Museveni must fix economy by June

By independent reporters

Review comes up in June, IMF blames crisis on reduced foreign reserves, high election spending, jets purchase. Food and fuel prices complicate plan

As traders, religious leaders, students, and civil society organisations criticise the government’s reaction to the Walk-to-Work protests over high food and fuel prices, one man thinks he knows how President Yoweri Museveni’s can effectively fix the economy. Jjemba Mulondo, a leader of the Kampala City Traders Association, says the high prices and the depreciating exchange rate of the shilling can be fixed.

So what does the government have to do to fix the high prices?

Mulondo says many people believe the government drew cash from the public coffers to finance Museveni’s NRM party campaign during the recent elections… To get this money back government is trying to squeeze each and every penny from each and every Ugandan… The president is moving around dishing out money. For instance, on Wednesday (April 20), he gave boda-boda cyclists Shs400 million and the market vendors have been getting money as if the president is printing his own money.  This is public money. After dishing out all this, how will government recover such money?  Most of the people especially “the big fish” that got the election money are fearing to bank that money. They opted to buy the dollar out of circulation, which raised its value. Once the dollar goes up, everything goes up. This is how we end up having high prices of commodities.

So what can the government do to avert the crisis?

Mulondo says “the president must listen to the people… Corrupt officials should be sacked, not protected…Government needs to act swiftly like Kenya did, cutting fuel prices by 20 percent on diesel.  Uganda can make a Shs 300-Shs550 tax cut on per litre of petrol. That is still high, but it would be a positive gesture and would help ease our burden.”

Mulondo speaks for many. Unfortunately, issues are not as simple for Museveni as they appear to Mulondo.

The President must deal with wider issues like those raised by the IMF mission that visited Uganda from March 16-31.  It was led by Thomas Richardson, IMF mission chief and senior resident representative in Uganda and met with Finance Minister Syda Bbumba, Bank of Uganda Governor, Tumusiime-Mutebile and other senior officials.

On April 4, it issued a carefully worded statement that outlined what, in its view, Museveni needs to do to fix the economy including; rebuilding international reserves, increasing domestic revenues through taxation to create more money for the government to invest in infrastructure. (Uganda’s tax revenues—at about 12½ percent of gross domestic product (GDP)—are low by regional standards. Thus, measures to broaden tax bases, particularly by eliminating exemptions, are urgently needed). Other measures were; reserve revenues related to oil exploration and external borrowing to finance large infrastructure projects. Handle oil revenues transparently, subject to parliamentary approval as part of the formal budget process. Reduce government expenditure arrears, and bring down inflation by tight control over government expenditure and revenue.

The Independent in our cover story “Post-election economic woes” (March 18) reported that on Feb. 11, exactly one week to the Feb. 18 general elections, the Executive Board of the IMF had announced that it had not completed the first review under the three-year Policy Support Instrument (PSI) for Uganda.

This means Uganda does not have IMF support to borrow from multilateral development bodies like the World Bank Group, the African Development Bank, and other international development agencies.

In February, the IMF was concerned that, as Bbumba revealed, by December 2010 the government was `broke’ and parliament was forced to pass a Shs 605 billion supplementary budget for various government departments that sparked donor and civil society fury.

Observers said money went into campaigns.

The new IMF statement said it expects “to bring the papers on the second review of Uganda’s programme supported by the PSI for consideration by the IMF Executive Board before the end of June”.

Will the government have brought the “budget back into line with the PSI” so that they can be signed?

A diplomat who follows these discussions closely said Museveni has launched a “charm offensive” to ensure that the IMF signs Uganda’s PSI review.

“It appears he sweet-talked the IMF and they agreed,” the diplomat said.  But another view is that the IMF conditions of returning to budget discipline, transparency on oil money, expanding the tax base, and investing heavily in infrastructure are impossible for President Museveni to deliver before June.

The Independent in an earlier story “Museveni, donors lock horns over election money” (Jan.25, 2011), warned that the IMF, World Bank and donor concerns about Museveni’s government expenditure, especially on the election, the off-budget purchase of six SU-30 MK2 fighter jets from Russia by the government for US$ 600 million (about Shs 1.7 trillion), and the reduction of foreign reserves, could prove disastrous.

At that time, a World Bank official told The Independent that: “Right now the country has about six months-plus worth of reserves. If this is depleted to below three months it could leave the country quite vulnerable to shocks both internal and external that could occur especially with an election coming.”

Another official, who said donor and the World Bank might review or suspend budget support to Uganda concluded: “This is a defining moment for the relationship between the government and the donors.”

The internal shocks (post-election riots, drought, high food and fuel prices, inflation, and depreciating exchange rate) and external shocks (high global food and fuel prices) are all here; what will the donors, IMF, World Bank and Museveni do?

Walk-to-Work

Museveni’s options  are complicated by public protests over high food and fuel prices which began on April 11 and had by April 14 rocked many districts in the country from Kampala to Jinja, Masaka, Gulu, Soroti, Lugazi, Buikwe and Mbale.

When he spoke publicly about them for the first time on April 16, Museveni appeared to blame them on his archrival Rtd. Col. Dr Kizza Besigye. “We are going to deal with him. There will be no demonstration in Kampala”.

Then he asked rhetorically: Will world prices go down because Besigye has demonstrated? Will it rain because Besigye has demonstrated?

Analysts say Museveni’s response shows he is not adequately prepared to deal with the crisis facing the country.

Dr Patrick Wakira, a political analyst, says while there could be external factors beyond government’s control that are fuelling the crisis, President Museveni’s cavalier attitude has undermined ordinary people’s willingness to appreciate the challenge.

“International oil prices are high but you must be prepared to protect your economy from these shocks because if you fail, then you’re not competent to manage the economy,” Wakira said in an interview.

“If an economy is managed properly it will absorb the shocks it might encounter because those shocks find it prepared.”

Even when a journalist’s question at a press conference at Museveni’s country home in Rwakitura on April 16 implied that the president was misreading the post-election economic and political turbulence rocking the country, he replied with a cocky quip.

“I am not known for being an idiot,” Museveni said.

Comparing prices

A closer look at the issues that sparked the protests reveals that this is not the highest rate of inflation the country is experiencing. Food crop inflation which tracks the rate at which prices of food is rising over time was around 40% in September. 2009. There were no protests then. It was 29% in March when the Besigye-led protests were mooted.

Most Ugandans like Besigye, who deals in oil products, also know that the main trigger of the price spiral in Uganda, fuel, is comparatively priced today.  Regionally, Rwanda as of April 14 had the highest petrol prices at Rwf 1,015 (US$ 1.7), followed by Uganda at Shs 3500 (US$1.47) and Kenya Shs 113.4 (US$ 1.35) and Tanzania Shs 1,970 (US$1.3).

So what had changed?

The difference could be in the total or headline inflation, which measures the trend of all prices; it was low at 2.5% in September 2009 and was 11% in March when talk of protests began.

Considering headline inflation shows that it is more informative to study the general standard of living. For example, until recently, Ugandans used to buy green bananas, matooke, by the bunch. When that became expensive, they started buying it per finger, myeera.   In March seven fingers of banana consumed by low income earners cost Shs 500. By mid-April, the price was still Shs 500 but the number of fingers had dropped from seven to three.  The price of petrol in Uganda today might be comparable to Kenya, but the quality might not be the same. The Uganda Bureau of Standards recently warned of “fake” petrol on the market.

The regional newspaper, The East African on April 18 published a table that showed that Uganda has had the highest rise in prices between 2009 and Feb. 2011. It showed that prices of food and beverages rose by 37% compared to the nearest rise, Kenya at 9.82. Significantly, Kenya is a net food importer while Uganda is food self-sufficient and the figures do not cover the period since the Uganda election when food prices in Uganda have risen almost 100%.

The cost of health has risen by 31% in Uganda compared to nearest rise, Kenya, at 7%. Rwanda prices rose by 1.4% and Tanzania 0.4%. Fuel, electricity, and water rose by 30% in Uganda and only 4.3% in Kenya, 2.8% in Tanzania and -2% in Rwanda. The figures show that the current runaway prices in Uganda are a result of a bad situation getting worse.

Arrogant officials

Viewed over a long period, the main trigger of the protests might not be high prices per se but the sense that the government is either unable or unwilling to control it.

The attitude of government officials like the Acting Energy Commissioner Ernest Rubondo, does not help matters. He told a press conference he addressed with the Deputy Secretary to the Treasury, Keith Muhakanizi and the Minister of state for Finance, Ephraim Kamuntu, at the height of the protests, that the current fuel prices in Uganda “are fair”.

Rubondo and others miss the point that Ugandans pay much more in real terms even when prices appear comparable with other countries.

In March when the Libya crisis, which is being blamed for the spike in global fuel prices, started the price of a gallon of petrol (3.8 litres) saw the highest ever jump in the history of America. It rose 33% to US$ 3.5 (Approx. 92 US cents or Shs 2,100 per litre). In Uganda, it is Shs 3500 (Approx. US$.1.60).

But these price comparisons can be confusing. Under Purchasing Power Parity calculations, 94 US cents cannot buy a soda in America while Shs 3500 is the average daily wage of a Ugandan labourer.

Comparisons of price and inflation rates across borders also often miss subtle indicators such as where the price remains constant over time but the quantity supplied for the same price decreases, the price remains same but quality declines or the inflation rate remains low because consumers switch to cheaper substitutes.

Economists also criticised indicators such as the Consumer Price Index on which inflation is measured because they, in fact, lag behind the real inflation. Changes in prices are a better indicator of inflation because high prices take time to be reflected in the CPI.

On the same day, Rubondo spoke, the head of the World Bank, Robert Zoellick and the International Monetary Fund’s Dominique Strauss-Khan were taking a tough stance against “complacency” among economic policy makers.

Zoellick was addressing finance ministers and central bank presidents of the G20 in Washington. He said global food prices are 36 percent higher than they were a year ago and already have pushed 44 million people into poverty.

He cited a new World Bank study that showed that another 10 percent increase in global food prices could drive an additional 10 million people into extreme poverty.

“We have to put food first and protect the poor and vulnerable who spend most of their money on food,” Zoellick said.

His comments were also in stark contrast to Uganda Information Minister Kabakumba Matsiko’s Antoinetteist announcement that the government has no intention of intervening in the skyrocketing food prices.

“The primary responsibility of feeding the family rests with the head of the family and not the government,” she said.

On the day that protests erupted in Uganda, US President Barack Obama, in a news interview said he hoped tax cuts his government had introduced would help ease the pain of high fuel prices. Obama gave middle-income Americans income and payroll tax cuts and unemployment benefits up to the end of 2011.

America, which is the citadel of the neo-liberal economic policies pursued by government, also has what it calls National Security Fuel reserves which it can sell to the public in case of crisis. Uganda does not have them.

Police brutality

President Museveni is right and most Ugandans know that food prices will eventually stabilise or even reduce slightly. But his blaming Besigye publicly for the protests was a miscalculation. When he announced that they “would be no riots”, he must have thought his police were up to the job. Instead, when the police hastily arrested Besigye as soon as he stepped out his home for the second day of the Walk to Work protests on April 19, riots continued around the country.

The public’s enthusiasm for the price protests could be a sign that the rising cost of living is biting everybody. It might also be a trigger for public anger against a fundamentally declining economy. During the recent World Bank summit, Bbumba spoke generally about the underlying problems of the Ugandan economy: an infrastructure deficit, unemployment, and low investment in agriculture.

Most observer say Uganda suffers low productivity in all sectors. One commentator put it succinctly: “People have given up farming and gone for quick money riding boda boda motorcycle taxis”.

Besigye, in a bid to self-resuscitate politically after the Feb.18 election defeat, had tried to get the public to protest and failed. The police’s brutal handling of the protests threw Besigye a political lifeline and made a local problem grow international wings.

“Museveni has messed up the economy and angered donors. Now he is squandering his international image,” one diplomat told The Independent, “Besigye was the lead item on most international media.”

That is how diplomats from the Dutch and Irish embassies made an April 22 Good Friday visit to Nakasongola Prison where Besigye and another main challenger to Museveni in the recent elections, Norbert Mao, were being incarcerated. Their arrest is international news and the diplomats had reports to make. That is also why TV and radio stations were banned from live reporting of the protests and the popularly networking site, Face book, was blocked.

The Irish embassy in Uganda is on political centre court because of its leadership of the Partners for Democracy and Good Governance (PDG), an informal grouping of ambassadors from the EU and its member states, Japan, Norway, US and the UN.

An EU diplomat had earlier told The Independent that in a very unusual event, Irish diplomats had on April 13 joined with the European Union officials for a meeting with Third Deputy Prime Minister and Minister of Internal Affairs, Mzee Kirunda Kivejinja. They were concerned about police brutality in blocking public protests. Kivejinja holds the police docket.

“It was unusual cooperation between the PDG and the EU,” the diplomat said, “It shows how serious this matter is.”

According to our source, during the meeting, the diplomats noticed that the government was eager to quell the protests as quickly as possible because, they said, Besigye was beating them in the fight for “visibility”.

Analysts say that Museveni is aware of the problems his huge campaign spending was bound to cause. What he had not anticipated was the economical upheavals.

“The government is concerned that the Walk-to-Work is the first time that the Ugandan middle class is expressing solidarity with the masses,” on commentator said, “the middle class are rich; they have cars, but are walking with the poor.”

Another observer told The Independent that the protests are the public’s way of pursuing the implicit “social contract” Museveni signed with them in the election campaigns.

“Even at that time people were very poor,” she said,” but they did not complain because the government was buying them beer, meat and T-shirts. They are angry that the government abandoned them after elections.”

Museveni must also have noticed how the protests over price were able to force leaders of opposition parties to work together where the election campaign had failed. The political power of Mao’s being locked up in the same prison with Besigye, while UPC’s Olara Otunnu was out leading the Walk-to-Work was hard to miss.

The challenge for the government is to design short and mid-term tactical interventions that placate the protesters, donors and the IMF/World Bank and disarm the opposition. The government’s reliance on long-term solutions, some of them wishful thinking, about self-correcting measures like the re-adjustment of prices when it rains and food becomes more abundant, are unimaginative and smack of the complacency and oversight among policy makers.

With just days before his May 12 swearing in, President Museveni is sufficiently aware that the red smear on his international image is thickening. As he told journalists at Rwakitura, some of the guests he has invited for the controversial Shs 3 billion swearing-in might cancel their trips. If they indeed cancel, it will be because his government has exposed itself in an ugly way and not because the media has reported it.