CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
by Louis Kalonji, Kinshasa, February 1999
THEME = ECONOMY
In spite of drastic measures,
the new Congolese currency is meeting with a lot of difficulties
Exactly nine months ago, the Congolese Franc (FC) was launched. At the beginning, it was introduced as a strong currency, at the rate of 1.20 FC to one US dollar. The monetary reform had been well prepared. The new currency was praised to the skies by a whole host of regime supporters, in order to bring back unity to the country and favour business dealings.
However, due to the war tearing the country apart for about seven months, the economy is badly affected by the decreasing value of the FC and the accelerating inflation. Congo's financial authorities are faced with major problems: The national currency has now entered a troubled period; the use of the US dollar for business transactions has once again reached disconcerting levels; the exchange rate is despairingly unfavourable for the FC. There's no control over the original FC-dollar exchange rate because much depends on where you are or what you're trying to buy or sell. The following is an overview of the current situation.
On 9 January 1999, President Kabila issued Decree Number 177 to stop the FC's slide and to ®de-mystify¯ the attraction of the dollar. The Decree states that all business transactions in Congo must be made in FC, not foreign currencies. According to the Decree, all foreign exchange transactions must now be made via the Central Bank of Congo, or in Commercial Banks or in officially approved Foreign Exchange Bureaux. Also, all salaries will be paid in FC. Anybody caught contravening the Decree will be liable to terms of imprisonment ranging from one month to five years and fines ranging from 1,000 FC to 50,000 FC.
The Decree burst like a bombshell in the business milieu. People just couldn't take it in. It created a lot of uncertainty and worry in business circles, likewise among small and medium-sized firms and small and medium-sized industries.
During a three-day meeting following the Decree's promulgation, those working in the private sector, together with members of Congo's Chamber of Commerce (FEC), carefully examined the Decree's consequences. They expressed their preoccupations concerning the measure taken to stop business transactions being made in foreign currency; they asked a number of pertinent questions and formulated several recommendations.
FEC members also asked the government to make certain there's enough foreign currency reserves available to stabilise the FC. ®Failing that¯, they recommended ®the country's financial authority must set up a floating currency exchange, which, according to them, would favour business¯. The FEC is afraid that the new regulations will strangle firms which have the bulk of their business transactions done in foreign currency.
On the other hand, the fact that the Ministry of Finance has fixed the value of the FC vis à vis the US dollar, doesn't take into account the reality of changing circumstances. So, the business world is afraid to find itself confronted with an underground economy, whereby bills are invoiced in FC and payments made behind the scene in foreign currency.
Another preoccupation concerns the framework surrounding those measures, especially those dealing with the stability of the macroeconomy and the reorganisation of the country's banking system which is presently in a complete shambles. Quite simply, there's not enough local currency available at the Central Bank to cater for the country's immense needs. More worrying is the fact that the smaller value bank-notes are disappearing in the informal sector, unknown to the Central Bank, obliging it to print more notes - with disastrous consequences for the monetary system.
What do ordinary people think about the government's stringent measures? In their eyes, the new monetary regulations are beneficial for stabilising and strengthening the national currency. Why? Because business dealings within Congo must be conducted with the FC instead of a multitude of foreign currencies.
In truth, the war situation is not the only explanation why the FC is so weak. There's also a lot of speculation and here money- changers are on the scene. Those behind the counters in such places fix the exchange rate in their own way, frequently with the connivance of the traders. Traders price their goods in foreign currency and refer back to their accomplices so as to adjust prices accordingly.
After some time spent beating about the bush, the money-changers have finally accepted the government-approved rate of exchange. The FC has at last started to revive. Since the putting into operation of Decree 177, the sliding rate of exchange for foreign currency and indeed, currency speculation as a whole, has stopped. The national police force carried out a number of operations to hunt down illegal money-changers. The police also raided market stalls and other businesses to check on prices. A number of traders found wanting are now out of business and the owners have been arrested. But it should be noted that once again prices are starting to rise...
There's much uncertainty regarding the FC and its future. First of all, it will only keep its value if the Congolese themselves have confidence in it. Moreover, it will be difficult to stabilise the money whithout at the same time, reviving production and cleaning up public finances. The FC needs a strong economic base.
Stabilising the macroeconomy and re-launching production: these are two of the three main lines of Congo's Three-year Minimum Programme for National Reconstruction (1997-1999). Once this has been achieved, one can think about controlling public expenditure and making an additional effort to improve public revenue. Monetary reform will hopefully help to balance the macroeconomy. It is planned as well to start a reform of the banking system. What's involved in reviving production levels? The following must be pinpointed: Restoring the nation's infrastructures; reviving agricultural production; revitalizing the energy sector; boosting the mining industry (privatising this sector and encouraging private investment).
The new monetary regulations are running concomitant with the establishment of a Congolese Exchange for Precious Metals and Stones (BCMP). This is a private business but it brings fresh funds to a market where professionals in the precious metals and stones industry are able to appraise correctly the price of gold and diamonds. The State will thus be able to marshal more income for the Treasury than it has been able in the past. Why? Because the initiative has always been left to foreigners, especially Lebanese.
The setting up of the BCMP caused a general outcry among the foreign business community in Congo RDC. It has, however, been favourably welcomed by Congo's diamond merchants.
Congo RDC is experiencing a war situation so it's difficult to envisage any immediate improvement in the economy. The State must somehow mobilise sufficient resources for the country's present needs.
Some people say that the regions presently occupied by the rebels, i.e. Upper-Congo, Maniema and South-Kivu, only contribute 18.3% of the country's Gross Domestic Product. This should not prevent a certain relaunching of the economy in parts of the country unaffected by the war. The State can still do something to improve its financial situation and there is every reason to hope, provided Congo's financial policy is healthy and rigorous.
Unfortunately, an overall view of the situation in the second half of 1998 shows the contrary.
And for the people? Their first priority is to produce enough food for everyone.
END
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