Kenya devalues again to appease creditors



 

Mark Huband in Nairobi

The Guardian, 21 April 1993

 

THE Kenyan government succumbed to a growing financial crisis yesterday when it devalued the currency by almost 25 per cent, for the second time in three months.

The move coincided with the closure of 12 finance houses. All have been deemed illiquid by the Central Bank of Kenya, but their closure has prompted speculation that senior politicians are attempting to halt economic reforms that would lead to the closure of banks in which they have an interest.

In a bid to appease World Bank officials due in Kenya today, the Kenyan shilling was devalued by 23.47 per cent, in accordance with demands by the country’s financial donors that the government introduce the economic reforms it shelved on March 22. Yesterday’s decision followed a 25 per cent devaluation in February.

Both the devaluation and the closures are seen by banking sources as aimed at soaking-up a disastrous 35 per cent increase in money supply which the government engineered last year.

In the run-up to last December’s election, the government flooded the economy with 25 billion shillings, which it channelled through a network of politically-connected banks to its supporters, who used the money to assure votes for President Daniel Arap Moi’s victorious Kenya African National Union (Kanu) party.

February’s devaluation has led to price rises of between 50 and 100 per cent, resulting in worsening living standards and growing discontent.

The shelving of economic reforms in March was justified by President Moi, who described the measures demanded by the World Bank and International Monetary Fund (IMF) as “suicidal and dictatorial”.

The closures are being regarded by government critics as a sop to the IMF and World Bank, whose vice president for Africa, Edward Jaycox, arrives in Nairobi today for discussions with the government.

The cause of the excess money supply, and a rise in inflation to its current 40 per cent, is being blamed on the government’s election strategy last year.

Robert Shaw, economics spokesman for the Ford-Kenya opposition party, said: “None of these closed banks are key players like the political banks. “It’s all part of the window-dressing. These tiny little banks are peripheral, while the core ones are still there.

“None of these things are going to make much difference until they address the central issue of the money supply.”

The banks through which last year’s political funds were channelled are closely linked to Kanu leaders. They have been able to borrow millions of shillings from state pension and social security funds.

An IMF delegation is expected to arrive in Kenya next week, and sources within the donor community said yesterday that it was likely that a compromise economic reform plan would be agreed with the government.

 

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