Could you give your assessment of the recent performance of Madagascar and its present situation?
The IMF main focus is on money and balances. We see Madagascar as being a relatively good performer. Most of the countries of the world have, in the last 15 years, understood the concept of macroeconomics stability. We have far fewer cases of high inflation and government interventions to try to stabilize a difficult situation. It is still a very important accomplishment for this country. Inflation is currently around 5,5% and it is still going down. The Budget is under control. They have a relatively open exchange system, and they are reducing tariffs on trades. In other words many of the points the IMF has been working on for many years have been implemented in Madagascar. As you can see from the press releases we have approved a program in March targeted toward poverty reduction. We expect to complete a review under the program next week. There is one element of the program where they are not reaching the targets: tax revenue.
Some of the growth, which is currently estimated at 6%, comes from a stable environment, privatization of the banks, and the working financial system. Some of the basic infrastructure is there; cost of labor is very low, so it is a country that is attractive to some investors. We have seen growth of investment, especially in the "zone franche".
There are still some challenges facing the government. You probably have understood this by discussing with local operators. Many people come to me and my colleagues at the World Bank with their concerns and problems. There are clearly areas where the government needs to make more progress, and there is an effort underway. These issues are constantly discussed with the donor community, who shares the same concern as the investor community. They want the administration to work better with fewer obstacles.
In the context of our program and the debt reduction initiative, which has been widely discussed in seminars, the concerns of the investors and donors are being discussed. The government has a program to address these questions: lots of plans, document, studies. It is fairly difficult to talk about these issues at the moment, because the implementation of such reforms depends heavily on political will. We are right before presidential election, so a lot depends on the issues discussed during the campaigns. Things should become clearer in the coming weeks as the election approaches.
Personally I think the IMF focuses on the short term, Madagascar is doing relatively well on the short-term objectives. The more fundamental problems are poverty, development, which are medium to long-term issues. Those problems depend on many things beyond macro-economic stability, and certainly one of the key issues for a medium term development will be issue of government administration. This means development of the infrastructure, roads, health, education, and debt reduction. There are lots to be done in a country like this, prospect for the future depends on the political environment and the involvement of civil society.
One of the ideas of the debt reduction program is to encourage participation of civil society. I have been encouraged to see the degree to which the Malagasy have taken to this idea and the business community is very eager to collaborate with the government. There is a younger generation of business people who understand that this is where the future of the country lies. The political will has to exist.
How do you see the decentralization process in that context? Was Madagascar ready for it?
I was a bit concerned before as were many observers on the topic. The process is still unfolding and there are many uncertainties. According to the constitution the central government and the new independent provinces have to negotiate bilaterally the transfer of competences, of government, of resources, of taxes. However, all of these things are uncertain, a conference will take place and it will be a significant step in that matter.
From the point of view of the management of the budget and so forth there are many uncertainties. We are a bit worried about how it will unfold, but I have been encouraged to see the work done in the regional workshops. There is a real "can do" spirit, the people of the provinces feel very empowered and take care of their destiny. It obviously varies from province to province. I think it is useful in a large country like this, especially if the central administration has weaknesses and problems. I think it is useful if the individual level begins to take initiatives, they may be more successful with the local business community.
The concept was that being a diverse country, it was important to have regional diversity, to allow the different provinces to take their own path. For an outsider like myself it is not easy to judge whether it is good or bad for a country, because a country needs to have a sense of national unity. But the experience of letting the provinces have more freedom is something that should be tested. It is a risky undertaking, but what isn't?
| How do you monitor the good governance and the application of the Poverty Reduction Strategic Paper?
One of the interesting essential feature of this whole process that was clearly specified by the international community was that the strategy needs to be a national strategy. The government has to take on behalf of the country the responsibility for the strategy. And the counter part is that the international community agrees to eventually reduce the stock of debt. The country has to take responsibility for those programs that are financed by those resources. Their should be monitoring and reports made to the international community and to the domestic population about the result of those effort. So there is much more latitude given to the country than the traditional approach, which was much more controlled. The money coming from the donors came in small amounts, with various committees monitoring constraining the country. Under the new approach the money is there, it has been set aside by the budget. They already have 50 millions dollars extra to spend without cumbersome procedures to undertake. They have to agree to a general framework for utilization of the money. The IMF and the World Bank are not organizing the process, the government is inviting all the participant to seminars. The document produced is a national document, we, the IMF and WB, are forbidden to change one word. This is drastically different from the way the IMF operates, which has its own standard program. The fund as you probably know is in the process of some reforms and adjustment. We are refocusing more on our traditional tasks. The funds document incorporate much less pages and pages of conditions. The monitoring will be much more subjective in general, after a year they will have to submit a report on the implementation of this report. The report will be published and will receive reaction from the country and the rest of the international community. So far this program has worked very well, it has helped bring the donors together.
How would you rate the level of cooperation between the various actors of the economic life in Madagascar?
There is a division of labor, a greater collaboration among the donors. The different donors have different areas of interest, the new approach coordinates the effort to please the different parties.
The IMF focuses on macro balances, which is a question of macro economic policy. We tend to have interest and expertise in areas of the budget, public expenditure management, revenues, and financial system issues. At the moment we do not have a financial crisis in this country, our concern is the strengthening of the budget and revenues processes. We also have technical assistance; another important function of the fund is publication of data. We are involved in the preparation of balance of payment, price indices.
How do you interact with the private sector?
Not directly, the private sector should be an important consumer of the gathered data. However, they are not accustomed to receiving any information, this is a developing country. People are not aware of the information already published, some reports are published routinely on websites for example. People are not used to this openness and transparency, we've had relatively few request from the private sector. I am happy to give it if it is requested.
What opportunities would you emphasize for investors?
This is not really my field of expertise. I see that there is low cost of labor, stable country, and pleasant living condition. I do not see why there should not be more investment in various private sectors. People often ask me what sector is attractive, but not one sector is attractive. You have a country full of people eager for employment. There is a need for more people with managerial skills. Somebody should maybe create a good business school, with training for middle managers.
What would be your most rewarding experience in Madagascar?
It is not easy for me to answer, since my work involves dealing with so many areas. In general I see that there is a lot to be done, but there is a good effort performed toward those challenge. It is a challenging environment.
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