Third terms

Imagine a country with rich Uranium reserves in the Northern part of the country. It’s growth during the last two decades has been around a remarkable 10 percent under a President who is now serving his second term. He also renegotiated the licence for the uranium mine in his country-s favour. The greater beneficiaries of his development strategy are the peasants among whom he enjoys enormous popularity. His country has enjoyed unparalleled political stability.

The President want to change the consitutional to allow for than two term. He declares a state of emerge, dissolves the constitutional court for ruling three times against his plan and also dissolves parliament, which also opposed him.. This should prepare the way for referendum to change the constitution to him a third a Third term.

The Country is “poverty stricken” and ranked the poorest in the world. Malawi Right? Wrong! Our leaders couldn’t sink to that level of stupidity. This is the sad story about Niger.

The President argues that the referendum is not about the third term but about the appropriateness of the constitution itself. He points out that there is something wrong that has allow him to constitutionally declare a state of emergency! Asked whether he is worried that the AU will be unhappy with his government’s decision, the Prime Minister responds that no one in the AU can teach Niger about democracy and definitely not Nigeria who President’s election was dubious.

Mr. Omar, the communications minister, said Tandja wants to "re-establish full democracy...the people must chose, thank their leaders and also keep in power for long a president of the republic that meets their aspirations."

Mr. Tandja himself has said that the constitutional project would allow him to ensure a three-year transition during which no elections would be held. At the end of the transition, he could seek as many mandates as he wanted.

Already the EU has suspended all aid to Niger.

The country’s fragile stability is threatened.

"The Secretary-General is deeply concerned about the ongoing political and constitutional crisis in Niger, which threatens to destabilize the country and undermine the progress made in recent years to consolidate democratic governance and the rule of law," a spokesman for Ban Ki-moon said in a statement.

The World Bank and this year's budget

One new feature of World Bank involvement in local affairs or what they themselves like to call “openness’s” or “transparency” is the running comments on government policy. A recent example of the this new approach are the comments on the budget. The World Bank country economist Khwima Nthara, while describing the budget as a “bold one”, informs us that the increase of duty on agricultural products may not augur well with principles of liberalisation. At a time when neoliberalism is being buried in the developed countries and at a time when many governments are nationalising banks and industries, subsidising national industries, insisting onthe  reservation of certain large scale projects to national institutions etc Mr. Nthara informs us “The era of protectionism is long gone” . He does not us tell whether the measure is good or bad or will serve the intended purposes of encouraging certain industrial activities but that it does not augur well for an ideology. He then adds that the budget has ignored the consumer: “I would rather buy cheap tea from outside the country than expensive local tea”. It does not occur to Mr. Nthara that most consumers in Malawi are also producers and that more productive farmers (due to subsidies) would rather work and buy the more expensive local tea than be unproductive and rely on crumbs of cheap imported tea. But even more depressing is that Mr. Nthara seems completely unaware that his masters in Washington DC have moved away from their dogmatic opposition to any industrial policy. In World Bank doublespeak one does not, of course, talk about “industrial policy” (that is still off limits) but, as John Page (of the World Bank) now calls it “policies for industrialisation”.

Mr. Nthara praises the budget for not adopting “populist” policies in light of the fact that DPP run a populist campaign. That is a weird observation. Were DPP inclined towards populist policies they would have pursued them BEFORE the election when they needed to woo voters. If any praise must go to DPP it is precisely that they did not go on a "populist" spending binge in the run up to the elections.

To devalue or not devalue: that is the question.

To devalue or not to devalue: that is the question. For years the World Bank and the IMF have simply pushed devaluation to solve balance of payment problems. That has often been too easy an one-size-fits all solution to a complex question. There are often two conflicting objectives around the exchange rate. On the one hand there is the concern for economic stability to encourage investment to ensure economic growth. Devaluations can inject an element of uncertainty in the economy that often discourages investors. This hurts the long term growth prospects of the economy. On the other hand there is the need for flexibility and competitiveness. A stable but overvalued currency will discourage exports while encouraging imports. This may lead to serious balance of payments problems that would, in turn, undermine confidence in the economy and eventually undermine investment.

The President has evoked the “economic stability/investment” argument and we believe he has his priorities right. Experience with the massive devaluations of the 1980s is that they did not lead to the expected export booms and instead simply contributed to great volatility. This undermined investment and destroyed export capacity. Competitiveness based on devaluations is not sustainable and too much focus on manipulating the exchange rate to promote exports may detract attention from the more useful path of gaining competitiveness through improved productivity.

In all this there is the unresolved question in the direction of causation. Is it investment that leads to greater export or is export that stimulates investment? If the former is the case, then Bingu’s point stands and if the latter is true than those arguing for devaluation have a point. Economists are not agreed on this. The best one can say is that the policy makers will have to decide on the basis of what they know to be the causal direction in their respective countries. There does seem, however, to be a strong case for the invest-growth-export sequence. In any case the many drivers of Malawi’s current growth – investment in mining, infrastructure and technology-driven telecoms are not desperately in need of devaluations.

Where Bingu is wrong is in his swearing that he will never devalue the Kwacha. That is a little disingenuous and not credible. He would be better advised to state that the government’s reading of the current situation is that the stability argument is the more appropriate one for the economy and that the government will make the necessary correction when needed. He could argue that the government is doing everything to promote exports by improving communication to reduce transaction costs and providing seeds and fertilisers that are making Malawi a bread basket.. He will however have to contend with the fact that the country’s reserve are dangerously low and that may discourage investors.

Ultimately the smart policy is one that ensures a stable but “realistic” and competitive exchange rate that assures investors and facilitates exports. In other words the government should strive to achieve and then maintain a stable real exchange rate that is sufficient to promote a high export growth rate and cushion the country’s reserve.

Finance Minister' s Challenges

Our new finance Minister takes a task with many challenges. The first of these is taking over from a Minister who rightly or wrongly accredited with extremely impressive economic performance. He will have to maintain that level of performance. Any slippage will be blamed on him, even it is caused by factors beyond his control..

The second challenge is establishing his own standing in the financial world. In today’s world Both the need to attract aid money and the need to “signal” international financial institutions have increased the role of economists certified by international organizations. One is supposed to be ~former IMF official”, “Harvard trained economists” etc. You ought to be able to throw around such expressions “sound macroeconomic policy”, “prudent fiscal policy” “good governance” with natural ease. It also helps to have the right label. The labelling of Africa politicians for Western consumption is fascinating. Bingu whose career was mainly in the UN and African regional organisation became the “former IMF or World Bank official” and of course Gondwe had the perfect credentials. Our finance Minister who for domestic consumption is labelled as the nephew of Dr. Banda, or as head of Blantyre Newspapers and Print and National Food Reserve Agency now appears as “a former UNICEF financial consultant” (Reuters). Presumably this enhances his status as finance minister although it is difficult to see the link. Until quite recently, UNICEF was a staunch critic of the folks from Washington. Our new Minister might find it wise to stress he is from the private sector. Although the current crisis has tarnished the image of auditors, he should also highlight the fact that he worked for the renowned international auditing firm KPMG. He should not worry too much about such questions as the relationship between auditing and macroeconomics.

The third challenge will be around the issue of devaluation. One fatal blunder Gondwe commited just before the elections was his statement that devaluation was then politically impossible, given the then forthcoming elections. The impression he gave was that devaluation would be seriously considered only after the election. It is likely that this indiscretion cost him the ministry and this may be the point Bingu was making when he talked about the importance of “secrecy” in government affairs. Gondwe-s indiscretion may have simply encouraged speculation against the Kwacha. Whatever is the case, the President has promptly dismissed the prospect of devaluation. We do not know where Kandodo stands on the issue. He has yet to visit the Hole for a chat. Malawi businessmen seem to favour devaluation and he will surely hear a lot of it in the financial circles he will now be moving in. Donors and NGOs love devaluation because it makes their money (including their personal incomes) go a long way. He will soon or later have to have a position.

The final challenge is reminding the President of the fiscal constraints within which the government is operating. This can be a hazardous task. It cost Aleke Banda 12 years in jail when told third. Banda the national coffers could no longer afford his profligacy and that Tembo then at the Reserve Bank told him so. Confronted by Kamuzu Banda, Tembo swore he had never told Aleke such a preposterous thing. Aleke ended up in jail, labelled as “wa bodza leni leni”. That also marked the beginning of the Malawi economy since to meet Dr. Banda’s increasingly bizarre demands (the New State House, costly entourages of Mbumbas etc) investments in crucial sectors – infrastructure, education --- had to be cut sharply.

On the positive side, our President understands the economic problems and the international environment. In addition mining will be adding US$30 million to the national coffers from next year and double as much a year after.