CLOSING CASE: Currency Trouble in Malawi
- What were the causes of Malawi’s currency troubles?
There were a number of causes of the Malawi getting into currency troubles. The main cause, which I would point out was the undue influence of the president of the country who was himself an economist but overestimated his talent. President Mutharika started to take full control of the country’s economy and did not allow anyone to object of the way he was handling the country’s economy. This was not a good sign for the country’s economy as people even in the government were reluctant to suggest changes to the ways of the president fearing prosecution. Governments that are run via authoritarian ways of governance have little to offer when it comes to participation of real experts in economic progress, instead only a few take economic decisions (Haber, 2006).
Another reason for the currency issues was due to the international alienation due to the policies of the president. This negatively affected the exports of the country. Trust deficit with other countries increased and the president did not care about it till it was too late and the economy was in bad shape. Countries like US and UK, who were major donors of Malawi stopped their aid which was a great contributor to the Malawian economy.
IMF wanted to help the country and its delegation paid a visit to the country but the president refused to meet the delegation and the country’s economy never got the boost that it could have got due to some financial assistance by the IMF.
Agricultural deterioration was also among the causes of the Malawi currency troubles. The income that used to come into the country due to export of tobacco decreased due to the deteriorating quality of the Tobacco crops. Tobacco was the primary cash crop of the country and also its main export item.
Speaking in general, the form of governance played a vital role in bringing down Malawi economy and making it confront the currency crisis.
- Why did Mutharika resist IMF calls for currency devaluation? If he had lived and remained in power, what do you think would have happened to the economy of Malawi assuming that he did not change his position?
President Mutharika had become a person who did not tolerate any view against his personal point of view. IMF had expected for the cost of exports to reduce and an increase in the foreign exchange to Malawi (African, 2012). The president did not agree to this argument. The first reason that he did not met the IMF delegation and did not hear the calls for devaluation of the country’s currency is his change of heart. It might seem strange but this is what really happened. The president did not feel that he needs to see the delegation as he believed he can still control the economic crisis.
Another reason is that the president thought that it does not matter if he devalue the currency or not, the economy would not stop deteriorating as he doubted the capabilities and intentions of IMF. The inflation in the country was on a rise and the president thought that devaluing the currency might speedup the inflation and argued that more people would suffer causing political problems for the president.
If the president had not died and had remained on the same course as he was on, I believe that the country’s economy would have collapsed and the problems faced by the people of Malawi would have risen exponentially. The main reason for the country’s economic deterioration was the fact that the president did not value the opinion of anyone else.
- Now that Malawi’s currency has been devalued, what do you think the economic consequences will be? Is this good for the economy?
We cannot analyze the effects of the currency devaluation independent of other factors influencing the economy of Malawi. Many countries and IMF had promised to help Malawi economy if it agreed to the demands of devaluing the country’s currency. Now as the currency has been devalued, it would depend on the speed at which it gets help from IMF and the donor countries. If this is proved to be a speedy process, the economy would improve. But if the promises made are not met on time, the economy of the country might deteriorate even more causing more troubles for the country.
The countries that deal with IMF get a plan of action which is well thought out by IMF. So if IMF provides loan to the country, the plan that they provide would need to be implemented properly. With this implementation, the country’s economy would start to rise again. The results of the implementation of the IMF plan may not yield their fruits immediately. This is going to be a long road and a lot of patience would be required. Malawi government would need to play an important role in this regard.
The question about this being good or bad for the economy is a subjective matter in my opinion. The results of the devaluation may require some time to be observed and analyzed. Only then can one decide if it proved good for the country or not.