Eyes on the ball: It’s the economy, stupid

The Bingu wa Mutharika death inquiry report has changed the national conversation from economic hardships to an examination of the rough road that the former Head of State was dragged through—literally—just before and soon after his death.

There is also fixation on how certain senior government leaders and public officers conducted themselves after Mutharika’s death and in the subsequent mishandling of the power transfer.

For me, the parts covering Mutharika’s heart attack, the process of taking him to Kamuzu Central Hospital, how he was handled while there and the manner in which his body was desecrated on its way to South Africa, make interesting reading, but are not the most important.

Sure, I understand the outrage. It is not very nice to break a dead old man man’s ribs—let alone a president’s—but at least this was happening after he had died of natural causes and at the direction of people who were close to him.

However, if you compare the breaking of lifeless ribs to the macabre murder of the young and vibrant Polytechnic engineering student Robert Chasowa and if you recall the ruthless butchering of those 20 people on July 20 by gun-totting strangers in police uniforms—all on the late leader’s watch—then Mutharika’s treatment in death, while sad and grotesque—sounds like a rugby affair.

Indeed, the concealing of Mutharika’s death to Malawians—while wrong—is chicken feed when put side by side with the tragedy that was Chasowa and the July 20 2011 victims’ shelling.

Like most people, I am angry that a bunch of self-serving elites would sit down, plan to open the pages of our Republican Constitution wide, rape them mercilessly and repeatedly just to prevent Joyce Banda—the woman the DPP politiburo loved to hate—from ascending to the presidency.

That attempt to ravage our sacred supreme law of the land deserves the national outrage already showered on it and the law must take its meandering course.

However, what about the July 20 victims? What about Chasowa? Shouldn’t justice be seen to be done for them as well? These cases are missing the political will and the reality show that has characterised the current high-profile cases.

Let us also not forget that while all this is going on, the economy is still in tatters. Just a few days ago, fuel prices jumped, though marginally, but only a few noticed—just as authorities had intended. The kwacha hit the K400 ceiling that Reserve Bank of Malawi (RBM) Governor Charles Chuka insisted a few months ago would not happen.

“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,” said Chuka at the time.

As it has turned out and as I had predicted when I debunked this assertion on this space, the dollar is very much in demand at almost K400.

Even now, with tobacco auction floors open, we cannot raise and supply enough dollars to meet the demand, which—unless we revert to managed floatation or peg the kwacha and risk angering IMF—is the only factor that can stabilise the local currency.

The words the governor uttered will haunt him for a long time and might, in fact, force him to half-abandon floation of the local currency and hold it below K400.

I will not be surprised if RBM has already silently instructed Treasury departments in our local banks not to trade the kwacha above K400.

Even maintaining the bank rate at 25 percent—despite all fundamentals dictating an upward adjustment—will not stabilise the kwacha, let alone leave interest rates intact.

In fact, with or without the RBM increasing its benchmark rate, financial institutions could act independently and hike interest rates.

Why?

First, there isn’t enough money in the financial system (the liquidity squeeze is still with us). Thus, the little that is there can only go to the highest and least risky bidder.

With government desperate enough to borrow at any price to finance additional civil servants’ salaries, State House adventures and the miscalculated price of free market policies to the national budget (currency depreciation, higher than expected inflation, fuel prices, high cost of domestic borrowing etc), lending rates can only rise.

The latest RBM Monetary Policy Committee (MPC) minutes report that all-type Treasury Bill (TB) yields leaped to 35.44 percent in February—slightly over 10 percentage points from 24.39 percent in January.

With these TB rates, it is unreasonable to expect that base lending rates can remain lower. Already, inter-banking lending rates jumped 300 basis points to 25.23 percent in February.

Factor in the high credit risk—MPC reports that non-performing loans edged up to a record 10.7 percent—and you have a situation where banks ignore the private sector in favour of the almost risk free government; thereby worsening the crowding out effects that will further depress the economy.

So, yes, the Mutharika death inquiry report may be a public relations saviour for the Banda administration.

But not for long because, as former US president Bill Clinton’s one time top political strategist James Carville famously said: “It’s the economy, stupid.”