.

When the Public Agenda reached him for his reaction, the Minister for Finance and Economic Planning, Mr. Kwadwo Baah-Wiredu, described the allegations not only as spurious, but also expose clearly Mr. Smith’s ignorance about how inflation rate is calculated.

To start with, he categorically denied any knowledge of alleged staggering ‘cocaine money’ in circulation in the country, and does not see how that is linked to the calculation of inflation.

Inflation rate, he explained, is determined by the Statistical Service, taking into account the prices of commodities on the market. Therefore if any body is claiming that the inflation figures are doubtful, then that person should be talking about prices of goods and services on the market.

“ If prices of commodities are rising and inflation is low then the figures are doubtful. But if the figures given by the Statistical Service reflect the relative stability of prices of commodities, then I don’t see how anybody could link this so-called ‘cocaine money’ to the downtrend in the rate of inflation. His (Mr. Smith’s) connection between ‘cocaine money’ and accuracy of inflation figures is meaningless. Ghanaians are witnesses to the relative stability of prices on the market,” d the Finance Minister stressed.

Mr. Baah-Wiredu recalled that from a “suffocating” annual rate of inflation of 41% in January in 2001, inflation rate has been reduced to about 10% in 2006. “The rate at which prices used to change almost on a monthly basis before 2001 is no more the case, and today there is a fair level of stability in prices”, he stated.
Last week, the Executive Board of the International Monetary Fund (IMF) completed the sixth and final review of Ghana's economic performance under a Poverty Reduction and Growth Facility (PRGF) arrangement. Following completion of the review a final loan equivalent about US$39 million was available to Ghana on October 31, 2006.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
The Executive Board also approved Ghana's request for waiver for the nonobservance of the quantitative performance criterion on the net domestic assets of the Bank of Ghana for end-June 2006.
Following the Executive Board's discussion on Ghana, Mr. Takatoshi Kato, sDeputy Managing Director and Acting Chair, made the following statement:
"Economic performance continued to improve in Ghana during the first half of 2006, supported by strong macroeconomic policy implementation and a favorable external environment. Growth is relatively strong, inflation is falling, and the external position has strengthened considerably, allowing a buildup of international reserves that provides a cushion against shocks. Ghana's program implementation during the PRGF-supported program has been satisfactory.
"Fiscal policy appears on course in 2006 to deliver the targeted reductions in the ratio of domestic debt to GDP. The fiscal consolidation that has occurred during the PRGF-supported program has resulted in a significant reduction in domestic debt service and allowed the crowding-in of private sector investment through continuing declines in interest rates, while increasing poverty-related spending.
"Monetary policy is expected to remain firm, geared toward achieving single-digit inflation. Ghana has made important strides in financial sector reforms, including eliminating the secondary reserve requirement for banks. These reforms will help make the banking system more efficient, and encourage financial deepening and growth of private sector credit.
"The government's economic strategy is now focused on accelerating growth, in the context of a relatively stable macroeconomic framework. Looking forward, the main challenge for Ghana is to find the necessary resources to undertake the investment plan, while preserving debt sustainability. The authorities have indicated they will exercise great caution in contracting new loans, particularly given the risks to the medium-term outlook and continuing vulnerability to shocks." Mr. Kato said.