cocoa farmers and the massive overvaluation of the exchange rate. While Ghanaian cocoa producers received 15 to 40 per cent of prevailing world prices, those in the competitor neighboring country Cote d'Ivoire received at least 66 per cent. Thus production went up significantly in Cote d'Ivoire in the same period, and its share in the world market increased from 13 to 30 per cent (World Bank 1994, p.<sup>1</sup> 56).

The overtaxing of cocoa farmers in Ghana eroded the revenue base as it depressed production and encouraged smuggling. In spite of falling revenues government spending increased unconstrained by budgetary considerations-quite a bit of it due to grants to public enterprises. At the peak of the fiscal imbalance in 1976 the budget deficit amounted to 11.3 per cent of GDP. The inflation rate as a result went quickly from single to double and even triple digit levels-the average being 58 per cent in the decade of 1972-82. The process of inflation eroded real wages in the formal sector, including the public sector. It had reached levels at which attempts to protect the real value of wages were quickly eroded by the consequent budget deficit and accelerated inflation. Government policy makers found it politically impossible to change the nominal exchange rate during the inflationary spiral. Instead the balance of payments deficits which the inflating real exchange rate caused were sought to be controlled by quantitative import restrictions. The shortage of essential intermediate goods dislocated production in non-agriculture and had a severe effect on the infrastructure. The public sector protected employment, but at the end of the period real wages of public employees were no more than 25 per cent of their level around 1970. It is not hard to imagine the dive in efficiency of government services which this must have caused.

# **2.2 The Economic Recovery Program** (ERP) **and After**

The program agreed to with international help in 1983 involved measures to stabilize the economy in the first place, followed by policies of structural reform on several fronts. A major effort was made on the exchange rate front leading to a massive devaluation as the. black market premium on foreign exchange fell from 2000 per cent in 1983-6 to 21 per cent in 1987-91. It virtually disappeared in 1992-4. On the fiscal side a sharp increase in revenue as a result of a successful readjustment of its sources made it possible both to narrow the fiscal imbalance and raise the level of expenditure. The stabilization of the monetary base led to significant fall in the inflation rate.

The decline in the rate of increase of the consumer price level also saw a marked improvement of the internal terms of trade in favor of the rural sector-according to one source the ratio of the wholesale price index of manufactured goods to that of agriculture, forestry and fishing fell by more than 25 percent between 1983-6 and 199294 (World Bank 1995, p.16). The relative increase in the price of tradable-which in Ghana are mostly of rural origin-was one source of the shift. Other factors were the general rise in real consumption boosting the demand for food, and the erosion of scarcity prices for importables, including essential inputs for urban goods and services.

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