Democracy Watch Vol. 3, No. 2&3 September 2002 1 A Quarterly Newsletter of the Ghana Center for Democratic Development 10 DemocracyWatch Volume 3, No. 2&3 September 2002 IN THE ANNALS OF GOVERNANCE ISSN: 0855-417X quality of democratic and economic In this issue The One Billion governance in Ghana. The Government did the constitutionally proper thing in Dollar IFC Loan: placing the terms and conditions of the What Happened loan agreement before Parliament for its review and prior approval. EThe One Billion Dollar IFC Loan: to Checks and What Happened to Checks and Balances? Balances? ....... Page 1 ...the unprecedented size of the loan amount, the E Sodom and Gomorrra: A Test of In June, it was announced that the professionally unsatisfactory Governmental Responsibility in a Government was about to raise from and inadequate form and Democracy international....... Page private sources a loan content of the six-page 3 of one billion U.S. dollars to finance document presented to E Engendering District Assembly Parliament as the Elections ....... Page 5 development projects in the country. loan agreement ... and the In furtherance of this and in intense controversy surrounding E Is Ghana in a Golden Age of compliance with the provisions of the entire matter, including Holidays? ....... Page 6 article 181 of the Constitution doubts about the bona fides and (providing for prior parliamentary identities of the lenders, should E Watching over the Public Purse: approval of all loan agreements), have caused Parliament to The Auditor Generals Report and subject this loan agreement to Renovation of Official Bungalows Government laid before Parliament on the most stringent due diligence ....... Page 7 June 8, 2002, a document described possible. as a loan agreement between the ENDCs Historic Congress ....... Page 9 Government of Ghana and the Parliament, however, did not discharge International Financial Consortium its constitutional obligation responsibly EWar Against Indiscipline ....... Page 10 (IFC) for an initial amount of in this matter. The loan, representing US$350 million, being the first of three the single largest indebtedness to be ERancor Over Dismissal at GBC tranches of loan disbursements totaling incurred by Ghana in its history, was ...... Page 11 $1 billion. Parliament subsequently approved by Parliament, on a strictly referred the document to its Finance party line vote, within a matter of a few Committee. By a majority vote, with weeks, while several aspects of the EDITORIAL TEAM all members of the Opposition agreement were still sharply contested n Baffour Agyeman-Duah dissenting, the Finance Committee both in the House and among the n Audrey Gadzekpo recommended the proposed loan general public. Worse still, Parliament n E. Gyimah-Boadi agreement for the approval of did not appear to have exercised the n H. Kwasi Prempeh Parliament. Parliament accordingly required due diligence in this matter. n Edem Selormey approved the loan. n Kwesi Yankah Serious concerns had been raised by the The matter of the IFC loan raises Democracy Watch is published with funding from Opposition and within the media about the Danish International Development Agency, many serious concerns about the the bona fides and identities of the DANIDA Continued on next column E Continued on page 2 E Democracy Watch Vol. 3, No. 2&3 September 2002 2 lenders, including justifiable suspicion arising from the arranger (Chemac Inc.) in international financings of this lenders use of a name whose abbreviation (IFC) caused scale? Where and when was the Closing supposed to many to confuse the IFC in this case with the better known take place? IFC (International Finance Corporation) of the World Bank Group. In addition, although the agreement had been At first blush, the loan, especially for a HIPC without a described as a loan backed by the sovereign guarantee sovereign credit rating,would appear like a bargain for of the government of Ghana issued in favour of the Ghana, that is, if one fixates only on the relatively low consortium, the terms of the agreement suggested that nominal interest rate. However, the unprecedented size of proceeds from the loan were to be managed jointly by a the loan amount, the professionally unsatisfactory and trust company comprising nominees of the government and inadequate form and content of the six-page document the consortium. The joint venture would use the loan presented to Parliament as the loan agreement (including proceeds to implement an unidentified number of the absence of definitions, covenants, representations and infrastructure and public works projects in the country. The warranties, and other such features of standard international joint venture would be entitled to certain tax exemptions, loan agreements), and the intense controversy surrounding the entire matter, including doubts about the bona fides including exemption from corporate income tax for an initial and identities of the lenders, should have caused Parliament period of 10 years and additional reduced levels of to subject this loan agreement to the most stringent due exemption during the remainder of the term of the loan. diligence possible. Instead, Parliament fast tracked the The loan would have an amortization period of 25 years approval process, in partisan acquiescence to the wishes with a 3 year grace period. Interest on the principal would of an executive that did not appear to have the patience or be 2.5%, to be paid half-yearly, plus a one-time transaction tolerance for too many probing but necessary questions. fee equal to 3.5% of the loan amount (to be taken off the first disbursement). The arranger of the deal and leader of Parliament is, of course, constituted by MPs elected the consortium was named as Chemac Inc., a company predominantly on the tickets of competing political parties. located in New Jersey, U.S.A. The agreement was to be It is therefore not possible, nor is it necessarily desirable governed by English law. always, to expunge partisanship from the business of Parliament. However, MPs represent more than their Besides the confusion arising from the abbreviated name political parties. Like the Government itself, MPs have a of the lenders, the substantive terms raised several primary responsibility to the people of this country. It is additional concerns. Was the consortium making a loan indeed fair and legitimate for MPs to factor the interest of to Ghana or was it seeking to invest equity in certain the party (and even of the executive) into their deliberations specific projects on a project-finance basis? If the and voting behavior. However, where the public interest transaction was an outright loan backed by sovereign in a matter is exceptionally grave (having regard to the issues guarantee, why the additional provision for a joint venture and facts at hand), the interest of the party must be at least between the government and the lenders to manage the substantially moderated by, if not subordinated to, the use of the funds? Would the lenders be entitled to overriding national interest. The materiality and magnitude dividends from the operations of the joint venture, in of the issues at stake in this other-IFC/$1 billion loan affair addition to their guaranteed interest payments and principal required of Parliament the utmost diligence, seriousness, repayment under the loan? On what specific public works and regard for the national interest in ensuring that all material projects would the proceeds of this loan be spent? Had questions and doubts were conclusively and satisfactorily any study or financial analysis been done to ascertain the answered. Even a cursory search on the Internet will have payback periods of these (unidentified) projects and their revealed that the lead arranger and leader of the consortium capacity to generate the cash flows required to service in this transaction is a distributor of high pressure interest payments on the loan after the grace period? What equipment and sealing productsa fact that does little to are the exact identities of the lenders and how would they allay concerns about the bona fides of the consortium. raise the funds for the loan? Into which specific (domestic and oversea) accounts of the government of Ghana would Majority rule, after all, does loan disbursements be paid? What was the timetable for not mean that wisdom necessarily or always the receipt of such disbursements? Since the agreement resides with the majoritya fact the present was to be governed by English law, had the Government majority in Parliament should of Ghana obtained the opinion of English counsel on the well appreciate based on their enforceability of the agreement under English law? What past experience as an opposition party. was the track record of the consortium and of its lead Continued on next column E Continued on page 3E Democracy Watch Vol. 3, No. 2&3 September 2002 3 The majority in Parliament must understand that part of the right prioritization in resource allocation, including its role, even (indeed especially) when its party is in appropriate incentives, to enhance the collection and government, is to help supply gaps that may be missing or enforcement capacities of the countrys tax agencies flaws that may be contained, for one reason or the other, (especially the IRS), the country should be able to generate in draft documents (including draft bills and agreements) substantially more funds from domestic sources (at existing that are laid before Parliament from time to time by the