What Kabambe’s appointment could mean

It was an open secret. As Governor of the Reserve Bank of Malawi (RBM), Charles Chuka was not a ‘cultural fit’ in the Democratic Progressive Party (DPP) administration’s idea of an economic policy mix.

And that is not just because he was a Joyce Banda appointee. Chuka was too much to the right of the DPP economic agenda. He was like Elias Ngalande, the former academic at the University of Malawi’s Chancellor College.

Both Chuka and Ngalande are staunch monetarists whose no nonsense focus on controlling inflation has always riled DPP regimes largely because such a policy direction has kept interest rates too high for the private sector and consumers to spend in the economy.

They were also seen as having too much faith in market players, especially when it came to the management of the kwacha exchange rate. And they were viewed as being too hard on the fiscus when it came to spending—and borrowing, of course.

The late president Bingu wa Mutharika had to get rid of Ngalande in favour of a centre-left financial expert in the late banker Victor Mbewe to execute Bingu’s expansionary economic agenda that some say helped to  sweep the country into a fair level of economic success.

For a country that was in such serious economic problems at the time, a stimulating economic agenda made sense. And so interest rates were chopped drastically without worrying about inflation although Bingu was clever enough to ensure high production levels of maize, the country’s major inflation driver.

I looked at Mbewe’s successor, Perks Ligoya as a Governor who was centre-right in his economic philosophy, but who could bend to Bingu’s centre-left thinking. Ngalande was different—he mostly refused to depart from the monetary policy path he had curved out.

He had to go.

Chuka will be remembered as the Governor who—together with then president Joyce Banda and Finance Minister at the time Ken Lipenga—helped to plough ahead with free market reforms in the face of rising anger at the excruciating pain the policy changes such as the kwacha’s devaluation and flotation; cost reflective water and electricity tariffs as well as the automatic pricing mechanism of arriving at fuel prices had brought.

His belief that the market always self-corrects could sometimes be puzzling. One day, in trying to allay fears of the pain the so-called flexible exchange rate regime caused—especially given the steepness of the local currency’s fall at the time—Chuka made a baffling statement in early 2013 that will haunt him for a long time.

He said: “I know some people are predicting that the kwacha will fall to as much as K400 or K500 to the US dollar. But look, who can afford to buy US dollars at that price? I would say nobody—not even companies. So, even the forex trader would have to limit the price adjustment or else they would have nobody to buy their forex.”

At that time, I did wonder whether such a statement had really come from Malawi’s leading re-creator of the free-floating currency market and student of the Bretton Woods Accord.

Because, I argued at the time, the more relevant side of Chuka’s question should have been: Who can afford not to buy the green buck at any price?

I countered in this very column that because we do not have a choice, we will continue to seek the dollar at any price provided it continues to be in short supply.

As long as we don’t generate enough forex, I submitted, as long as we import more than we export and as long as the kwacha remains floated, we would be paying anything for the dollar.

It did not take long before the kwacha went over the edge and was trading at around K525 to the dollar.

At least four years after that statement, Chuka is leaving the kwacha at around K730 to the US dollar. And guess what? Malawians are still buying the dollar and want more of it at that high price.

We now have RBM Governor Dalitso Kabambe, a brilliant man I had the pleasure of working with at Treasury who I think is a centre left economist. What will his appointment bring?

Kabambe is mostly a fiscal and social development policy maker both by training and experience. He will have a long learning curve on monetary policy. What that means is that it will take him a while to develop his own monetary policy vision—and that is where the problem will be.

Without a clear policy direction of his own, I worry that monetary policy could now be formulated at Treasury—even State House—and then feed it to the governor to execute.

We need an RBM that can stand up to Treasury and State House if there has to be economic sanity in the country.

Sadly, from the look of things, I do not see that happening, especially as we ease towards elections in 2019.

That said I wish Kabambe all the best. I want him to be a successful Governor.