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Donors urge drugs cleanup.

It was Paris Club season again in December. With pre-meeting accolades from the IMF for the encouraging policy performance in 1993, Zambia was confident of obtaining the $1.1bn it was seeking for project and commodity aid, debt relief and balance-of-payments support in 1994. It received just over $800m.

But the pledges were not without some tongue-lashing from the donors attending the World Bank-sponsored meeting of the Consultative Group for Zambia held in Paris 9-10 December. They described the country as the "Colombia of Africa" and warned that unless measures are taken to fight drug trafficking and corruption in high places (see AB December 1993 p28), future aid could be in jeopardy. Payments support falls short

Zambia's negotiators were shopping for $340m in project and commodity aid, $275m in debt rescheduling and $560m for balance-of-payments support. Pledges of balance-of-payments support fell short of the target by $96m. The government agreed to meet the donors again in March 1994 in Paris to negotiate the debt problem and to see whether the $96m balance-of-payments gap could be filled. Whichever way the March meeting goes, the government expresses optimism that it will be able to raise the $96m locally if Zambia Consolidated Copper Mines Ltd (ZCCM) trims some of its subsidiary companies.

The conglomerate has already embarked on drastic cost-saving measures in order to remain afloat. In December 1993, ZCCM Chief Executive Edward Shamutete scrapped 850 senior positions in the company in an exercise which triggered off massive layoffs but will earn the sagging mining giant ZK40.7bn ($81.4m) in annual savings.

According to Stephen Denning, the World Bank's Director for Southern Africa, who chaired the two-day Paris meeting, Zambia has been receiving less than what it has asked for in the last three years because of the country's high level of indebtedness.

At 30 September 1993, Zambia's external debt stock stood at $6.75bn, a reduction of only $317m compared to the position at 31 December 1992. The largest portion of this debt, $2.64bn, is owed to bilateral lenders, and $1.74bn is owed to multilaterals. Zambia also owes $1.3bn to the IMF, $149m to international suppliers, $97m to the London Club and $822m in short-term loans. Praised for standing firm

Donors, however, strongly commended Zambia's commitment to the economic recovery programme, despite difficult conditions such as high rates of inflation. Bringing down inflation was the government's main priority in 1993. During the first half of 1993, inflation had reached an annualised rate of 280%, reflecting inadequacies in parastatal pricing and difficulties in offsetting the imbalance between donor inflows and external debt service.

Government statistics show that inflation effectively dropped to an annualised rate of 47% in the July-September 1993 quarter. For the October-December 1993 quarter, the target was to reduce it even further, to an annualised level of below 20%. This goal appears to be feasible when one considers the fact that the monthly rate of inflation had fallen to 0.1% in October, or an annualised rate of 1.2%. The November level was -1.6%.

For the first time in many years, Zambians saw prices going down.

Analysts contend that this success has been achieved by implementing a cash budgeting system to avoid the creation of excess liquidity through deficit financing. It was again the first time that any government in Zambia had imposed this type of restraint on itself. As a result, the government was able substantially to meet the performance benchmarks under the revised Rights Accumulation Programme agreed with the IMF in July 1992 and led to accumulating rights under the same programme.

"Impressive record"

Such performance has won the government accolades from the IMF, whose Southern Africa Division Chief Dr Gerry Johnson admitted in November 1993 that "we have not seen such an impressive record of economic performance anywhere in the world".

The government has, however, failed to demonstrate the same courage in fighting drug trafficking and corruption in high places, a concern which was expressed by the donors at the December meeting. The issue has almost split the government. On the one hand are President Chiluba and his old friend in the labour movement, Newstead Zimba, whose portfolio as Minister of Home Affairs includes overseeing the Drug Enforcement Commission. Both Chiluba's

and Zimba's feeble responses have been to challenge the donor community to produce evidence of drug trafficking and corruption among senior government officials. "We are not investigative wings," retorted the Japanese Ambassador to Zambia, Dr Shinsuke Horiuchi, when Zimba issued the now-worn-out challenge. It was the Zambian government's job to investigate allegations of corruption and drug trafficking, to clear its name, because donors could not interfere in internal affairs of any country, Ambassador Horiuchi explained.

Those who face the donors

The other camp comprises officials who are keen to fight the scourges and includes Finance Minister Ronald Penza and his colleague at the Ministry of Health, Boniface Kawimbe, as well as Dean Mung'omba, Deputy Minister for the National Commission for Development Planning in the President's Office.

These are the people who face the donors and are scared that if the government does not act decisively, Zambia's relationship with the donor community will be strained.

"We have dealt with serious problems like inflation and high commodity prices. I do not see any reason why the drug issue cannot be resolved," declared Mung'omba on his return to the Zambian capital from Paris.

Opposition leaders accuse Chiluba of shielding drug traffickers in his Cabinet, and when such allegations are made, fingers are usually pointed at Foreign Affairs Minister Vernon Mwaanga, Community & Social Welfare Minister Princess Nakatindi Wina and her husband Sikota Wina, who is Deputy Speaker of the National Assembly. All three were detained for a year in 1985 by the government of former President Kenneth Kaunda on allegations of being involved in drug trafficking.

Was drug report "doctored"?

The Movement for Multiparty Democracy (MMD) rejected a report of a tribunal appointed by Kaunda to investigate the charges against the three as well as 21 other alleged traffickers, arguing that it was doctored to tarnish their names during the 1991 elections.

However, in November 1993, former Legal Affairs Minister Dr Roger Chongwe, who became the fourth Minister to resign on his own in the two years of the Chiluba administration, disclosed that President Chiluba had ignored his advice on how

the MMD should respond to allegations that top politicians were involved in drug trafficking. According to Chongwe, soon after the MMD government took office in November 1991, he advised the President to publish the full text of the 1985 Chaila Report (named after Judge Chaila, who headed the tribunal that investigated the involvement of prominent Zambian citizens in the illegal trafficking of drugs).


Chongwe claims to have told Chiluba that if the government failed to publish the report, these allegations would persist throughout the whole five years of the MMD' s current term of office.

"It is important to investigate allegations, especially if the Minister is a Foreign Minister, because he projects the image of the country abroad," Chongwe stressed, adding, "If we had done that, I am sure this would not be happening." President Chiluba personally has not parried these charges, but his spokesman, Richard Sakala, has alleged that Chongwe resigned his ministerial job because he was bitter about the government's failure to hack his bid for a job on the bench of the International Court of Justice in The Hague, the Netherlands.

Analysts contend, however, that Zambia is much more important to the drug trade as a transit point than as a major market for narcotic drugs. It is widely believed that the country is used as a back-door entrance to the much-bigger market in South Africa.

Money laundering

Some of the principals - both suppliers and manufacturers - are, however, based right in Zambia, and their profits find their way back into the country in the form of luxury cars and no-funds or under-invoiced imports.

Bill Fearon, President of the Zambia Institute of Bankers and Managing Director of African Commercial Bank, admits that the relaxation of exchange controls and the liberalisation of the economy - essentially good measures in themselves - have made Zambia a stepping stone through which traffickers convert their illicit dirty money back into good clean hard currency, thus enabling them to finance further trade and therefore to repeat the whole exercise. The Zambian kwacha, which had strengthened from ZK 549.82=$1 in mid-June 1992 to ZK347.29=$1 in mid-October, has weakened in the past quarter. By 3 December, it had tumbled to ZK435.32=$1, and by 7 January, it had plunged to just ZK656.95=$1. The currency's rate against the UK pound sterling had declined to ZK979.18=|pound~1 as of 7 January.

Donors pledge $800m to Zambia at Paris conference

A GROUP representing 13 aid-donor nations and 12 international organisations has estimated likely support levels of $800m for Zambia for 1994, according to the World Bank News.

But the group, meeting in Paris 9-10 December, also suggested that the support assumes that required progress is made in implementing new economic policies.

Donors and organisations indicated that if progress is made, then they would be prepared to give special consideration to additional financial support. "The group praised Zambia for maintaining its commitment to the country's economic recovery programme under difficult conditions and welcomed its commitment to developing social services," the report indicates. But it noted formidable challenges ahead, including Zambia's heavy debt burden, and it expressed concern about the slow pace of privatisation. Bilateral donors expressed concern on issues of good governance and welcomed the Zambian government's commitment to action in this important area.

Inflation subsides

Zambia, meanwhile, highlighted the country's dramatic reduction in the inflation rate (see accompanying article) and further liberalisation of the exchange and trade regimes. It reaffirmed its commitment to the economic recovery programme and appealed for continued support from the donor community to help safeguard the progress and to move forward with economic growth.
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Title Annotation:includes related article; Zambia
Author:Chiposa, Sylvester
Publication:African Business
Date:Feb 1, 1994
Previous Article:East African co-operation resumes.
Next Article:Aid sustains the budget.

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