Recently Zambian President Edgar Chungwa Lungu sacked the govenor of the Zambian central bank Denny Kalyalya ostensibly because he refused to turning on the money printing presses.
With economic growth in reverse, inflation threaten to gallop out of control and an election coming last year Lungu’s need for cash.
He has brought in a more pliable central bank boss Christopher Mvunga and is now probably more confident of retaining his seat in the next polls.
His actions are more surprising given the experience of neighbour Zimbabwe, a once proud economy that is now scrambling, with little success, to get off its knees.
Former President Robert Mugabe in a bid to hung on to power gutted the country’s productive sectors and resorted to printing money at a whim. The net effect has been, among other things, that Zimbabwe, the once food basket of the region, now needs food aid to feed its people and has gained notoriety, a few years ago for experiencing hyper inflation the like of which had never been seen anywhere before.
Now Lungu is threatening to do the same.
Central banks’ major role is to aid price stability. When prices fluctuate wildly it is difficult for producers to plan or save which tends to discourage investment and hence development.
Politicians are all about getting into power and staying there once they have attained it. Unfortunately, left to their own devices they will do this by whatever means necessary.
Your politician, unrestrained by strong institutions or traditions would rather sink the economy if that will serve to keep them in power longer.
In the politicians’ mind their own survival now is more important than the long term sustainability of their countries.
We have seen it before.
"Politicians when it suits them put their heads in the sand and pretend as if the laws of economics, demand and supply can be suspended or expunged altogether in the service of their political ambitions....
Former President Hugo Chavez, whose country Venezuela has the largest known oil reserves of any country, thought he could be play the market.
When oil hit record levels -- $100+ a barrel a decade or so ago, he thought this was a permanent situation expanding government, poisoning the environment for business and set himself as a year around Father Christmas.
However, oil prices collapsed to below $30 a barrel constraining his ability to be everybody’s favourite uncle. The economy then went into a tailspin to a point that people are bathing in the streets, seeing as piped water is gone and diseases like Malaria, eradicated decades ago are back with a vengeance.
Norway went the complete opposite, socking away billions of dollars in oil revenues in their sovereign fund. They beat back the populists who called for a higher amount to be drawn from the fund – they restricted themselves to withdrawing not more than 4% of the national budget. As a result they have more than enough surplus to see them ride much easier than others during this Corona crisis.
Critics of disciplined economics say that the laws of economics are not the natural order and are conspiracy perpetuated by the Bretton Woods institutions, intended to shackle the lesser developed economies.
They often cloak these arguments in a nationalism, diverting blame from themselves onto foreigners.
"They say nationalism is the last resort of the scoundrel. But even nationalism is no match for the realities of supply and demand...
And that is why public enterprises fail all over the world and even when they function they do not do that optimally. Those handful that thrive are the exception that justify the rule.
One does not have to be a prophet to see that Lungu is leading his country down a dangerous path. The resulting low growth, hyper inflation and increased poverty will call for very unpopular policies – cuts in public spending, privatisation and liberalisation of the economy, which will then be blamed on the World Bank and International Monetary Fund (IMF).
Running a disciplined economy means one can not have all he wants, a country will be forced to cut its coat according to its cloth. If discipline is maintained economic growth can follow and a general improvement in living standards of the population.
Populist economic measure may cause the good times to roll, but only for a short while, before all hell breaks loose.
"Mugabe run the white farmers and industrialists out of town and distributed the land to his supporters. Their was rejoicing for a while as well as kudos from armchair revolutionaries on the continent. This has since turned to wailing and gnashing of teeth by the everyday Zimbabwean and a deafening silence from his cheering section on the continent....
Such advice will likely fall of deaf ears, Lungu’s political ambition will not be denied.
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