Elias Biryabarema
19 October 2008
Kampala — As the US and European economies sink deeper into economic turmoil described as the worst since the Great Depression that set in, in 1929, the rush by Western governments to rescue their distressed financial institutions has provoked disbelief and wonder among economists here who view those interventions as contradictory.
In interviews, some of these economists were amazed that the US, UK and other European governments that were the ones forcing the Ugandan government to divest itself of business and not interrupt the market forces are now instead scrambling to save their private sector companies that have been run into insolvency by imprudent management.
The US Congress on October 3 passed a massive $700 billion spending package that will be pumped into several key financial institutions and pull them back from the brink of collapse. The UK has also announced plans to pour vast amounts of cash into the nation's financial system and partially nationalise some of the country's biggest banks--Barclays, HSBC, Standard Chartered, Bank of Scotland and others.
The World Bank and IMF, which mostly tout the preferred economic policies of influential western governments, forced the NRM to sell Uganda Commercial Bank, Uganda's largest bank then, to South Africa's Stanbic at $19 million, a price said to have lower than its true value. The two institutions argued that UCB had to be sold because it was badly managed and was tottering on the brink of bankruptcy.
Mr Lawrence Bategeka, a fellow at the Economic Policy Research Centre, Makerere University suggested to Sunday Monitor that there was indeed a strong whiff of hypocrisy on the part of the West which compels poor countries like Uganda to part with some of their most prized public commercial institutions 'because governments are not supposed do business' while the same governments are currently doing the opposite of what is expected.
"It is easy to understand though. Our institutions like UCB were emerging as strong competitors for some of their companies and they had to invent a reason to force our government to sell it," he said. He said it was "politically expedient" for the NRM then not to reject the West's advice.
"The NRM was conditioned to do whatever it did with UCB and other companies because it had to do that if it wanted Western aid," he said.
Mr Simon Rutega, the CEO of Uganda Stock Exchange, too, said it was intriguing that the US and Europe were scrambling to use taxpayers' money to save collapsed private banks, mortgage and insurance companies yet they preached a different gospel to the NRM government.
He suggested that the NRM should have known better that there were certain instances when the government had to save a private sector company on account of the profound national interest it serves.
"The US and Europe realised that the cost of not saving these companies was going to be devastating and so they had to come in," he said.
Even then, Mr Rutega argued that increasingly many economists are coalescing around the idea of responsible and humane capitalism which accommodates a broader role for the government that would otherwise not be permitted in a pure, free market economy.
The NRM government, according to Mr Nandala Mafabi, the shadow finance minister and chairman of Parliament's Public Accounts Committe, government should take current global economic crisis as a stark reminder of their folly in allowing the IMF and World Bank advice to sell key economic institutions on the cheap.
"Any reasonable government will support companies that play a major role in the economy. UCB was a countrywide bank, the largest in the country but the NRM foolishly allowed silly advice from the IMF and World Bank to sell them," he said.
"Going by what they (IMF and World Bank) lectured the NRM you would be expecting them to be telling the US government not to use taxpayers' money to rescue private sector companies."
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