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The 1989 Reform

In January 1989, the government once more took steps to establish economic stability. A structural adjustment program, including the commitment to contain budget deficits, narrowed the gap between the official and black-market exchange rate to 10 percent by April 1989. In May 1989, a letter of intent was signed with the IMF for a standby loan of SDR115 million, SDR90 million of which came from the structural adjustment facility approved in May 1987 but blocked after the first drawing. A net capital outflow was expected in the first year. However, the program foresaw a net inflow of resources from multilateral and bilateral donors and creditors over the life of the agreement. The World Bank released the second drawing of the US$165 million loan for essential imports, which had been approved in June 1987 but blocked pending agreement with the IMF. Important loans for the transportation and mining sectors were sanctioned while proposed energy sector and social adjustment credits were considered. This latest IMF program emphasized, as usual, a reduction in government budget deficits, the restructuring and improvement of public-sector management, further elimination of distortions in trade policies, improvement in the climate for the growth of the private sector, and improvement in the transportation sector.

The significance of this IMF agreement, as with past agreements, was the favorable impact it was expected to have on all the lenders involved. In June 1989, the Paris Club met to reschedule outstanding Zairian debt. Lenders were presented with three options: a twenty-five-year rescheduling; cancellation of 33 percent of service due over the period under consideration and repayment of all maturities with repayment of the balance at market interest rates over fourteen years with six years' grace; or rescheduling of all maturities involved at an interest rate 3.5 percent lower than the prevailing level over fourteen years with eight years' grace.

Despite the country's reform efforts, the pace of economic activity had not accelerated sufficiently in 1989 to boost living standards, which had fallen each year for more than a decade. The standard of living showed no noticeable improvement for the typical Zairian. Major new investment, foreign or domestic, remained elusive. Nonetheless, agricultural production rose in some areas, although Zaire was still importing substantial quantities of food. In addition, some new light industrial production appeared in Kinshasa, the national capital, including manufacturing of plastics, matches, and batteries, and light electronic assembly. Liberalization in the diamond market meant that official diamond exports and receipts rose substantially.

Inefficient and corruptly managed parastatal (see Glossary) companies had contributed to Zaire's troubled economic history and were a severe strain on the budget. As part of the 1989 reform, the government announced that it was taking steps to reduce the role of the public sector in the economy and to increase the efficiency of parastatals, and it produced a list of seventeen companies intended for partial or full privatization. The government's broad objective was to raise private investment funds and to make the private sector more responsible for productive activities, with the exception of essential public services such as utilities and other strategic activities. In agriculture, a program of divestiture led to the privatization of several state-owned companies, such as Cotton-Zaire and Agrifor, a forestry firm.

The adoption in 1989 of a liberalized pricing policy and the removal of foreign-exchange restrictions eased conditions for importers and entrepreneurs, which in turn led to an increase in the range and availability of a variety of consumer goods in the Kinshasa market. Most of these goods, however, were expensive imported food items, clothing, and other merchandise unaffordable to all except expatriates and the local rich. Liberalized pricing policies also meant a more adequate supply in a wider market of fuel products.

By the end of 1989, however, it was apparent that these latest reforms were unsuccessful in promoting sustained economic expansion. Indeed, Zairians experienced a massive drop in per capita income, as inflation rose and the GDP growth rate fell. The inflation rate for 1989 was 104 percent, a significant increase over the 83 percent rate recorded the previous year. GDP growth for 1989 was registered as -1.3 percent.

Economic indicators for 1990 were even more dismal. IMF credits had expired, and large public-expenditure deficits were expected in response to pay increases for government workers. The final figures for 1990 showed a GDP decline of -2.6 percent, a 90 percent rate of inflation in consumer prices, and further devaluation of the zaire against Western currencies.

By 1992 and continuing into 1993, most sectors of the economy were in a state of advanced decay. Hyperinflation was a permanent fixture. The country's currency continued to depreciate to new lows against the dollar (Z110 million = US$1 by December 1993), causing a demonetization of the economy and a breakdown of the banking system, as well as severely damaging Zaire's international competitiveness. Poverty and unemployment were widespread.

Data as of December 1993

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