Zaire Table of Contents
Devaluation of the currency was the centerpiece of the 1983 reform. An initial 80 percent devaluation and subsequent adjustments in the value of the currency reduced substantially black-market activity, which had mushroomed when the currency was way overvalued at the official rate. The central bank and commercial banks began to meet weekly to fix a rate for the zaire based on the basis of recent transactions among themselves. The supply of foreign exchange at the official rate increased markedly, and traders were readily able to purchase foreign exchange from commercial banks for the import of most necessities. Nonetheless, restrictive monetary and fiscal policies made it difficult for many firms to muster the deposit in local currency that the commercial banks required to open a letter of credit.
The government's 1983 attempts at economic liberalization were the first serious reform efforts since the economic crisis began in 1974. The government reduced its role in the decision making of state-owned industries and in the economy as a whole. Most prices were decontrolled except for petroleum products, public utilities, and transportation. Deficit and government expenditure reduction efforts were undertaken. The trade regime was liberalized, customs duties (a significant source of government income) revised, and external debt payments regularized.
Results were positive, and exporting enterprises were more free from government intervention than at any time since the seizure of UMHK in 1967. Where government chose to maintain its ownership of a company for strategic reasons, important decisions on production, investment, and marketing were increasingly taken by the company rather than by the government itself. Interest rates were deregulated, and controls on producer and retail prices were largely dismantled, though firms remained subject to a subsequent review by Zairian authorities to ensure compliance with legal profit margin limits.
In late 1983, after Zaire had undergone a year of fiscal discipline, the IMF approved a support plan of SDR114.5 million and an additional fifteen-month standby loan amount of SDR228 million, both repayable over five years. This plan was accompanied by Paris Club multilateral debt rescheduling, the fifth rescheduling of Zaire's external debt in a period of eight years. Under the agreement, loans totaling US$1.2 billion for 1983-84 were rescheduled. These actions ensured a marginally positive net transfer of resources to Zaire between 1983 and 1986. Although immediately after the devaluation inflation doubled, debt arrears continued to build, and GDP rose by only 1.3 percent, by 1984 inflation had dropped to 52 percent and GDP grew by 1.3 percent.
The 1983 reforms began to unravel in 1986. Export earnings in 1986 were indeed far below expectations because of extremely low copper and cobalt prices. The government raised civil servant salaries despite stagnant budget receipts. Over half of the budget was paid to foreign and domestic creditors. Frustrated by the slow pace of recovery, the government reestablished some controls and discontinued some reforms. Deficit spending rose dramatically, inflation accelerated, and the zaire began a rapid depreciation. Gains from the reform effort had been largely eroded by late 1986.
Much of the opposition to the reform plan was voiced by members of the political elite and organs of the sole legal political party, the Popular Revolutionary Movement (Mouvement Populaire de la Révolution--MPR). Their complaints were voiced under the guise of economic nationalism in opposition to the "economic imperialism" of the donors. They especially vilified the IMF. Their actual opposition to the 1983 reform may have stemmed less from national pride than from the fact that the previously untouchable political elite was being made to pay taxes and duties and was being denied the economic privileges and access to resources for personal enrichment to which members had grown accustomed. Economic reform and liberalization were incompatible with patrimonial economics because they restrained the government from determining who should profit from the nation's natural wealth and domestic markets.
Data as of December 1993
Zaire Table of Contents