Zambia heads for free-market economy. Strict austerity steps hold political risks for President Kaunda
Lusaka, Zambia — President Kenneth Kaunda has taken a political risk in an effort to rescue Zambia from what some observers say could be total economic collapse. He is demanding substantial financial sacrifices from his people -- perhaps more than any other leader of a developing nation has ever asked for.
The next six to nine months are likely to be crucial in deciding both Mr. Kaunda's political future and the economic future of his country.
Overnight the introduction of these policies caused the Zambian currency, the kwacha, to drop by more than 100 percent.
Since the new economic policies were introduced last month the cost of many essentials has practically doubled. Corn, the nation's staple, has gone up by 50 percent.
Fuel has doubled in price, with consequent increases in transport fares and of many other services and goods. Thousands of workers can no longer afford public transport and now walk to and from work. The cost of tractors has gone up by 150 percent, with consequent impact on the farming community.
These increases in the cost of living come at a time when unemployment in Zambia is higher than it has ever been, and when living standards have dropped steadily over the past seven years.
So far, except for a brief rowdy protest by taxi drivers and attempted looting by a small mob, there have been no signs of public protest.
But, symptomatically, Zambians have expressed their deep dissatisfaction by refusing on some public occasions to sing the national anthem -- a protest that has not escaped the President's watchful concern.
But things could get worse if the International Monetary Fund (IMF) and the United States government don't soften their conditions for helping Zambia sweat its way out of its deep difficulties. One of their conditions is that Kaunda should abolish all subsidies -- even on corn and fertilizers.
This is unacceptable to Kaunda for several reasons, observers here point out. Without subsidies there would be further increases in the basic cost of foods.
That, in turn, could transform the present simmering discontent into open revolts, as occurred when similar measures were taken in Morocco, Tunisia, and Sudan.
Such strict measures, analysts say, could jeapordize the position of even a strong and popular leader like Kaunda.
Any increase in the cost of fertilizer and other essential inputs into agriculture could result in farmers refusing to grow corn -- already a marginal economic crop -- and so force the country to import food, thus eating into its foreign-exchange reserves.
Since growing more food at home and conserving foreign-exchange earnings are basic aims of the recovery program, the removal of all subsidies are, on the face of it, self-defeating.
Both the IMF and the US have come out in enthusiastic approval of Kaunda's decision to abandon his government's former policies in favor of accepting a free-market economy and putting the nation's faith in stimulating private and individual enterprise.
But both the IMF and the US still insist on abandoning subsidies as a step toward putting the nation's economy back in balance.
One US official described Kaunda's new approach to financial problem-solving as an example of the model that Washington is urging on developing countries.
``We therefore have a direct interest in ensuring that Kaunda's brave decision does not fail,'' he commented.
But without an acceptable agreement with the IMF, Zambia will not only be unable to resume paying its interest on existing IMF loans -- now about $90 million -- but it would also face other major consequences:
It would receive no aid from the World Bank (which has shown some signs of being in disagreement with the IMF's tough conditions).
The IMF would block efforts to reschedule Zambia's foreign debts.
The IMF would discourage Western aid-givers from substantially increasing their support for Zambia.
One feature of Kaunda's new policy is to float the national currency (allowing it to reach its true value) by putting up to public auction every week the foreign exchange available to the country.
The immediate effect has been to plunge the value of the kwacha from 2.35 to 5.01 against the dollar.
Apart from this more than 100 percent devaluation, another claimed virtue of the auction is that it will end the bureaucratic jungle through which importers of essential goods have been forced to struggle to bring goods into the country.
Under the new system only importers in receipt of approved licenses will be allowed to bid in the weekly auctions and will have to produce receipts to show that the goods purchased actually reached the country.
Zambia's hard-pressed commercial and industrial sector have enthusiastically welcomed the new arrangements.
Zambia's economic plight stems from the collapse of its copper industry which, until 1972, was its major source of wealth. The steady decline in world prices and demand for copper knocked the bottom out of the country's economy. Three years of drought compounded these difficulties.
Nevertheless, the country continued to live at the artificially high level of a copper-sustained economy which, at one time, made it possible to subsidize everything from maize and fuel to fertilizers.