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Zaire 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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