In retrospect, the resurfacing of the clip featuring the late President Bingu wa Mutharika’s denouncement of the Kwacha devaluation serves as a reminder of a pivotal moment in Malawi’s economic history.
Mutharika’s steadfast resistance to the devaluation, despite pressure from international financial institutions, painted him as a leader who stood against what he perceived as detrimental economic policies.
The fallout with the Bretton Woods Institutions, particularly the International Monetary Fund (IMF), and the subsequent loss of the Extended Credit Facility (ECF) in 2012 marked a turning point.
Mutharika’s decision to hold firm on the Kwacha’s value, despite the glaring disparity between official rates and the black market, reflected his determination to maintain economic sovereignty.
However, the stark contrast between official and black market exchange rates foreshadowed the challenges ahead. The black market rate nearly doubled, reaching 295 Kwacha to the dollar just before Mutharika’s passing.
This period unleashed a tumultuous phase in Malawi’s economic landscape, marked by policy shifts and ensuing hardships.
Mutharika’s unwavering stance had consequences that reverberated across the nation. The severe economic downturn that followed plunged Malawi into its most challenging and worst financial crisis.
Essential resources like fuel, pharmaceuticals and basic commodities faced shortages, crippling the market and causing distress among Malawians. There were long queues on service stations, in shops and many other places where goods and services are sold.
The turning point came with the sudden passing of President Mutharika in April 2012, leading to Joyce Banda assuming office. In a strategic move to address the economic challenges and unlock the suspended US$79 million credit facility from the IMF, Banda made the tough decision to devalue the Kwacha by approximately 33 percent.
President Banda’s willingness to bow down to international pressure and implement a significant economic policy shift demonstrated a pragmatic approach to address the country’s economic woes.
While this move may have been seen as a necessary compromise, it was a critical step in stabilising the economy and regaining access to much-needed financial support.
The juxtaposition of Mutharika’s firm stance against devaluation and the subsequent economic downturn with President Banda’s pragmatic approach highlights the complexities of navigating international financial pressures while safeguarding a nation’s economic stability.
The resurfaced clip serves as a historical marker, prompting reflection on the choices leaders make in the face of economic challenges and the lasting impact on their countries.
However, truth be told, Malawi has a fragile economy which cannot claim sovereignty to the International support especially from the IMF. A country such as Malawi securing the ECF demonstrates international confidence in economic policies.
The credit facility acts as an endorsement, which improves donor and investor confidence, making it easier for Malawi to attract direct budgetary support as well as foreign investment.
It should also be acknowledged that the immediate impact of devaluation can be severe on the livelihood of citizens because it initially leads to high cost of basic commodities and services, but the end game is that it spurs economic growth.
In light of this devaluation, it is surprising that traders have hastily raised commodity prices, considering that the Reserve Bank of Malawi has merely realigned the Kwacha to its market value.
Mr. Hendrix Laher, Managing Director of Luthando Holdings, contends in his write circulating on social media, that traders were already importing at the rate of K1,880 to a dollar, rendering the price increase unjustified.
Laher recounts a conversation with a fellow trader who justified the 44 percent price hike, claiming that Malawians would attribute the blame to the government and not the entrepreneurs.
Writes Mr. Laher in part: I told him Malawians are so poor and misinformed. I would not dupe this vulnerable human being. I will not be at peace with the poor man’s money, so no.”
I wish we could all borrow a leaf from Mr. Laher. We shall find no peace if we take advantage of this unavoidable evil called devaluation to dupe innocent poor Malawians.