In October 2001, Uganda’s largest bank, Uganda Commercial Bank (UCB) was privatised and sold to Standard Bank, a South African bank. UCB was not only the largest bank in Uganda but it was also a government-owned financial institution.
The privatisation was driven by the failure of government to run the business. The privatisation of UCB is one of those issues that haunt Mr Ezra Suruma, Uganda’s former Finance minister and also managing director UCB. In his book, Advancing The Ugandan Economy: A Personal Account, Mr Suruma laments about how the International Monetary Fund (IMF) and the World Bank, in part, forced the sale of UCB at a time he had turned it around into a profitable business.
“In fact, they told me that that was even better. It could fetch a much higher price for UCB,” he explained recently at a dialogue on the state of banking in Uganda. It is also a phrase he repeats often.
The UCB sale was only part of the equation that the IMF will forever be remembered for in Uganda. Uganda had joined the IMF in September 1963. However, Uganda only became directly exposed to the policies of the IMF around 1989. President Museveni had come into power in 1986 with Marxist theories.
Nonetheless, socialism was crumbling in parts of Europe and the eventual collapse of the Soviet Union forced President Museveni’s government to rethink the economic model for the economy. It was in 1989 that the IMF adopted the Washington Consensus, a ten-point programme that included proposals of how the IMF and World Bank expected developing countries to run their economies if they were to access funding from the two institutions or any other development agency. And indeed Uganda fell prey because it was a desperate country at the time. There was no money in the central bank and revenue collections were low.
“The NRM recognised the need for emergency funds to restore basic government services and get the economy moving. Unfortunately, the international donor communities were not forthcoming unless Uganda agreed to abide by the conditionalities imposed by the IMF and World Bank. The country’s acceptance of the various conditionalities and protocols imposed by the Bretton Woods institutions paved the way for the disbursement of loans, grants and technical assistance,” Mr Suruma writes in his book.
The conditionalities meant that Uganda had to liberalise the economy. The fixed foreign exchange policy changed to a floating system. The cotton and coffee marketing boards were all abandoned for market driven pricing regimes instead of the government setting the price. It also included the devaluation of the Uganda Shilling to tame inflation pressures. That ushered in the period of Structural Adjustment Policies (SAPs) when even public servants were laid-off in order to reduce the government wage bill. About 170,000 people lost their jobs, trade unions were weakened and the corporative movement started to crumble. Ten years later, Uganda benefited from debt forgiveness totaling $2 billion through an initiative by the IMF and World Bank.
Since then, the IMF has gained a footprint in Uganda’s economy, specifically carrying out surveillance on Uganda’s economy, rating its creditworthiness, technical assistance and also proposing policy reforms on further liberalisation of the economy such as the proposal to liberalise the pensions sector.
This week, Uganda will host Ms Christine Lagarde, the eleventh managing director of the IMF. Her visit comes 27 years after the visit of Mr Michel Camdessus, the managing director of the IMF in 1990 at the height of the implementation of the SAPs. Her visit, she states, will help her “…gain a deeper understanding of your (Uganda) governments’ economic agenda, and discuss how the International Monetary Fund can best serve Uganda.”
However, the IMF closely monitors the Ugandan economy and Ms Lagarde would have been given a brief before she arrives tomorrow, if all arrangements remain unchanged. She will have been briefed that the government wants to get back into business by reviving an airline, owning a railway, operating power dams and that it also fully owns a development bank. Her meeting with President Museveni will be different from the IMF meeting of 1990.
President Museveni has been rethinking, and in part, regrets some of the privatisation policies that were forced down his throat or misguided by advisors linked to the Bretton Woods institutions. He particularly feels he was misled into selling UCB because he was meant to believe that privatisation would lower lending rates and expand banking.
Ms Lagarde also comes at a time Uganda is looking east to China to expand public investment as the President criticises the conditionalities of money from Europe and the United States of America. However, what President Museveni understands is that the credibility of the country’s economy remains paramount and the IMF offers that. That explains the rather soft and friendlier tone from the government side. IMF officials follow key trends especially at Bank of Uganda (BoU) and the ministry of Finance.
“Our relationship is historical as well as progressive as partners. It is, therefore, very good news that the chief executive of the IMF has confirmed Uganda as a key destination on the continent. We look forward to constructive engagement on a wide range of economic and financial issues amongst others during the visit,” Mr Matia Kasaija, the Finance minister, said recently.
Prof Wasswa Balunywa, the principal of Makerere University Business School (MUBS), says that a country cannot just walk out of the western capitalist system because of how globalisation has linked countries.
“The IMF is a necessary evil in our economies. But if you are ready, if you have your own plans which are credible then the IMF will say they are ready to work with you. But if you don’t have that and you wait for them to give you conditionalities, they will do that,” he said.
Countries can, however, stand-up to the IMF and go ahead to reject proposals the Fund may table. And as such, the plan to liberalise the pension sector is slowly gathering dust as the bill is yet to be debated on the floor of Parliament.
“IMF policies like liberalisation are very good because it encourages production, encourages people to do things. But when you liberalise without thinking about your country then you are going to have a flood of foreign companies coming into Uganda. So you must know who you are liberalising for,” Mr Balunywa adds. He, however, points out that liberalisation can’t just be an open book. He insists on having some controls in the economy.
Dr. Isaac Nkote, the dean of commerce at MUBS, says the IMF is relevant in Uganda today because it gives the country credibility in terms of accessing international resources. It also helps in economic expertise and debt management.
What, exactly, is the IMF doing in Uganda?
“The presence of the IMF reassures the investors and businesses that the country will pursue stable inflation, stable exchange rate and liberalised policies. We really need it as a reassurance that Uganda will continue to pursue prudent economic policies. So it is still relevant,” says Dr Nkote.
Uganda currently doesn’t borrow from the IMF.
The last time Uganda received funds from the IMF was in 1996 under the Poverty Reduction and Growth Trust/ Enhanced Structural Adjustment Facility Structural Adjustment Facility/Trust Fund. The bulk of the work is through the Policy Support Instrument (PSI), a surveillance programme that monitors Uganda’s economy and highlights areas of reforms and risks to the economy. The PSI is used by lenders such as the World Bank, IDA, IFC, ADB, Kfw and GIZ, among others, to show where Uganda’s economy may be at risk.
In December 2016, the IMF completed the seventh review of the Ugandan economy that indicated an economy vulnerable to debt defaulting because of rise in advances from BoU.
“We still need them once in a while, they help us in the formulation of sound economic policies and with the experiences they can help you to discover new resources because being with IMF helps to integrate us into the global economy,” Mr Nkote points out.
In 2011, BoU changed its monetary policy to inflationary targeting and monthly setting of the Central Bank Rate. This has been a trend followed by countries that are members of the IMF. Additionally, the IMF is working with the government to ensure the country complies with The Financial Action Task Force (FATIF) on money laundering. Uganda is considered one of the countries that are non-cooperative by FATIF. If Uganda does not move from this category it can be blacklisted, meaning this would disrupt international transactions to and from Uganda.
Ms Christine Lagarde
Born January 1, 1956, Christine Madeleine Odette Lagarde is a French lawyer and politician who has been the managing director of the International Monetary Fund since 5 July 2011.
Previously, she held various ministerial posts in the French government. She was minister of Economic Affairs, Finance and Employment, minister of Agriculture and Fishing and minister of Trade in the government of Dominique de Villepin. Ms Lagarde was the first woman to become finance minister of a G8 economy and is the first woman to head the IMF.