June 2nd 2009
Mr. Dominique Strauss-Kahn
Managing Director
The International Monetary Fund
700 19th Street, N.W.
Washington, D.C. 20431

For the attention of the Board of Directors
Through W. Scott Rogers, IMF Resident Representative to Kenya.

Dear Sir,

RE: IMF’s ODIOUS LOANS ARE IMPOVERISHING KENYA THROUGH COLLUSION WITH CORRUPT AGENTS

“Transparency requires that the Kenyan citizen knows what they owe, to whom
they owe, and for what purpose they have a debt” – Partnership for Change

We refer you to our letter to the IMF dated March 30th 2009 regarding a loan request made by the Kenya Government to the IMF requesting for US$ 100 million. We also refer you to recent statements by your Representative to Kenya, W. Scott Rogers regarding investigations into the Supplementary Budget Estimates made on May 30th 2009. Mr. Rogers has been quoted in the media as saying:

"When the errors contained in the first printed supplementary estimates emerged, the ministry called me in to have a look at their database and talk with their staff and budget supplies to see if we could find out the origin of the problem," he said. "When those codes were correctly put in and the estimates reprinted as far as we can tell the errors went away." - W. Scott Rogers, IMF Resident Representative to Kenya May 31st, 2009 on the occasion of signing a USD 209 million loan for balance of payments support

The Partnership for Change finds the above statement strangely equivocal, especially since the re-submitted Supplementary Estimates still contain errors AND Parliament has authorised an independent forensic audit into the budget going back three years. We are reliably informed by Parliament that the process of procuring the services of an independent auditor is underway.

The Partnership for Change is demanding that Kenyan Members of Parliament, as the representatives of the People, make a stand against this most recent and what the Partnership for Change terms as an odious loan, based on the following arguments:

1. According to the IMF website, the IMF undertakes annual Country surveillances that take the form of regular comprehensive consultations with individual member countries with interim discussions as needed. The consultations are referred to as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to collect economic and financial data and to discuss the country's economic policies with government and central bank officials. IMF staff missions also often reach out beyond their official interlocutors for discussions with parliamentarians and representatives of business, labor unions, and civil society.

a. At no time during their Supplementary Budget investigations did the IMF reach out to the Partnership for Change (originators of the report into the Supplementary Budget Estimate errors), nor any other civil society member whose work concerns Kenya’s national budget-making process. The Partnership for Change can only conclude that the IMF’s findings announced by W. Scott Rogers on May 30th 2009 are invalid as they do not incorporate any views except from the Treasury.

b. Furthermore, the Partnership for Change previously wrote to the IMF on 30th March 2009, requesting the organisation to exercise prudence in respect of the Government of Kenya seeking a US$ 100 million loan. At the time, Partnership for Change urged the IMF’s Board to insist that:

i. The Government of Kenya immediately demonstrates austerity measures, including the reduction of the number of ministries to a reasonable number

ii. An Audit of Kenya’s External Public Debt Register be made and issued to the Public through the National Assembly

iii. A Report on pending legislation and threatened proceedings against the Government of Kenya on the basis of Sovereign debt be made and issued to the Public through the National Assembly

iv. In the Public Interest that the Permanent Secretary, Treasury and the Head
of Debt Management resign.

v. All wasteful expenditure is removed from the National Budget estimates to be presented to Parliament in June 2009 and that the Estimates to reflect 60% in Development expenditure and 40% in recurrent expenditure.

vi. Provision by the Government of Kenya of evidence that it has requested mutual legal assistance for international asset recovery on past corruption cases and has taken action to seize proceeds of corruption in Kenya.

Apart from an acknowledgement of receipt to Mwalimu Mati on behalf of the Partnership for Change from Mr. Scott Rogers and an indication that the same letter was passed onto yourself, the Partnership for Change has never received any other official communication from your organisation. Once again, the Partnership for Change can only conclude that in light of no response from April 2009, that the IMF chose to ignore the high priority matters regarding Kenya’s economic policy, and thus in line with the IMF’s Article IV, recent findings by the IMF on the Treasury do not concur with the IMF’s internal procedures, and thus should be deemed null and void.

We however received a request to unsubscribe Mr. Scott Rogers from our website. This request came when the Partnership for Change began to profile the budget. It is noteworthy to mention that we declined to do so in the public interest and because we expect that this subscription is in effect our voice to the International Monetary Fund Board, and these addresses are in the public domain.

c. The history of the IMF in Kenya has been one where information on loans are only privy to a select few. It is important that those who re-pay these loans, in this case the Kenyan Citizen are consulted and agreeable through Parliament to incurring such debts.

2. The IMF has developed standards and codes of good practice in economic policymaking. It is therefore inconceivable that the same IMF has given a pass grade to the financial impropriety carried out by the Treasury passing it off as a mere “coding” error.

3. It is additionally astounding that the recent events in Kenya concerning the Supplementary Budget Estimates have not been found to fit the IMF’s vulnerability indicators and early warning system models which were developed in the first place to improve the organs ability to identify countries at risk.

4. The IMF has also let itself and its member country contributors down by being lax in its mission to promote good governance, particularly in the public sector. In turn the Treasury has let the IMF down if it has been a recipient of IMF training in fiscal policy and management (specifically budget formulation, expenditure management, design of social safety nets, and management of domestic and foreign debt).

5. The IMF terms as it's “main business” oversight of member countries macroeconomic and financial sector policies. These include oversight of member country policies relating to the government's budget. The Partnership for Change states that in Supplementary Estimates this has not been the case.

6. Supposedly, IMF lending signals that a country's economic policies are on the right track, reassuring foreign investors of the safety of their investment in loanee countries. Thus, IMF financing acts a catalyst for attracting funds from other sources. The Partnership for Change in this case is issuing a caveat emptor for any interested investor, not to take this latest irresponsible injection as an indication that all is well in Kenya.

7. The IMF claims to promote the UN Millennium Development Goals through financial assistance and advice. However its recent actions will not promote:

• Eradication of extreme poverty and hunger
• Achievement of universal primary education
• Promotion of gender equality and women’s empowerment
• Reduction of child mortality
• Improvement of maternal health
• Combating HIV/AIDS, malaria, and other diseases
• Ensuring environmental sustainability

Lending 16billion shillings to a government where 85% of its budget is spent on recurrent expenditure, and who according to the Supplementary Budget is more interested in budget items such as personal allowances and foreign travel, means that the chances of expenditure on these MDG goals will suffer.

8. The IMF agreed in 1997 to take "a more proactive approach" in trying to "eliminate opportunity for rent seeking, corruption and fraudulent activity." The Supplementary Budget errors were clearly an attempt to defraud the Kenyan populace of its resources yet the IMF was not proactive in this instance.

The Partnership for Change therefore is joining calls for the IMF to immediately do an inventory of loans lost to corruption and public sector financial impropriety GLOBALLY. An independent panel of experts should determine, on a case by case basis, where responsibility lies. If it is found that IMF staff knowingly lent money to regimes who then siphoned it off through corruption, thereby contravening the institutions' fiduciary mandate, negotiations about sharing liability should commence immediately.

Kenya simply cannot afford more of the IMF's loan “medicine”. We as a people are demanding the freedom to follow economic policies that protect the country from more harm.

The IMF is governed by, and is accountable to, its member countries. As we are the ones that elected Kenya’s leadership, in effect it means that the IMF is ultimately beholden to US.

ODIOUS DEBTS

For 65 years, the IMF has loaned billions of dollars to Third World governments without adequate public oversight and in the absence of market discipline. In the process it has financed dictators, spawned corruption, harmed the environment, wrecked economies, and then forced the Third World’s hostage public to pay the money back. In law, these debts are known as “odious”.

Most Third World Countries have very little to show for all IMF debts. Re-payments are in effect "shark fees" paid for funds that have long since vanished and the present value of the debt is even higher. Servicing huge unproductive debts drain the funds needed for education, health care and development.

Economist Henry James argues First World countries also pay a hefty price tag in the form of increased requirements for homeland security and military might, as more and more countries descend into the ranks of the "Fourth World" – failed states that foster transnational corruption, drug running, arms traffic, and terrorism as a result of irresponsible loan making and loan taking.

Apart from their support for corrupt regimes, the IMF’s draconian prescriptive policies that insist on public expenditure cuts and the raising of interest rates have also played a huge role in entrenching poverty.

Today 70% of Africans live on less than two dollars a day meanwhile the IMF continues to loan hundreds of billions of dollars to their corrupt leaders with nothing to show for it.

Ethiopia, one of the poorest countries in the world was forced to hike fuel prices, cut public spending, and reduce its deficit. Ukraine was forced to keep its deficit at zero. Belarus and Latvia had to cut public-sector wages. Pakistan had to raise its electricity taarifs. Hungary suppressed workers’ “13th month” bonus after reducing retirement benefits as part of a previous agreement. The list goes on and on.

In Kenya the effect will be felt when IMF budget and wage caps prevent the government from spending what is needed to hire teachers and medical staff as well as efforts to ensure food security through modernization of the agricultural sector.

KENYANS WILL NOT TAKE IT LYING DOWN

The IMF who made the corrupt loans to Zaire and lent for projects in Africa that failed repeatedly is still in charge of the global economy. Its role has been enhanced because of its success in pushing loans. Can we reasonably trust the IMF to suddenly only lend wisely; to not give loans when the money might be wasted? Joseph Hanlon and Ann Pettifor of Jubilee Research write: 'Preventing new wasted loans and new debt crises, and ensuring that there is not another debt crisis, means that the people who pushed the loans and caused this crisis cannot be left in charge'.

The creditors or loan pushers cannot be left in charge, no matter how heartfelt their protestations that they have changed. Pushers and addicts need to work together, to bring to an end the entire reckless and corrupt lending and borrowing habit.

The IMF potion is so bitter but some governments have stood up against the IMF. The Ukraine declared the conditions imposed by the IMF to be “unacceptable”, especially the gradual raising of the retirement age and increased housing costs.

THE TIME HAS COME TO CHANGE THE IMF’s BAD HISTORY

In 1944 in a town called Bretton Woods in the United States where a group of leaders from 45 countries met to rectify the damage caused by the 1930’s depression on the world economy. A foundling organisation was decided upon, tasked with the mission of fostering free trade and global prosperity….

Read full letter.

Partnership for Change
From Dictatorial Impunity to Democratic Accountability in Kenya
June 2, 2009, Nairobi Kenya

c.c.

Open Copies to

1. All Members of Parliament ( Kenya National Assembly)
2. Bi – Lateral Donors to Kenya
3. The Country Resident Director, the World Bank
4. The Resident Representative, African Development Bank
5. The Resident Representative, International Monetary Fund
6. Media
7. The Board of Directors of the World Bank

* Please send comments to [email protected] or comment online at http://www.pambazuka.org/.