I first wrote to you congratulating you on your re-election seven months ago. Today I attended a book launch that inspired me to write to you again. The book is a detailed account of the economic reforms that have resulted in unprecedented growth and poverty reduction in Uganda since 1990.
What were the two key reforms of the early 1990s that kick started Uganda's boom? One of them, you might have guessed, was establishing fiscal control. As Alan Whitworth (one of the authors of the book) has written elsewhere, your Government also did this successfully during your first term in office. You have been widely congratulated and have reaped the benefits of this achievement.
The second critical reform of the early 1990s was the liberalisation of the exchange rate. The practical way of doing this was by legalizing the parallel market exchange rate. 'The results included a rapid expansion in non-coffee exports [a five-fold increase in four years!]; easier current transfers; and reduced rationing in imported consumer goods.' (p. 55).
Emmanuel Tumusiime-Mutebile, the current Governor of the Bank of Uganda and another of the book's authors, said during the launch:
"with the fixed exchange rate coffee farmers were GROSSLY cheated by the government. Also, as demonstrated by Uganda's experience over the last 18 months a flexible exchange rate makes adjustment to external shocks much less painful."
I reproduce again the chart showing the dramatic depreciation of the Uganda Shilling compared to the Malawi Kwacha following the financial crisis in September last year. You will be interested to know that despite of (or because of) the depreciation Uganda is expected by the IMF to have grown at 7% in 2009 and to grow at 6% in 2010 - that compares favourably to Malawi's growth rates of 5.9% and 4.6% for those two years.
In conclusion, I am afraid that the solution to the forex shortage is not to get Perks the Governor to tell people not to buy luxuries this Christmas (as reported in the article below). It is for Malawi to liberalise its exchange rate as Uganda did, to its significant benefit, 19 years ago. Until that happens the gains achieved during your first term will not be consolidated.
And if they are not consolidated your second term could be as poor as Acheya's. You will be remembered as the president who established fiscal discipline and a huge fertilizer subsidy. Acheya is the president that introduced universal primary education and allowed poor farmers (and not only well-connected estate owners) to grow tobacco. For the time being I still prefer Acheya's legacy, but you still have time to do better than him.
God bless Malawi.