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Opinions of Wednesday, 27 November 2002

Columnist: Asare, Kwaku S.

So when is a SCAM not a Scam?

Yesterday, honorable Yaw Osafo-Maafo announced that the government has succumbed to intense pressure from our so-called development partners and is, therefore, discontinuing the pursuit of the much needed but needlessly contentious $1B IF?C? loan. This announcement that external forces had derailed a process that could bring much needed relief and development, which should have been greeted with utter outrage, was sadly, but expectedly, met with chants of ?we told you so? and ?scam? from the NDC MPs and their internet corroborators in the Ghanaian chat rooms on the world wide web.

So what is a scam and exactly what did our honorable NDC MPs tell us? As I understand the term, as further confirmed by my cherished Makola dictionary, a scam is a dishonest scheme, such as a scheme for making, or obtaining, money from somebody, by dishonest means. As an example, if a honorable minister, under the pretest of helping to computerize our courts, transfers $2M to his overseas collaborators and gives the country a $2 compact disk, we can say that the country has been scammed.

The term ?scam,? has been applied to the IF"C" loan to my utter bewilderment. If the IF?C? loan is a scam, as is being propagated in the chat rooms and elsewhere, then it must be evidenced by a deceptive scheme to fleece someone of her money. But who is scamming whom? Can anyone, using any form of analysis or logic, demonstrate to a serious evaluative evidence how someone used the IF"C" loan as a scam? Did IF"C" scam Ghana? Did Yaw Osafo-Maafo make money off of Ghana by dishonest means? Did anybody make money, using dishonest or even other means, in this IF"C" saga?

The Consortium Loan Agreement was laid in Parliament on Friday 28th June 2002, after Cabinet approval and, as required, it was referred to the Finance Committee for consideration and report in accordance with Article 181 of the Constitution and Standing Order 171 (1) of the House. The Minister of Finance and the Governor of the Bank of Ghana appeared before the Finance Committee to answer questions and address concerns of our honorable MPs and their fellow countrymen. Parliament approved the pursuit of the loan on 12th July, 2002. On November 26, 2002, honorable Yaw 0safo-Maafo announced that, due to intense pressure from our development partners, it will be in the national interest NOT to pursue further discussions and negotiations in respect of the IF?C? loan. So exactly where is the scam? Is pursuing a much needed $1B loan a scam? Is a loan not materializing a scam? Is seeking permission from parliament to source a loan a scam? Is discontinuing the pursuit of a loan, due to pressure from external agents to whom you are indebted, a scam?

Sadly, but predictably ?Ghanaianesque,? some have already claimed or will soon claim victory because the loan did not go through. But what is the victory here? What is the victory when your country misses out on an opportunity to obtain $1B that she needs badly?

And now to the so-called ?we told you so.? What exactly were we told by our honorable ?victorious? MPs? Does their prophetic powers emanate from being able to predict the outcome of the loan in advance? Just about everybody knows that pursuing a loan has two clear and mutually exclusive outcomes. It either materializes or not! Even a donkey can predict, with 50% chance of being correct, that the loan will go through or not go through.

In my opinion, the pursuit of the IF"C" loan was never a scam but it engendered some derivative scams. Specifically, a few people used the IF?C? loan process to scam others, not of their money, but of their goodwill towards the government. In other words, the IF"C" loan was used as a political scam to spread vicious propaganda against the government and a few unsuspecting people fell for it. It was Politics, in its dirtiest form, and those who participated in it ought to be ashamed of this 20th century tactic of opposing a good deed to spite your political enemies.

The scammers sold the following false items and a few unsuspecting and good intentioned people bought it:

    1) $35M has already been paid to the IF?C? as an origination fee. This was and is false.

    2) A sovereign guarantee has been issued and discounted. This made no sense and continues to make no sense. A guarantee is not detachable from a loan and is only good, to the lender, when the loan is obtained and the borrower defaults.

    3) A large sum of money has been paid by way of insurance to some nameless and faceless people. This is balderash. How do you insure an asset (loan) that you are yet to acquire? Any insurance paid is a mere prepayment, which is fully refundable. But there is no evidence in the record, that I am aware of, suggesting that there was a prepayment.

    4) A huge amount of finders fee has been paid to DeepThroat at IF?C.? This is hooey.

    5) That pursuing a loan from a non-traditional source will compromise the honor of the country. This is bunkum.
All the miscellaneous comments about ?losses? that will occur or have occurred by pursuing the IF"C" loan were just plain talk borne out of misplaced concerns, because no loss will occur and NO LOSS has occurred. The worst outcome, in most pursuit of loans, including the IF"C" loan, is the failure of the loan to materialize. When the loan does not materialize, as it has occurred with the IF?C? loan, Ghana borrows nothing and owes nothing.

Much has been made of the issue of whether proper ?due diligence? was exercised before pursuing the loan. To be sure, due diligence is necessary in a deal of this magnitude to ensure that all controversial contractual questions are resolved. Nevertheless, I believe this issue has been exaggerated partly because, in my opinion, the government failed to explain the issues involved with the IF?C? in a language that most laymen could understand. One cannot but conclude that there has been a significant information failure when the media becomes obsessed with whether a sovereign guarantee has been discounted and whether IF?C? will take the $35M origination fee and disappear into thin air, somewhere to planet Mars.

To be sure, the proposed IF?C? loan contract is, in substance, analogous to an ordinary buying and selling of a house or any other buy/sell contract that is consummated routinely at the Kantamanto market. In one case, the seller is selling an asset ? the house. In the other case, the seller/lender is selling an asset ? the loan. Both are governed by the laws of contract and are equally straightforward. However, it is the nature of the contract that determines who bears most of the risk and who must do most of the due diligence.

Regarding the house, the buyer ends up with the property after the contract and assumes the risks that he has bought a lemon. The buyer must do the bulk of the due diligence to protect herself because the asset (house) that she holds after the contract has unknown attributes. The seller, on the other hand, wants CASH for his house and is not the least bit interested in which bank, or relative, gives the buyer the money. When she parts with her house, she has CASH in her wallet and life is good. CASH has well-specified and known attributes.

Regarding the loan, the buyer/borrower ends up with CASH after the contract and, needless to say, assumes no risk that the CASH is lemon. CASH is CASH, as my mother will say! The buyer?s (i.e., borrower?s) level of due diligence does not rise to the level of the seller (i.e., lender) because cash is cash. The borrower (or Ghana in the famed IF?C saga) receives the CASH and OWES or does not receive the CASH and DOES NOT OWE!! Due diligence for the borrower is mainly about getting a favorable interest rate, origination costs and payment terms!!! The seller, on the other hand, receives only a promise of future payments and must be very interested in how good this promise is. Therefore, she must be extremely interested in who the buyer is. When the seller parts with her CASH, she has only a PROMISE in her pocket. It is the IF?C? not Ghana that stood to lose the most from a consummation of this deal.

So whoever bears the most risk must bear the brunt of most of the due diligence. In our house, it is mainly the buyer who must do most of the worrying. The buyer parts with CASH, with well-known attributes, and gets a HOUSE with unknown attributes. In our loan, it is mainly the lender who must do most of the worrying. The lender parts with CASH, with well-known attributes, and gets a PROMISE with unknown attributes.

Turning now to our development partners, I find their attempts to scuttle this initiative rather regrettable but expected. As Ghana owes them, it is in their best interests, although not in Ghana?s best interest, to ensure that Ghana does not over extend herself. All lenders are justifiably concerned about the balance sheet of their borrowers and they emplace debt covenants to restrict further borrowing.

Our development partners love to give us $20M here, 500 computers there, $50,000 there and 2 cars there. Each of these, be it a loan, grant, or aid, is enough for us to say thank you but entirely meaningless for us to effect any structural shift in our country. What Ghana needs is billions of dollars that will allow her to restructure a colonial economy set ablaze by wanton military intervention and destruction.

We need a version of the Marshall plan, of the scale offered to Germany after the Second World War. This scale of loan will not be forthcoming from so called development partners and it is time we explored private sources of funding, as the NPP government tried to do with the IF?C? loan.

This is the right time to go elsewhere for alternative financing as the stock market, worldwide, is bearish and investors have minimum options on where to invest. Regrettably, but as a matter of fact, The IF"C" loan was a great idea that has been torpedoed by the development partners, aided by their local agents and saboteurs.

I commend the NPP for trying where few would have ventured. The government should not relent in seeking alternative sources of funds for the country. However, I hope they have learnt a lesson. That is, in this information age, you cannot allow your detractors to villify your agenda without effective and immediate counterattacks. It must never give up the search for private sources of funds, including taxation on Ghanaians in the diaspora, for that is the only way to our economic salvation! Insha Allah!

In conclusion, anytime Ghana has the opportunity to source a loan, such as the IF?C? loan, that costs 3 cents on the dollar, it must aggressively go for it. In any future loans contracts, we must concern ourselves about the purpose to which the loan will be put not whether the loan will materialize or not and we must be ready to play hardball with our development partners, whose interests warrant that they discourage us from seeking alternative funds. We can only deal effectively with these development partners if we can speak with one voice and unity of purpose. Finally, we welcome the era of transparency and public discourse as this whole deal has been very transparent. It was the first time that a loan application had not only been laid before parliament but also printed verbatim on the World Wide Web.


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