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close this bookThe Courier N° 122 July - August 1990 - Dossier Tourism - Country Report: Mali (EC Courier, 1990, 104 p.)
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View the documentLomé IV - Assent from the European Parliament ...and an appeal to do better
View the documentGeneral conditions of EDF contracts
View the documentThe image of EEC aid a painful truth
View the documentCounterpart funds: a force for good and ill

Lomé IV - Assent from the European Parliament ...and an appeal to do better

by Bernard RYELANDT

Negotiating a fine convention and getting it signed is not the whole story. It still has to be ratified and applied. And without much delay either, so that the ACPs can derive the anticipated advantages from it as soon as possible. The transitional measures between LomII and LomV, in effect since the former Convention expired on 28 February, cannot be extended for ever and they are not such as to allow use of the considerably larger financial allocations of LomV.

The European Parliament has had a much more decisive part to play in ratification since the advent of the Single Act. Before that, it gave its opinion on the text, but there was nothing constraining about it and the only essential thing was ratification by the national Parliaments of the Member States. But now there is a 13th ratification, as the European Parliament’s assent constitutes a real ratification just like those of the 12 national parliaments and, without it, the EEC Council cannot complete the ratification process or the Convention take effect.

The assent has to be given by a special majority, polling more than half the members’ votes (260) regardless of how many are actually present in the House. And assent was indeed given during the May session, by a comfortable majority of 294 in favour, 92 against and 8 abstentions the first European ratification of the Convention. Parliament wanted to act fast, before the national assemblies, to ensure maximum European political legitimacy for the outcome of the Lomegotiations and give a political sign to the national parliaments.

Before analysing the vote (those against not being of the negative nature one might imagine), it is worth looking at the major role the European Parliament has always played in encouraging a progressive European Community cooperation policy, and at the way in which it followed the whole LomI negotiation process and prepared its assent.

Parliament and the European development cooperation policy

In spite of powers that are in theory limited, Parliament has often made positive and important contributions to helping the developing countries, and the ACPs especially, particularly since the first direct elections 11 years ago, rightly thinking that relations with these countries were a vital part of the image of the Europe now under construction and of its place in the world.

So it has always put priority on the development chapter of the Community’s annual budget, backing up - or even stepping up the Commission’s credit applications and helping to finance the launching of new initiatives. It has also pushed for policies to be reformed or recast in the light of trends in the developing countries and the lessons of cooperation schemes already run. This is something which shows the full meaning of the powers of control which Parliament exercises over the executive. It does not just check that things are done according to the regulations. It also assesses the real and lasting effects of development and draws conclusions for the future with the executive.

Random examples of this are the emphasis on rural development and food security, the reform of food aid, the guidelines for cooperation with the countries of Asia and Latin America, the insistence on development projects being evaluated and the schemes to counter the effects of apartheid in Southern and South Africa.

There has been conflict between Parliament and the Commission, of course, with the former criticising the management of the latter and urging it to do more and do it better. But both institutions have really been working towards the same goals, consciously and openly playing the critical cooperation game, each in its own way, to achieve the common aims and obtain the desired decisions from the Council a fine example of positive use of inter - institutional dialogue in the Community.

Have the recent moves towards the Single Market of 1992 and the changes in Eastern Europe pushed development into the background, as feared by the developing countries, the ACPs especially, with all their worries about increasing marginalisation? Parliament will of course be focusing its immediate action on this, thereby reflecting the interest of European opinion in the subject. But, like the Commission, parliament has no intention of neglecting the prospects of cooperation with the developing nations. It made this clear with its performance in the Lomegotiations and its ratification of the Convention and it is making it clear again with its call for a bigger allocation for all the developing countries alongside the budget decisions for Eastern Europe.

Parliament and the LomV negotiations

Parliament followed the preparation and the work of the negotiations from beginning to end, stepping in several times to put its views across and say what it wanted on the essential subjects of discussion. Parliament has to be properly informed if it is to influence the course of events and there was a procedure for this, enabling the Council and the Commission to keep it in the picture (the Luns Westerterp procedure, as it was called in Eurospeak), before the Single Act. And the Commission had already organised a sophisticated system of information with Parliament’s Committee on Development. But this time, with the assent in view, things were taken further.

In January 1988, the Commission told the Committee on Development about its guidelines for the negotiations as they were being drawn up and passed on the text once it was ready. Parliament used this and its own reflections as the basis for a report, which was written by Mr Bersani (Italian Christian Democrat and former Co - President of the Joint Assembly), and a resolution defining its views on the forthcoming Convention and aiming to influence the negotiating directives the Council was to give the Commission was voted in May 1988. These views in fact turned out to be very close to both the Commission’s guidelines and the concerns and wishes already expressed by the ACPs.

Lastly, the Council and above all the Commission (through its successive Development Commissioners, Lorenzo Natali and Manuel Marin, and Development Director - General Dieter Frish) had frequent exchanges with the Committee on Development throughout the period of preparation of the negotiating directives and the negotiations themselves. This and other less formal contact was an opportunity for the European MPs to pressurise the negotiators for greater awareness of ACP needs.

Particular attention should be drawn to the resolution tabled on the initiative of the Chairman of the Committee on Development, the French Socialist Mr Saby, which was voted through in October 1989 at a decisive moment when the EEC Council had to say where it stood on the crucial subjects of negotiation (i.e. the size of the EDF, trade arrangements, commodities, debt and structural adjustment). In it, Parliament laid down the minimal conditions for its subsequent assent, putting all its weight behind what it believed to be right.

But it did more than maintain relations with the European institutions as it also kept up regular contact with the ACP negotiators. Its role is bound up with that of the ACP - EEC Joint Assembly, which, with the help of the ACP representatives and the European members, too, constantly worked along the same lines, seeing many development policies made and formulated and proving to be a fruitful meeting place where MEPs could keep up to date on the problems and desires of the ACPs.

The assent - preparation, voting and scope

The voting was prepared with a report drafted by Leo Tindemans (Belgian Christian Democrat and Co - President of the Joint Assembly), who pointed to various places where the Convention fell short of what Parliament (and indeed the Commission) wanted, but said that the outcome of the negotiations was very much in line with the Bersani resolution of May 1988 and that, in spite of its limitations, LomV constituted considerable progress on a number of crucial points - the priority guidelines for cooperation, human rights, decentralised cooperation, some aspects of the trade arrangements and the commodity problems, the nature and conditions of the support for structural adjustment and the volume of financing. The conclusion was that the Convention largely warranted Parliament’s approval.

There had already been animated discussion on this in the Committee on Development - which shows that 1992 and Eastern Europe have not blunted interest in development matters. Both the Committee and the parliamentary part - session in May were seen as opportunities to complain about the volume of the EDF not being up to Parliament or Commission expectations (and not really being negotiated by the Community either...), about the reluctance to grant broader trade concessions, about the failure to provide a basic answer to the ACP debt problem, about (for some Euro - MPs) structural adjustment, and soon and this was reflected in the ultimately fairly high percentage (25%) of negative votes.

But let there be no mistake about this. The vast majority of the negative votes were not “against Lom148; or “against the ACPs”. They were more and indication of the shortcomings of the negotiation results (deemed radical by some MPs)) in comparison with the challenges the ACPs currently have to face or a pressure to do more for them.

Many of those who voted in favour in fact also had criticisms of this sort and called for a greater effort to be made outside the Convention. But they did not feel that LomV deserved a negative judgment overall, far from it, or that is was good tactics to register a negative vote that might be misunderstood by European opinion or the ACPs. The ACP Ambassadors had indeed already met the Committee on Development in April and made an urgent appeal for rapid ratification of a Convention which, in spite of its shortcomings, their Governments recognised as positive.

The most popular subject of debate was the ACP debt to the Community, which the Community on Development wanted to see written off. The sums were not considerable, but writing them off was seen as both a great relief and a matter of principle and, on a number of occasions, Commission Vice - President Manuel Marin has said he wants to think about this and prepare positions on it.

So Parliaments’s ratification was the first in Europe (although two ACP States ratified on the same day) and it remains for the 12 Member States and at least two - thirds of the ACPs to ratify as soon as possible for the Convention to take effect.

But a fresh challenge is already with us - that of making a fast and efficient job of implementing what is so far only text, which means realising the full potential of the new Convention and reconciling the two, almost contradictory, aims of speed and quality of implementation. Such is the task which the Commission and the ACPs are to carry out... under the critical eye of the European Parliament.

B.R.

General conditions of EDF contracts

by Ole SCOTT - LARSEN

When the ACP - EEC Council of Ministers met in Fiji in March of this year, an important instrument of new comparative international law was created. This legislation concerns the complex of conditions which will govern the way in which future contracts are awarded and implemented in EDF - financed projects. Its aim is to provide a single set of rules which will be applied uniformly to all contracts and projects carried out within the framework of the EDF.

The decision to adopt this legislation follows more than 10 years of drafting and negotiation on the part of the Commission and the ACP States - a length of time which is understandable, considering the ultimate goal: to combine the features of two major and distinctly different legal systems and traditions, i.e., Common law and Roman law, into one regulatory framework governing this area of activity.

At present, contracts are governed by various conditions, which depend largely upon where in the world the project is executed although the FIDIC rules in one form or another have been the predominant basic rules. This situation has led to a plethora of rules which have not always been easy to administer and which, over the years, have given rise to numerous disputes.

Furthermore, the uncertainty of the tenderer as to what his precise rights and obligations might be under any contract has had to be borne by the EDF in the form of the safety margin which the tenderer naturally has to build into his price.

It was therefore very much in the interests of all parties, administrators, contractors, suppliers and consultants alike, to have conditions which would be uniformly applied.

The new contract rules, known as the General Conditions of Contract, will apply in all ACP States when contracts are to be awarded for EDF - financed projects. For the tenderer this means greater legal certainty. Regardless of the geographical location of his potential project, the tenderer may be assured that when he tenders, the rules applicable will be the same wherever he goes. For the administration - both in the ACP States and in the EDF - only one set of rules will have to be applied, and the various difficulties of a contractual nature which may arise during the implementation of a project can now be dealt with in an uniform way.

The General Conditions of Contract are divided into five parts. The first document the General Regulations - sets out the rules for the tendering, selection and award of contracts. It regulates the relationship between the ACP State and the Commission and its Delegates, as well as the relationship between the ACP State and the tenderers for the contract in question. These General Regulations apply to all contracts regardless of their nature (Works, Supplies and Services), and derogations from these regulations are not permitted. In this way, openness is assured at a vital stage in a project, namely when a contract still does not exist.

Three more specific documents establish the rules for the implementation of Works, Supplies and Service contracts, respectively. They apply to the life cycle of a project, from the award of contract stage until the completion of the contract. These documents can, to a certain extent, be amended and modified through the Special Conditions of Contract, which are drawn up individually for each project and which reflect the special needs and nature of the project.

Finally, the fifth document governs conciliation and arbitration and sets out the procedures for the parties to follow in the event of a dispute arising between the contracting parties during the implementation of the project. The rules in this document are based on the internationally recognised UNCITRAL (United Nations Commission for International Trade Law) uniform rules for arbitration.

Although the General Conditions of Contract were adopted in March of this year, the actual entering into force still has to be decided. This decision is expected to be taken soon by the Article 193 Committee of Ambassadors, which was mandated to do so by the Council of Ministers.

O. S - L.

The image of EEC aid a painful truth

A few months ago, an opinion poll was carried out among African and Malagasy opinion - leaders on the image of Europe and the European Community, both in themselves and also regarding the impact of European - ACP cooperation. One conclusion has emerged, which will be of little comfort to those working in the field of development. It is that, despite definite awareness of, and positive judgements on many of its actions, the EEC and its cooperation policy take only third place in the view of African and Malagasy opinion - formers, coming behind bilateral cooperation or cooperation with the UN and its specialised agencies (FAO, UNDP, WMO, UNICEF, and so on). With some exceptions, compared to cooperation with these latter, EEC aid was found by them to be:

- less important in terms of volume,
- less suited to what was needed,
- the least effective,
- the aid producing the fewest long term results,
- the worst, overall.

There could be a number of specific reasons for this very negative overall picture the state of the Lomegotiations at the time the survey was carried out (August - September 1989), the poor communications of the Commission, but, at the very least, the report shows that something is wrong with EEC - ACP morale, and perhaps with the planning and implementing of Community cooperation. Is this the hangover after the celebrations at Lom

The survey, conducted by Secodip International, was commissioned by the European Commission, and interviews were conducted with 1253 people, 744 French - speakers and 509 English - speakers in seven countries, Senegal, Cameroon, Za, Madagascar, Ghana, Zambia and Tanzania.

Opinion - leaders were defined in the light of previous research studies as being the group which with its function and know - how, the position it occupies in society and its kinds of activity, tend to be open to the out side world, and well - informed about current affairs, national and international. It brings together most of the decision - makers and executives as well as its own opinions, consumption patterns and way of life.

Whatever the nature of the sample population, it is certainly a well informed one. National radio is listened to first and most regularly, but on total listening, 65 % of those interviewed also listened to the BBC, 59% to Voice of America, 60% to Radio France International, Africa N° 1 with 33 % overall, Deutsche Welle with 32 % and Radio Moscow with 20%. When it comes to reading newspapers, the English - speakers seem more assiduous than French - speakers, with 97% daily readers as opposed to 81%. Moreover, around 20 % in Zambia and Ghana read more than one paper, while in Cameroon and Senegal there is only one daily paper. The French - speakers thus turn to the foreign press: 50 % of them read a foreign paper compared to only 24% of English - speakers. The most widely read foreign paper “ by a long chalk “ is “ Le Monde “.

And the opinion - leaders do a lot of comparing, too. In answer to the questions “ What is the main problem facing the countries of Africa and the Indian Ocean today’?” and “What is the main problem facing your country?”, there was a considerable amount of variation, from country to country, and theme by theme. The three major problems for the whole of Africa and Madagascar were reckoned to be debt (21 %) economic crisis (20 %) and underdevelopment (16%), but while French - speakers chose debt as the main threat (26%) English - speakers cited the economic crisis in general (25 %), debt being given only 15 % of the votes. And there was a wide range of subsidiary problems cited, Ghanaians worrying about political division and instability, and Tanzanians about lack of infrastructure, while Madagascans cited poverty and lack of self - sufficiency in food. At the individual country level, three countries cited mismanagement high on the list of problems, and two cited employment prospects.

And while 95 % of respondents considered aid to be an important matter for Africa and Madagascar in general, and their country in particular, 55 % replied, in response to a further question, that international cooperation was a disguised form of exploitation, 10% thought it unsuitable, another 10% thought its results disappointing, 9% thought aid levels too low and 6 % felt that it was being embezzled. A total of 75 % of respondents felt that aid was principally of benefit to the industrialised countries, 14 % felt that the benefits were equally shared by North and South and only 5 % felt that Africa and the Indian Ocean countries were the real beneficiaries.

The most popular areas of cooperation were health (93 %) agriculture (91 %) and science and technology (91%). The least popular were economic aid (49%) military (41 %) and public administration (31%). And as for the donors, every single country put bilateral aid first in terms of volume, suitability, effectiveness, durability and general merit, and put multilateral aid second. Community aid came in third place, with certain rare exceptions. French - speakers, for example, gave it second place in terms of volume of aid, and Madagascans placed it second overall, while Zambians rated it highly for everything except volume. This being the case, it was interesting to note the replies to the question. “Do you think that the countries of the ACP Group and the European Community have interests in common or not’? “ 59 % thought so, as against 32% who did not, and while the majority of “ positive thinkers “ was over 70 % in Madagascar, Zambia and Senegal, it was in a minority in Za (44% to 47%). A very wide margin gave economics the key role in this relationship - the interdependency of markets was cited by 60% of all respondents. Sentiment and idealism were squeezed to the very bottom of the list: only 3 % thought that there might be a common interest in development, and the same percentage cited historical and linguistic links. When asked “Why do the ACP countries need Europe? and “Why does Europe need the ACPs?” a surprising 95 % across the board agreed that we do need each other, not quite the same as having interests in common. Indeed, it is a darkly cynical view: our interests are relatively divergent, our relationship exploitative (at least on the side of Europe) yet we must “hang together for fear of hanging separately”. The ACPs, according to the questionnaire need Europe for technology transfer (38%) general development (21 %) trade opportunities (15%) and capital inflows (13 %). Europe is perceived by 69 % of respondents as needing Africa for its raw materials, as an outlet for manufactured goods by 37 %, and, in general, as a trading partner by 22 %. Thus whatever the weak points, whatever the suspicion of Europe’s motives, there is a relationship which is recognised as a special one and one on which a great deal depends.

But the real disappointment seems, according to this survey, to be reserved for the concrete expression of that relationship, the application of EEC - ACP cooperation. The final question was designed to “allow the respondents the possibility of expressing themselves freely about European aid and pull together the conclusions of this report themselves ‘ according to Secodip. The question was: “What do you think about European aid and what do you expect from Europe these days?”. The following percentages were obtained:

- It is a good thing, beneficial

22%

- It is a necessary help

18%

- It is insufficient

17%

- It maintains dependency, is a form of exploitation

15%

- It is ill-suited and misdirected

14%

- It is hypocritical and self-interested

12%

- It is ineffective

6%

- It imposes too many conditions

5%

Thus, 69 % of opinions expressed were negative and only 22 % positive. (The 18% who replied that it was a necessary help are not classifiable since there is no positive or negative value - judgement implied.)

Even where Community spokesmen have admitted to shortcomings in the performance of aid under Lomthey have gone out of their way to stress that Loms different: stable, predictable, long - term and multi - faceted. But is Lomerceived as different by African and Madagascans opinion leaders? Two questions were asked on this, “Is Lomifferent from other forms of aid and cooperation?” and “How is it different?”. The results, again, must be cause for serious disappointment. 55 % of respondents saw no difference between Lomid and other aid, the exceptions being Zaire and Senegal who noticed the difference in 56% of cases. And the differences noted were not always flattering: 12% agreed that it “came with many advantages “, 7 % felt that it was well - diversified, but 5 % claimed that it imposed “ more conditions”, 6% felt it imposed its views on ACPs and 7 % felt that it benefited the EEC more than the ACPs. And if there was one theme that was hammered home time and again, it was that of access to European markets. Despite its liberality, Lomcores worst on this, the one really profoundly “different” aspect of its cooperation.

All in all, then, the survey is a sobering one for Europe in general and the Commission in particular. The consultants who carried out the survey preface it with the following remarks:

“This report conveys more a lack of information than it takes account of real facts. But it is a justification, if this were needed, for starting work on a systematic awareness and information policy very quickly, with the aim of influencing the views of these opinion - formers and modifying the image they have of European cooperation, taking account at the same time of the role they play in ‘forming’ the opinions of the African... population and the importance of the efforts made for years by Europe in their countries.”

But maybe this is something which cannot be overcome by a “ media campaign”. One of the sobering facts for The Courier is that nobody mentioned reading it, and we send 350 000 copies a year to Africa. Maybe they don’t read it; maybe they read it and don’t believe it; maybe, however, they read it, believe it and don’t mention it because it is not information which is lacking, but a fundamental faith in EEC - ACP cooperation. T.G.

Information and development education

On seeing the results of this poll, the Commission Delegate in one of the countries covered protested: “ But, you haven’t put these questions to any peasants! That would have been! more interesting, because they are the ones who really benefit from our aid! People in towns civil servants, you know what they’re like...”

A reaction such as this does not, ofcourse, make the results of the poll, any less interesting even if they may be partial nor does it detract from the lessons to be learned from it. It makes. undoubtedly, interesting reading.

What is, after all, known in Kinshasa about rural development projects in Kivu, whether or not they are financed by the Community? To what extent are townspeople and the nations’ elites informed of development projects and programmes which, are being carried out far away, deep in the countryside? How much does the town care about the country, anyway’? Is there, in fact, enough development education going on in the developing countries themselves?

These questions, which cannot, of course, be answered in these few lines, are perhaps the most fundamental ones to be raised - albeit indirectly - by the poll.

The results of the poll would probably apply for most forms of cooperation Community cooperation having the “disadvantage” of tending to be more rural - based than others. Nevertheless, it is clear that the image of European development cooperation amongst African elites seems to be more cloudy than those of other bilateral or multilateral donors, which means that, as things stand, it has a low political profile. This is not without significance: while Community aid should, above all, be effective it should also if it is effective - be recognised as being so. If not, the EEC - ACP partnership is in danger of being seriously perturbed.

Perhaps it might help without resorting to pure propaganda - to give greater emphasis to information, a field in which to date the Community has tended to show some reticence. Perhaps, then, we should encourage a strengthening of our communications efforts where, and whenever these are possible because the twin objectives of information and development must and should become complementary.

H. FERRATON

Counterpart funds: a force for good and ill

Counterpart funds are now well known throughout ACP States. They accrue through the operation of food aid, General Import Programmes, Sectoral Import Programmes and, in some cases, in Stabex and Sysmin transfers. They are the local cash equivalent of products normally requiring foreign exchange which have been imported by the cooperating partner. For example, in times of food scarcity, the Community will send 50 000 tons of wheat or maize to Country X, using its own foreign exchange. The 50 000 tons will be sold in local currency to those who wish to buy, and the local money thus generated (since the food is normally sold and not distributed free) can be used for a variety of purposes: it can, and often is, earmarked for specific development programmes which have a local currency content (wages and salaries, local materials and so on); they can also be used to reduce the government’s budgetary deficit; they may, on the other hand, remain on deposit for some time in either the Central Bank or in commercial banks. However they are used, counterpart funds are playing an ever - greater role in the macroeconomic behaviour of a number of ACP States, for good and ill.

Background

The origins of counterpart funds date back to the early post - war period, when they were used in the framework of the American Marshall Plan for the reconstruction of Europe. In 1954, the US government passed the Agricultural Trade Development and Assistance Act (Public Law 480) which attempted to deal with US agricultural surpluses and developing country food deficits and whereby the proceeds from the sale of PL 480 products was loaned to the governments of recipient countries. India has been a major recipient of food aid from the US, and counterpart funds have been in operation there since 1960, while the EEC also used them there in the framework of Operation Flood, a scheme to extend milk consumption in urban areas, based on milkpowder from the EEC with counterpart funds used to expand local production and distribution. But the background to renewed concern about counterpart funds in ACP States lies in the fact that they have, in recent years, become far more widespread and their effects more far - reaching. Almost all African ACP States are now recipients of the sort of aid that generates counterpart funds. Partly this is because of the deterioration of their food supplies (food aid) or their export crops (Stabex). Sometimes climatic conditions are to blame for this, but more often than not it can be traced to other sources - world prices for the raw materials, environmental degradation or population growth. But it is equally true that a worsening of the external and internal imbalances in many a developing country has played an equally important role: the Import Programmes financed by the Commission, the aid to balance of payments provided by the Bretton Woods Institutions are evidence of a more widespread failure. And the adoption of structural and sectoral adjustment programmes is the ultimate testimony of all that went before.

Given the deteriorating conditions in Africa and the countries’ desperate need for foreign exchange simply to keep going, counterpart funds have assumed enormous importance in macro - economic planning, largely because they represent a higher proportion than ever before of the State’s own resources. In 1987, Kenya saw the creation of counterpart funds of a value equivalent to US$ 93 m, the equivalent of 18 % of that year’s budget deficit and of 4% of total money supply. In 1989, Somalia possessed more than $ 100 m, representing 30% of the State budget. Sums like this are like an unexploded bomb when the country is, at the time of piling up counterpart funds, undertaking structural adjustment, one of whose staple ingredients is invariably the rectification of budgetary imbalances.

Counterpart funds - the macroeconomic effect

In themselves, counterpart funds are neutral. If food worth ECU 1 m, say, is delivered and sold, the local money equivalent of ECU 1 m, let us call it 500x, is put into either the Central Bank, or into a commercial bank. While the food is being sold, there is a deflationist tendency, as 500 x is taken out of circulation (to buy the food) and put into the Central Bank. If the funds are used rapidly, and for specific projects linked to a long - term development programme, then within a short time, the 500 x reappears in circulation and thus will have no impact on inflation.

But, as is so often the case, the funds are not wholly used. This may be because the project or programme is not a heavy user of local money, or because the local elements of the programme (people, materials, etc.) cannot be got together. Let us say that only 200 x of the 500 x is actually used on the programme, and that 300 x remains on deposit with the Central Bank. If the Central Bank remains passive, the money on deposit has a deflationary effect because the amount in circulation is reduced by 300 x . But over time, it is unlikely that a Central Bank will remain passive for long, and then the 300 x, appearing on their books as a credit, becomes a stimulus to lending to the private sector.

The money is lent on to commercial banks, who lend it to their customers who use it, more often than not, to convert it back into hard currency to finance imports. Sometimes the counterpart funds are put directly into the commercial banking system and there is no ‘gap’ between the deposit and the stoking of inflationary fires. The moment the 500 x is deposited with a commercial bank it appears on the ledgers as part of the bank’s reserves. If the obligatory reserves are topped up, the bank can lend on to customers while maintaining the book value of 500 x on the debit side. Interest on the loans swell the reserves, higher reserves mean higher lending, and the longer the delay between depositing the 500 x and using them in an approved fashion, the more money is created.

Then there is the problem of resource transfer and allocation. The idea behind the counterpart funds is that there is a real transfer of goods from donor to receiver. In the case of a General Import Programme, goods are delivered from overseas and paid for in local currency. So far so good: the receiving country has saved valuable foreign exchange and can, in theory, use local money to pay for the local element of, say, a social programme. But in countries of the Franc Zone where the local money is convertible, the counterpart funds can be used to finance imports which give rise to new counterpart funds, which can be used to finance new imports, and so on forever. And the next danger to be faced is that of resource transfer from the private to the public sector. Food aid is an example: imported food is sold to people and the money is placed in the Central Bank. At some time, this money emerges to finance a development programme in the public sector, thus causing the private sector to lose out.

The Kenyan example

An interesting example of counterpart funds utilisation, already experimented under LomII, is the integration of counterpart funds into one of the components of a structural adjustment programme. This has been the case in Kenya for the Cereals Sector Reform Programme. Under the programme, the marketing of maize, historically under the monopoly of a State Marketing Board (NCPB), is going to be gradually liberalised. NCPB, which is going to retain the functions of market stabilisation and management of the food reserve stock (maize being the staple food in the country) is being restructured, with the aim of enabling it to manage efficiently the new and more limited functions it is going to perform, and to recover from the huge budget deficit it used to run in the past.

One of the immediate objectives of financial restructuring was to create a separate crop purchase fund, covering the commercial operations of the Board, and enabling it to pay the farmers without long delays. The programme included a foreign exchange facility component - in the form of a sectoral import programme for inputs for the agricultural sector - whose immediate aim was to ease the serious balance of payments constraints of the country.

The counterpart funds generated by this import programme have been entirely allocated to the establishment of the crop purchase revolving fund. In this way, the funds allocated to the Import Programme (ECU 42 m in total) have both enabled the private sector to obtain the foreign currency needed for essential imports, and, through the counterpart funds, contributed to the reorganisation of the cereals market, enhanced the competitiveness and sound management of the NCPB and contributed to the Budget Rationalisation Programme of the country (as the budget deficit of the NCPB is eventually covered by a government subsidy and thus ends up in the deficit of the State Budget).

The whole machnism is not without its problems: first, the funds thus mobilised represent a limited contribution to the functioning of the system and do not even cover entirely the current needs of the crop purchase revolving fund; second, as Kenya had, for a number of years, a surplus production of maize, the crop purchase revolving fund is somewhat sterilised in the piling up of surplus stocks and does not fully perform the function envisaged in the reform programme.

A set of complementary measures is necessary to implement the financial restructuring of the Board, and even more to tackle the more fundamental structural problems of the cereals sector. However, the possible negative consequences outlined above, deriving from an uncontrolled use of counterpart funds, have been avoided by binding such funds to a direct utilisation in the framework of a sectoral adjustment programme.

A. Piergrossi

Counterpart funds and structural adjustment

As over 30 countries in Africa know, structural adjustment is usually preceded by an IMF - steered stabilisation programme, geared to rectifying public finances prior to a sectoral or structural adjustment programme which deals with the broader aspects of supply and demand.

How do counterpart funds enter the picture here? Obviously, they are government receipts, local currency counterparts paid by the importer as part of SIP/GIP or income from the sale of food or other items. But, in balancing the budget, the government must also look to the long term, and assess the future impact of the programmes to which these funds are allocated. Will they not create further strains on the budget by involving the budget in recurrent costs? Will they generate further imports? Will there be a big time - lag between receipt and expenditure?

Moreover, since the projects themselves are in the public sector they will, by their nature, involve the budget more heavily in relation to the private sector. Where the stabilisation effort calls for civil and public servants to be retrenched, the counterpart funds offer a lifetime - salaries for them while they work on the chosen programme. When the public debt should be repaid, the counterpart funds offer the possibility of solvency by appearing on the credit side of the Central Bank’s ledgers. While imports should be curtailed, and foreign exchange hoarded, counterpart funds, by appearing in banks’ books, offer the legitimate possibility of extending credit and, in the cases where the local currency is freely convertible, of financing non - essential imports.

Thus, while the programmes generating counterpart funds offer a valuable service - the use of local money to finance needed imports - there are a number of potential pitfalls. The programmes to which they are devoted may not become operational for some time? and during that time, the local funds may accumulate and form the platform for some serious ‘destabilisation’ of the money supply, the balance of payments and the State budget. And, in the case of structural adjustment, which normally involves a shift from the public to the private sector, counterpart funds may undo whatever good work was done and push the balance back into the public sector.

The future

None of the foregoing means of necessity that counterpart funds are a bad thing. Indeed, they have a number of advantages: aid is timely, aid comes in a very acceptable form; the funds themselves can be targetted to very specific programmes to aid sectors or social groups most in need. But there are also dangers, those outlined above, that the funds could have a destabilising effect. With the emphasis in LomV even more firmly on debt and structural adjustment, both sides, donors and recipients, will have to look at ways of making counterpart funds serve the interests of the structural adjustment process. It is with this preoccupation in mind that the LomV negotiators stipulated that the counterpart funds generated by the various Community instruments shall be used for budgetary support to alleviate domestic financial constraints.

It is therefore in the framework of the overall budgetary policy of the government, and in particular of its recurrent budget (The Public Expenditure Programme) that the use of counterpart funds must be put. In this context, typical examples of expenditure that could be supported are those relating to health, education as well as those attenuating the negative social consequences of adjustment.

Money is neutral - ‘Non odet’. ‘It does not smell’ remarked a Roman emperor of the money received from a tax on waste disposal. But it is a force - and whether in the form of counterpart funds it is a force for good or ill will be for the Commission and its ACP partners to work out.

Tom GLASER