Interview with IMF head of mission, Jon Shields

As it looks to reform its economy after nearly three decades of civil war, Angola has been holding regular meetings with the International Monetary Fund (IMF). Angola has said it would like to have a Staff-Monitored Programme (SMP) with the IMF, which would allow greater scrutiny of its economy, despite allegations of official corruption and lack of transparency in the oil industry. The IMF mission head for Angola, Jon Shields, told IRIN that an agreement could be just months away. QUESTION: Where is Angola at today? ANSWER: There's a need to develop the infrastructure and to remake the economy. That's beginning to happen on a physical level - but then there's the question about how the authorities actually manage the economy as a whole; try to create a climate under which people can prosper; private industry can develop; and the natural resources of Angola can be well used. That's a matter of trying to recreate economic stability - a climate of low inflation, predictable and well-based public finances, and a sensible way of using the revenues over a sustained period; being relatively prudent, but on the other hand using what resources they can for economic development ... What [government] can do beyond the initial reintegration process is to make sure that it creates the conditions under which people can fend for themselves better, and redevelop community ties. There are some things that only the government can do in terms of creating a proper physical infrastructure: the roads are in dire condition, the railway needs rehabilitating, and starts have been made there; the basic provision of electricity and water also needs government involvement - the government is very conscious of the financial needs of reconstruction. Q: Shouldn't we be seeing more progress after two years? A: It's true that some countries have rebounded from either internal conflict or from wartime much quicker than this economy has. Sometimes it only takes a few months and you can see industry back in action; you can see farms generating production; you can see exports starting again; you can see foreign investors moving into the whole economy in a big way. [But] there are some particular aspects of this economy which make it not surprising ... There hasn't been an industrial base here for a long time; in terms of agriculture, people have been away from their homes for a long time; in some cases skills have been lost. It's a very big country and a large part of the infrastructure has been destroyed. The imbalances and inequalities in this economy certainly are very extreme. Given the oil wealth that it's been developing over the last 10 years, and its background in diamonds, it's not surprising that there are more severe inequalities than elsewhere. It's very difficult to equalise the resources. We see this in many countries round the world where most of the sources of wealth are concentrated in one or two large extractive industries. What ought to be the benefits of oil, diamonds, gold - whatever it may be - turn into a curse. In Angola there's been a civil war of nearly 30 years. You have a history of competition over very limited resources; you emerge from that period, but that history has produced a management structure, an ownership structure, and a culture of protection and of limited information which makes it difficult very suddenly to open up and use it well. It takes a little while to readjust ... to the interests of the wider economy and development. Q: Where is Angola in terms of transparency? A: There've been considerable advances made over the last year or two in the information provided by Angola to the rest of the world, and the way they present and use that information themselves. In the context of Angola, obviously the critical element has been revenues from the oil sector. A couple of years ago it was quite difficult to disentangle the flows in and out of the national oil company, Sonangol, and to determine what part of the revenue flowing through it was actually the government's, and what was necessary for their own operations - and to be sure that all the revenue was properly accounted for and well used. It's still the case that there's a bit of an interlocking web between Sonangol's activities and the rest of the economy, including the finance ministry. But evidence is being produced of how the pieces of the web fit together - flows in and out of Sonangol are more clearly identified than they used to be. It's reasonably straightforward now to look, on the one hand, at production flows in the oil fields - and the revenue generated from those production flows - and on the other hand to look at the government accounts, including payments made to it for royalties and tax, and to see the relationship between those two elements. Although [Sonangol may] get involved in a lot of activities which more traditionally would be for parts of the central government, including the ministry of finance, they're more obviously operating now as an agency of the government, rather than as a separate unit which wasn't fully accountable. Q: Some people say this is just window dressing to please organisations like the IMF A: It's impossible to be sure of the motivation behind specific actions. What is clear, however, is that the information now being produced fits a greater part of the reality. What was opaque before is now much clearer. That's helpful to the Angolan government, the Angolan people, and also for any agency that wants to deal with Angola - whether it be an international institution, a commercial bank or an oil company. Alongside that ... has also come greater scrutiny on a continuing basis - more use of external audits; more willingness to open up the background material that lies behind those figures; more willingness to talk about why things are as they are, and to consider whether there are better ways of operating. Q: How close is Angola to achieving an IMF programme? A: We now have pretty good accounts for Angola for the last year - for 2003. There are still some elements which we've had to make judgments about, but things look reasonably consistent. And that gives us a good basis for devising a programme in terms of objectives and policies. One of the continuing weaknesses with the information system ... is that it's quite difficult to get information from month to month, or quarter to quarter. So as you go through the calendar year, you don't have the same grasp as you have in other countries of precisely how the economy is developing. It takes a while for that information to come through. Now the systems are still being improved and there's a very sophisticated public expenditure management system now being put in place, and when that produces all that it's capable of, Angola will have an excellent system of public sector management and information. The other crucial element in agreeing a programme is that there must be mutual understanding about policies that are going to be carried out. The whole point of a programme is to ensure that resources be well used, and that the economy becomes more stable as a result of those policies. Angola has some way to go before it establishes stability, which we normally associate with a low inflation rate, or at least a stable inflation rate, and public finances which are predictable and well controlled. To launch an SMP, the Angolan government and the IMF would have to agree that policies were such as to keep bringing down the rate of inflation, and keep government finances under good control. Q: Can you give us a time-frame? A: What still needs to be worked out is the precise pace at which improvements should be targeted over the next year, and the precise manner in which the targets should be achieved. I think at the rate of progress that's been made lately, that there's every good prospect of achieving a programme within the next few months, a programme that would look forward through to 2005. There clearly are still questions about making sure that information provision is up to standard and there's full agreement on policy, so there's no guarantee that that can be done - but it should be within grasp this year. The process of agreeing on an SMP is a process of discussion between the authorities and the staff of the IMF about balancing ambitious goals against what's realistically achievable. In the context of the discussions, we hope we emerge with something which is both ambitious and realistic, but there are no absolute preconditions or absolute standards for the programme - it's a question of discussion and consideration. The programme will have targets and expectations, but it's not something one can specify before those discussions take place.