So, it was trial and error?
It takes a man to say sorry and in the same breath, I applaud Malawi President Joyce Banda for her down to earth admission that her administration underestimated the impact of economic reforms currently being implemented in the country.
This is not new as many commentators, including this columnist, had earlier suggested that the Banda administration was experimenting theories on Malawians. What is new is that, typical of many Malawians, the President waited for a mzungu [the white man/woman] to admit shortfalls earlier outlined by her fellow Malawians. She told this to International Monetary Fund (IMF) managing director Christine Lagarde at the Kamuzu Palace in Lilongwe.
The President said: “We noted that the impact of the [economic] reforms was underestimated due to inaccurate information and data that was used from the previous [Democratic Progressive Party] administration.”
Barely one month after ascending to power in line with constitutional order after the death of president Bingu wa Mutharika, Banda’s administration introduced free market economic reforms, including the 49 percent devaluation of the kwacha and its subsequent floatation. It also reintroduced in earnest the automatic pricing mechanism (APM) on fuel and deregulation of water and electricity tariffs.
These measures were part of the IMF’s prescription aimed at restoring its supported economic programme, the Extended Credit Facility (ECF) which was suspended during the Mutharika administration in 2011.
Besides, in its continued bid to stabilise the kwacha and anchor inflation expectations, the Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) thrice increased the bank rate between April and December 2012. The bank rate—the rate at which commercial banks borrow money from the central bank as lender of last resort—now stands at 25 percent, but borrowers in commercial banks are paying up to 40 percent and above as the cost of borrowing.
The end result: Life has become unbearable for many Malawians as prices of goods and services have skyrocketed, reducing their buying power as their sources of income have virtually remained static.
And now we have a confirmation that all these reforms were undertaken as an experiment at the expense of lives of poor Malawians? Sad. If the decisions were based on wrong data as the President would want us to believe, why didn’t government do a thoroughly situation analysis midway on whose basis it could have taken the right decisions.
The President’s decision vindicates her critics who have all along charged that government was pressurised to undertake the measures it never believed in. If truth be told, surely, the devaluation, for example, should have been phased as in such a way the said problems could have been easily assessed and managed.
On the other hand, Madame Lagarde’s argument that similar reforms as undertaken by Malawi have worked in Mauritius, Zambia and Ghana does not hold water. You do not compare mangoes to apples. The three countries are resource-rich, with varied sources of foreign exchange unlike Malawi which relies on tobacco and some inflows from donors/development partners. Surely, madame, one-size-fit-all policies do not always work.
It is high time technocrats/economists took Malawians out of the laboratory as they go about experimenting to find a solution to the economic woes.
Theory tells us that beyond the current pain, surely, if the measures work, the results should be good for us all. But when will that be? And, with the admission of an experiment gone wrong, what should Malawians expect? This is the simple question the Executive and IMF should answer.
