Around 2007, officials at the ministry of Finance, Planning and Economic Development explored options to secure Shs 80bn to buy a jet - a Gulf Stream - for President Yoweri Museveni.
The president's old jet, it was reported, was not fit enough to carry the big man around and finding him a new one was of paramount importance at the Finance ministry. At the end of the brainstorming, the ministry narrowed down on Bank of Uganda. To get the money, the ministry had to agree to simple terms: Bank of Uganda would lend the ministry the money provided it agreed to its interest rates.
In setting the rates, Bank of Uganda looked to the global lending benchmark rate known as the London Interbank Offered Rate (LIBOR). On top of that, Bank of Uganda added an extra 100 basis points or one percentage point. And the deal was signed. The LIBOR is a rate at which at least 16 international banks are willing to borrow from each other. It offers many central banks around the world an overview of the risks in the market, and at what rate money could be lent out.
Last week, it emerged that some international banks might have offered bogus information to influence the LIBOR, and therefore the rate did not reflect the right picture of the risks in the market. The LIBOR is said to have been manipulated between 2005 and 2009.
Barclays Bank Plc, one of the 16 banks that offer information to help set the LIBOR, was found guilty of offering wrong information to belly up its revenues.
While it is still vague how one bank could have influenced a key rate set by 15 other banks, Barclays has agreed to pay a penalty of $450 million, and its chief executive, Bob Diamond, has resigned in the wake of the scandal. Investigations into four other international banks are set to begin. At the moment, different reports say that Barclays, and other banks, could have offered information about artificially low rates to encourage borrowing.
While tension continues to stoke Barclays Bank Plc at its headquarters in flashy Canary Wharf in London, Ugandans as far as dusty Koboko district should be concerned, especially if they think about where Bank of Uganda got the money to lend to the Finance ministry to buy that presidential jet.
If Bank of Uganda set a lower rate while lending to the ministry of Finance, based on trumped-up LIBOR information, then the foreign exchange reserves - so vital in maintaining the stability of the local currency - might have been squandered.
"We should all be concerned," said Jared Osoro, the Senior Research Economist at the East African Development bank. "We [local markets] are trying to pick lessons from western countries to develop our markets. But the western markets are sending us wrong examples."
In putting an interesting perspective to the current Barclays bank scandal, Osoro relates it to the movie Wall Street, in which the Oscar-winning actor Michael Douglas plays Gordon Gekko.
In that movie, one quote from Gekko stands out: "Greed is good!" Greed was the reason behind the financial crisis of 2008, which threatened to pull down the entire global financial market.
"That's not the kind of lesson we want," Osoro said.
In fact, Bank of Uganda at one point flirted with the idea of creating a Kampala Interbank Rate - a rate that banks in Uganda would borrow from each other - drawing lessons from the LIBOR. The idea was to help address structural issues in the market, in which low liquidity levels created wild interbank interest rates. But those plans were shelved - the Central Bank decided to study the idea further. However, with what's going on globally, any hope that plans for the Kampala Interbank Rate will be revived have all but vanished.
Stephen Kaboyo, managing director of Alpha Capital, says: "We have not seen the last of the Barclays issue. Every international investor looks up to the LIBOR. There is the issue of contagion [the spread of the effects]. This is just the tip of the iceberg."
Just like Osoro, Kaboyo, also explains that the borrowing costs of international investors could have been priced wrongly. He said that banks in Uganda looking to offer derivative products (risk mitigating products) like swaps tend to look at the LIBOR to set their own rates.
Osoro said international banks like the African Development bank base the money they intend to lend out to different markets by looking at, among other factors, the LIBOR. ADB lent money to Bujagali hydropower dam in 2007.
"We could be paying back the loan based on a wrong price," Osoro said.
And yet, Ugandans should know that it is not only Barclays Bank that manipulates information. Uganda's banking industry has its own problems whose effect might not be as far reaching as Barclays', but whose characters are almost similar in nature. Around May last year, Governor Emmanuel Tumusiime-Mutebile gave a rare speech at a Bonds Equity and Related Instrument forum organized by the Uganda Securities Exchange. Buried deep in his speech was a quote that spoke volumes of the banking practices in Uganda; one that insinuated a huge character of greed.
"Markets are not as fully transparent as is desirable," Mutebile said.
"There are also problems with the efficiency and volatility of our securities market. Evidence for this is the often erratic bidding behaviour at bond market auctions, with bids which are at odds with prevailing secondary market rates and a normal positively sloped bond yield curve."
The erratic behaviour was directed at six banks: Stanbic, Barclays, dfcu, Centenary, Standard Chartered and Baroda - the primary dealers in government securities. Kaboyo, who was once the director of Financial Markets at Bank of Uganda, said "banks are in the business of making money. And there are some traders [in Uganda] who manipulate their positions to make money. But the regulatory system at Bank of Uganda has been strong to deal with such cases."
So, where do we go from here in relation to the Barclays scandal?
"We are a small market. We are price takers," said Osoro. "You will not see investors boycotting international banks because of this scandal. The solution will have to come from the regulators in the UK."