Mukan’nenere, mukan’nenere kwa oyang’anira za chuma, Mukan’nenere!! Mfundo za chumazi inu zabwera udyo – Mukan’nenere!! Kodi mukufuna akondwe ndani?- Mukan’nenere!! IMF kapena World Bank?- Mukan’nenere!! Mwina nkumene kuli anthu a dera lanu – Mukan’nenere!!”
– McDonald Mlaka Maliro
Lessons from Botswana:
Botswana was, along with Malawi, one of the 10 poorest countries in the world on getting independence from Britain in 1966. Botswana had a per capita GDP of only $70.
From this inauspicious beginning, the first president, Sir Seretse Khama, and his governing Botswana Democratic Party put the country on a path to massive growth and successful modernization which enabled the country to transform its economy within 15 years.
The transformation was not achieved accidentally but was rather a result of good planning, political will, consensus and national unity coupled with excellence in execution and a genuine zero tolerance for corruption.
It goes without saying that Botswana’s presidents were not allergic to declaring assets – the hallmark of leaders willing to walk the talk.
As a result, growth rates averaged 9% between 1965 and 1999, peaking as high as 14% which is nothing short of a miracle when compared to the 5.3% growth for Sub-Saharan Africa as a whole.
Today, annual per capita GDP is over $10,000, placing Botswana among the ranks of upper-middle income countries.
Is Botswana an IMF stooge?
Botswana pursues a state-run model of economic development. It delicately balances socialist policies with liberal market reforms; development philosophies that have been at odds in Africa since independence.
Socialism emphasizes self-reliance, regional integration, protectionism, import-substitution industrialization (ISI), and state-run enterprise which are totalharaam to the World Bank, IMF, and other international donors.
While developing nations like Malawi and others that have borrowed from the Bank and IMF (and depend on western hand-outs) have been forced to abandonsocialism and open themselves to the free market by:
- dismantling trade barriers,
- devaluing their currencies,
- privatizing industry,
- and creating favourable climates for foreign investment;
Botswana proved all these prescriptions wrong.
It started and consolidated on its journey to development by going in the opposite direction – and succeeded while those that followed the gospel according to the IMF are to date wallowing in poverty and the IMF usually has the nerve to say it is their fault.
Caveats on Western Aid and the IMF:
What should be borne in mind is that it is a standard operating procedure for the IMF to claim success even when countries succeed after ignoring IMF’s recommendations, but to refuse to share/take the blame when countries fail after implementing the usually faulty prescriptions which often are based on wrong assumptions.
It is a fact that the IMF is a baby of western powers. And the IMF being their baby, to ensure its relevance and guarantee it perennial clients, donors in the 1980s madeloans (and grants) conditional on IMF reforms, then called Structural Adjustment Loans (SALs).
Botswana, which has done remarkably well than its African peers, has never accepted SALs and manages with very little foreign aid in its development process.
Reflection No 1:
Given that Botswana’s success is rooted in doing the opposite of what the IMF would have recommended, is it wrong to conclude that if Botswana had (like Malawi) swallowed IMF advice line, hook and sinker, it would have today been teetering on the brink of economic failure and battling for life in “ICU” on donor hand-outs like Malawi is?
I will leave this to you and move on.
Thinking globally, acting locally:
Although Botswana is now an upper-middle income country, with the highest per capita GDP on the African continent; it is proactively planning ahead but still without radically departing from its strategy of centrally-planned development with a heavy emphasis on state-owned enterprise and wealth redistribution.
Nevertheless, it has voluntarily embraced a lot of adjustments, IMF-style liberal market reforms, but:
- the government still directs Botswana’s economy and,
- is actually leading the new-drive market liberalism.
The development goals of the adjustments focus on diversifying the economy away from mining and toward manufacturing, agriculture, and services sectors.
While the government has engaged in several free-market reforms that resemble IMF and World Bank programs, it has not shifted to pure western-style capitalism.
The major impetus behind these changes is high unemployment— officially 26.8% in 2005 caused by the reliance upon diamond mining, which is not labour-intensive and thus produces few jobs .
The bottom line is that Botswana today is a living proof that well-managed and corruption free state-run development is not always a bad thing and that a country can develop without wholesale importation of exotic development theories.
Not diamonds per se but prudent management:
There are numerous reasons for Botswana’s unique development success. A crucial proximate factor cited by everyone is the country’s diamonds, discovered in 1970.
Botswana is the world’s largest producer of diamonds and home to the most valuable mine in the world—Jwaneng. Diamonds account for 70-80 % of the country’s exports and one-third of its total GDP.
In Malawi, tobacco was until recently catering for close to the same proportion with respect to GDP, but the main difference is that wealth generated by the green gold was and has never been evident in the many households that contribute to its production.
This goes to prove that simply having such mineral (or other) wealth is not enough to guarantee prosperity. Nigeria, Ghana, and many other African nations are similarly rich in national resources but far behind Botswana in economic development.
The key to Botswana’s success is that diamond revenues have been successfully managed and accounted for by the government.
Pro-country bargaining with investors:
The sole diamond mining company, Debswana, is 50% owned by the government and 50% owned by DeBeers.
DeBeers used to own 85% of the company, against the government’s 15%. But in 1974 Botswana negotiated an increase in ownership; something Malawi is failing to do with Paladin (the uranium miner).
From the look of things, the Paladin robbery will also the case with the oil prospectors, should they indeed hit oil in Lake Malawi.
Because of the 50/50 partnership, the Botswana government currently earns 47% of its total revenue from diamonds and is able to keep the tax burden low – with corporate taxes at 25%, and value-added sales tax (VAT) introduced only in 2001.
To put things in their proper context, if the Tswana leaders were as corrupt the Malawi lot, DeBeers would have deposited a huge sum into their Swiss accounts or DeBeers would have been funding their political parties and the leaders would have looked the other way, not bothered to renegotiate ownership of the national treasure – as long as they are personally benefitting!
Did late President Mutharika make any tangible follow-up after Dr Perks Ligoyaagitated for renegotiations with Paladin?
Has President Joyce Banda, despite talking a lot about practically everything, ever mentioned uranium ? Doesn’t this silence vindicate Lifred Nawena’s parliamentary revelation?
For now, let us shelve these questions, lest they derail us from our serious (and more important) discussion.
Equitable wealth redistribution:
The Botswana government uses the diamond revenues to redistribute wealth among its citizens and invest in public infrastructure, both prime examples of Botswana’s socialist policies.
Government investments include:
- constructing schools and hospitals,
- covering costs for students through the university level,
- providing start-up loans for new enterprises,
- conducting job training programs, and
- financing construction of theTrans-Kalahari Highway to better connect the land-locked country to its neighbours.
Other than providing social services and redistributing wealth, the above interventions ensure that future Tswanas are being groomed to deal with the challenges ahead, one such challenge being that contrary to the adage, diamonds are not necessarily for ever.
Botswana also spends a significant amount to overcome major public challenges like the arid, infertile climate, the HIV epidemic and government-sponsored research of dry-lands agriculture.
Reflection No 2:
Can wholesale implementation of IMF policies get Malawi out of her economic mess in the light of the Tswana experience? And indeed, are the IMF policies designed to help borrower countries develop or are they designed to render them forever indebted to IMF?
This is for Malawians (capable of thinking) to ponder in the light of Lagarde’s recent visit and her lavish praise to the current leadership for the so called reforms and admonition to take the full dose religiously.
The fact is: it is doubtful if President Joyce Banda has ever given a thought to these questions. And this is the least that any leader – with average intelligence – should grapple with before talking about national development.
Is it humanly possible to defy the IMF’s dictates?
Let us start by getting rid of one argument than can lose us focus and proceed on the basis that the devaluation of the Kwacha was inevitable.
The question we should strive to answer is: did we really need to devalue and float the Kwacha simultaneously?
My studied perspective is that floatation is not what any “doctor” worth the name would have prescribed for the Malawi economy for the reasons expounded below.
While I am at it, I also hold and submit that the Malawi Government failed in its duty of care towards the poor by not trying hard enough to convince IMF officials that until Malawi’s trade balance changes for the better, the Kwacha has nothing to buoy it against the free-fall it is currently in.
The thing is: a truly floating currency should be somewhat stable and have the propensity to go both ways: up and down.
This is not the case with the Malawi Kwacha. There is only one way for the Kwacha: and that way is down, down, and down.
The Kwacha, if I may apply English in the literal sense, is “sinking”, not “floating”. It is heading to the bottom – and this I would not call “floating”.
The economists amongst us should help us with another jargon, but “floating” is not what the Kwacha is doing.
And this downward spiral, cannot be left 100% to market vagaries in a country where 39% of the people live on less that a dollar day, unless this is some diabolical plan to do away with the poor.
Having said that, the negotiating team should have told the IMF point blank that yes we will devalue but not “float” because the Kwacha lacks buoyancy, and can not be floated.
Can the IMF take “No” for an answer and still lend Malawi money? Yes, if Malawican make and present a good case.
The Bolivian Case:
Bolivia is on record that it found success by diverging from the IMF’s economic recipes. The Bolivian Finance Minister Luis Arce said his government decided to ignore IMF policies after observing the failure of the fund’s policies in other countries.
Bolivia consequently reduced extreme poverty to just over 24 percent of the population in 2011 from more than 38 percent in 2005 by pursuing policies contrary to Fund recommendations.
And per capita GDP doubled between 2005 and 2011.
“In Bolivia we have achieved better wealth distribution with higher state involvement. We have never had faith in the market and we abandoned a market-based economy in 2006,” Arce said, adding that the faith many IMF economists have shown in the “perfect market” was misguided, given the economic crises caused by their policies.
“The directors of the IMF have good intentions but certain departments are absolutely deaf to the changes that should be made within the Fund,” Arce continued. “The best thing Lagarde could do is make sure her good intentions make it through to the next level.”
And guess who claimed credit for the Bolivian success? The IMF! And even before Malawi makes her case to review the arrangment, key IMF staffers are increasingly admitting that IMF policies have worsened bad situations.
“We are in a period in which many countries are in the liquidity trap. As we know it doesn’t mean they cannot use monetary policy, but monetary policy is much more constrained than in normal times. In this case, you just get the effect of fiscal consolidation without the offset from monetary policy.” said Olivier Blanchard, the IMF’s chief economist, recently.
What arguments can Malawi table against floatation?
There are many but the key one is that floatation, which in the case of the Malawi Kwacha equaly unmanaged devaluation would render Malawi unable to meet at least two of the IMF’s objectives for the Extended Credit Facility (ECF) and that like in the South Korea case (which took out a US$21 billion IMF credit line in 1997 and agreed to an economic program that led to its economy contracting by nearly 6 percent in 1998), Malawi would be worse off.
Chung Duck-koo, who headed the South Korean delegation that negotiated the 1997 bailout, said the Fund misdiagnosed a currency crisis as a fiscal policy problem and prescribed the wrong reforms.
“It (the IMF) was like a fire fighter, having arrived far too late, who turned out to be short of sufficient water and short of the precise assessment of the nature of the fire,” Chung Duck-koo told Reuters. “Therefore, the fire resulted in getting bigger.”
a) Floatation, like devaluation, contradicts the IMF’s own inflation objectives:
As per P. Kalonga Stambuli: “real exchange rate rules aim to promote export competitiveness, and they require that changes in the nominal exchange rate are linked to the difference between domestic and foreign rates of inflation in order to keep the real exchange rate from deviating too far from its level in some base period.”
The contradiction stems from the fact that if floatation is the instrument used to facilitate such realignment, government loses control over the domestic inflationary policy.
And this (loss of control and run away inflation) is why the Reserve Bank Governor is trading barbs with the Commissioner for Statistics over inflation stats – a bad carpenter typically blaming his tools.
Again, floatation implies that the exchange rate is indexed to the domestic price level via the balance of payments and money supply.
A well-known characteristic of Malawi is that government is the largest consumer of foreign exchange, in the context of debt service payments not counting bloated entourages on foreign trips.
This means that exchange rate depreciation magnifies the public sector net cash requirement, leading to a faster rate of monetary growth, effectively resulting in further cyclic inflation.
This contradiction is why late Kalonga Stambuli wondered why the IMF advocates a fight against inflation in the fiscal channel while also advocating policies that lead to inflation and high interest rates via channels outside the budgetary framework.
A recent example is the State House Budget Over expenditure. The State House budget was blown in five months partially due to the fact that expenses and debtors whose accounts were denominated in foreign currency, had to be paid more Kwachas than initially budgeted for.
Under a floated currency regime, Malawians should get used to such “news” and Steve Nhlane should get a lot of practice in making refutations. He may wish to consult Dr Ntaba.
b) Floatation militates against another IMF pronunciation of public enterprise divestiture in favour of ‘broad based domestic ownership of corporate assets’:
What are we saying here? As a direct result of IMF’s policies, privatisation in African countries has become synonymous with foreign ownership partly because domestic citizens cannot compete with foreigners.
It is foreigners with hard currency who take advantage of the free-falling domestic currency to acquire shares at a discount large enough to offset other corporate risks extant in investing in these countries. Again, a foreigner with hard currency has more muscle than the Malawian.
Therefore, in the case of Malawi, before the IMF and its western godfathers know it, the Chinese will buy up whatever Indians have not purchased already.
And this is because, thanks to the contradictory policies of the IMF and an over-excited but unsophisticated leader, Malawi nationals will have no savings to meaningfully compete in investing.
On these two grounds, rooted in IMF’s policy inconsistence, it was possible for Malawi’s Minister of Finance to refuse floatation and opt for periodic devaluations to be done by Government after assessing several factors.
Now, is there anyone who still fails to understand why floatation for Malawi is like a drug with fatal side-effects?
It is all too easy to say: all this is Bingu’s fault, and continue partying, hand-clapping and happily feasting on the nutritious bonya.
But seriously, what is my take? I agree that the deferred devaluation was Bingu’s fault. He should have phased it over the years.
But having said that, the floatation of the Kwacha is another matter. It is a result of the current government’s failure to use the massive goodwill back in May –June 2012 to negotiate a better package for Malawi with IMF.
Now what next? Can we go back to the IMF and renegotiate? Yes, we can – but first we have to eat humble pie and agree that we goofed. Can President Joyce Banda eat humble pie?
I do not know.
The IMF is sort of expecting and dreading this; hence the unprecedented, pre-emptive visit by none less than Christine Lagarde, the Managing Director of the International Monetary Fund.
“It’s like you are crossing a river and you are now at the middle of it. For Malawi, what is on the other side of the river is very promising than what you left. You have to complete the crossingfor you to see the benefits,” Lagarde said during a press briefing.
What Christine Lagarde failed to mention is that with a faulty vessel, an incompetent and increasingly arrogant pilot using on a defective campus, reaching the other side of the river will remain but a dream, if the boat does not capsize.
The one sure thing is that: the people in this Lagarde boat will for years to come, be praising the god the IMF wants to be.
What and who could influence President Joyce Banda to request the IMF to reconsider on the floatation?
It is you the people.
You have the power to impress President Joyce Banda to stop posturing and do what needs to be done and undone. What is it that they say about a stitch in time?
Even as we speak, your future (and your kids’ future) lies in your hands.
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