Robert Shaw

This selection first appeared in The Nation (Nairobi, Kenya) on 7 September 1997. Robert Shaw is a businessman and commentator on the Kenyan economy.

There is a popular perception that since the IMF sent a team to Kenya to talk to the government the turning on of its money tap is at best imminent, or, at worst, a matter of time. This is a serious misconception.

But to be fair to Kenyans, it is understandable that many jump to such conclusions. First of all, the suspension of the IMF's $216 million enhanced structural adjustment facility loan has been such bad news, especially in terms of the increasing cost of living, that any straw of possible good news is worth clutching.

Second, both the IMF and the government have often not helped in dispelling the notion that all will be okay. The statement by the IMF managing director, Mr. Michel Camdessus, on 21 August [1997] confirming that a mission will "leave immediately for Nairobi" wittingly or unwittingly sent signals that some accommodation was possible. Given the IMF's record, the assumption was that some form of deal would be patched together that would result in some money flowing in.

As regards the government, several of its members have most wittingly encouraged the notion that the talks have progressed well and that all will be okay soon. The implication is that the IMF will resume funding in the forseeable future.

But the likelihood that there will be an agreement that will result in a resumption of IMF money within six months is next to zero. Even if one lengthens that horizon to the next twelve months, the chances remain slim.

The reasons for this are twofold. One is to do with the actual lengthy practicalities of negotiating and putting together a package that in turn has to be presented to the IMF board and passed. But the more important one is to do with the fact that the IMF and its sister organization, the World Bank, are undergoing some very fundamental changes. This will make it almost impossible for them to agree to the type of deals struck in the past because of their embracing of new governance guidelines.

Before going any further it is worth giving some background to this fundamental shift. Corruption, particularly in countries such as Kenya, has become a sore issue with many electorates in the bilateral donor countries. In turn the governments of many bilateral nations, who are ultimately the shareholders of the IMF, feel that tackling corruption should be an integral part of the IMF's mandate, especially as it is seen as a major impediment to economic growth.

Bearing in mind many of the larger shareholders are trying to cut their contributions, the IMF has little choice but to take on board this subject.

[In July 1997], the IMF executive board adopted "guidelines covering the issues of governance" that will be added to its core operations to do with correcting macroeconomic imbalances, reducing inflation, and undertaking key economic reforms.

These guidelines are a detailed, almost legalistic, hands-on approach on how to apply its governance policy. Guideline 16 is very specific and relevant to Kenya.

Weak governance should be addressed early in the reform effort. Financial assistance from the IMF in the context of completion of a review under a programme or approval of a new IMF arrangement could be suspended or delayed on account of poor governance, if there is reason to believe it could have significant macroeconomic implications that threaten successful implementation of the programme or if it puts in doubt the purpose of the IMF resources.

Corrective measures that at least begin to address the governance issue should be prior actions for resumption of IMF support, and, if necessary, certain key measures could be structural benchmarks or performance criteria.

This statement is specific in what should be done if there is corruption or governance obstacles and also how to judge whether enough progress has been made. Progress will be ascertained by "prior actions" and not by statements of intent as has often been the case with Kenya in the past.

Hence the pledges by the government to the IMF to strengthen management of the energy sector and renegotiate the two stop-gap power projects, more thorough tax collection "on all imports, including sugar imports," establish an independent anticorruption authority, and to ensure accountability and transparency in the management of public finances are not only monumental but have to be delivered before there is any talk of money.

Two obvious questions arise out of this. One is that, given the government's long and ballooning association with corruption and the fact that it is such a vital part of running its affairs, it is exceedingly difficult to see how it is going to deliver sufficiently to satisfy the IMF. It is akin to insisting that someone chop his or her fingers off.

The second question is to do with how much or little will need to be done to satisfy the IMF. Going by the tone of some of its board members about there being no room for "slippages" or "nonadherence" anymore, it is unlikely that there is much latitude for arbitrary flexibility by its staffers.

Going by the answers to the above questions it is difficult to see how there can be much progress with the IMF until there are some fundamental changes here that remove corruption from the center stage of government.

Moreover these governance conditions are becoming more and more widespread. Many bilaterals already have them. Last Tuesday [2 September 1997], the board of the World Bank reviewed some tentative proposals on its own governance code. The likely outcome is that they will be made more thorough and will complement those of the IMF.

Kenya is seen as a very corrupt country, and, with the goalposts being changed by the donors, the only solution will have to be a significant reduction in corruption if it is to become a recipient of significant chunks of donor money.