South Sudan: How ‘Managed Float’ is managed (Part 2)
By Mayen Ayarbior, Juba, South Sudan
January 11, 2016 (SSB) — While some analysts have expressed optimism about the objective and prospects of the current policy financial restructuring (managed float), they have also argued against the ‘management’ approach our Central Bank and Ministry of Finance have adopted with the aim to keep the dollar rate checked. The approach is that banks are to be used as the main agents through which the target of financial stability is achieved. But there has been no related clear policy explanation on the country’s economic outlook after keeping the dollar checked and food importers pleased.
We all know that the unsustainable part of such a management approach is that it is premised on external assurance of continuous injection of dollars. Once such injections prematurely dry up for one reason or another, we will find ourselves in square one. Hence, unless the borrowed or granted billions which shall accrue to GoSS over the coming few years are injected into infrastructural development, South Sudan’s future generations will have huge debts to settle without benefiting from the borrowed money. It is the same old trap in which post-independence sub-Saharan African countries found themselves after association with international financial institutions, especially the Bretton Woods Institutions (IMF and World Bank).
It is worth mentioning that these institutions had once been characterized by African states as agents of neocolonialism. Such designation was a consequence of their ‘conditionalities’ which stipulated that African countries must, inter alia, not support such vital industries as agriculture, while they must open their borders for highly subsidized agricultural produced from the U.S. and Europe. They had insidiously contended that subsiding and mechanizing agriculture in Africa must be discouraged as it would lead to unemployment since most Africans are rural folks. Subsequently, ‘leaders’ like Idi Amin and Mobuto were borrowed huge sums of money that burdened future generations, yet their countries and citizens remained impoverished.
For some reason, some of us thought such policies were defunct, considering that these institutions have lately changed course as they have been listening to some African countries and supporting national initiatives. However, it is shocking that the IMF insists that such huge sums as $40 million a month (or so) are to be given in open tender to bidding banks in such an impoverished country like South Sudan. And to be sure that no other sector of our economy should get that money, IMF ‘experts’ shall supervise the bidding process, as they ‘teach’ our government how it should be done.
For sure, continuing to use the current approach of selling dollars to banks in order to close our budget deficit is self-defeating in many respects. It would be prudent to use the money to widen the country’s tax base as it is applied by all economies in Africa for collecting (levying) local currency. While collecting local currency from banks in return for dollars could be one rudimentary and rather simplistic way of closing a budget deficit, it is closer to barter trade than real economics when it is used in the manner being forced on our financial institutions.
Injecting the borrowed (granted) monies for widening the country’s tax base will lead to higher employment as regional markets start to interact. In contrast, the banks which are going to buy billions of dollars over the next three years are neither expected to bother about the rate of unemployment in South Sudan, nor about the state of the country’s infrastructure. Hence, allotting them more than ten percent of the promised funds may be ill-advised.
When a country invites foreign banks it does so expecting such banks to also invest a portion of their interests in that country. We should expect banks like Equity, KCB, Ethiopian, Chartered, Echo, etc. to have most of their hard currency from their own countries (headquarters) as-well-as from monies deposited by foreign direct investors residing and investing in South Sudan. If such banks refuse to import reasonable amounts of hard currency into the country from their headquarters or fail to attract deposits by foreign businesses, and then get millions every other week from the host country’s government, then they collectively constitute a huge economic burden rather than being assets.
We expect our government economists to continue negotiating with the country’s genuine friends in the Troika to convince their own financial institutions such as the IMF-World Bank to be reasonable. We know that while such institutions are managed independently and, consequently, make decisions that might sometimes contradict their patrons’ intervention objectives, they are still susceptible to political reasoning by such patrons. Hence, candid political negotiations with Troika countries on the matter could be part of supporting implementation of the IGAD-Plus agreement whose objective is to bring sustainable economic and political stability to South Sudan.
Since the Troika and their international financial institutions have decided to help us implement the agreement through financially supporting the country’s economy, they need to be informed that peace through development is the best strategy for that aim to be reached. Yes, there could be a short term market stability when banks get hard currency, but nothing is more durable than investing in infrastructure and institutions.
It is not right when future generations fail to find any meaningful trace to billions of dollars that are sighted to have accrued to their countries. Let us chart people oriented ways of doing and ‘managing’ things by not repeating the same mistakes again and again. Unless we start using these funds to provide meaningful employment to the youth through building a conducive economic climate to absorb most of them, we shall continue to live with insecurity for a long time to come.
Mayen Ayarbior has a Bachelor Degree in Economics and Political Science from Kampala International University (Uganda), Masters in International Security from JKSIS-University of Denver (USA), and Bachelor of Laws (LLB) from the University of London. He is the author of “House of War (Civil War and State Failure in Africa) 2013” and currently the Press Secretary/ Spokesperson in the Office of South Sudan’s Vice President, H.E. James Wani Igga. You can reach him via his email address: mayen.ayarbior@gmail.com.
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