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Devaluation Cure : A Bitter Pill for Sick Money in Black Africa

June 19, 1987|SCOTT KRAFT | Times Staff Writer

KAMPALA, Uganda — The motorcade speeds down the center of Uganda's chewed-up highways these days with flashing lights, parting the traffic with an escort of army trucks that sprout soldiers and automatic rifles.

"That's His Excellency, Mr. Money," one motorist grumbled as the caravan passed by.

Uganda's newly minted cash, in cardboard boxes still bearing the stamp of the English printer, is being chauffeured around the country to replace the old bills that, President Yoweri Museveni himself said, were "almost worthless."

Uganda's old shilling had been trading on the flourishing black market for 10 times less than its official value. The new and devalued shilling is getting more respect, something exceedingly rare for the national currencies of Africa.

All Currencies Not Equal

Far, far from the home of the mighty dollar, in the land of the Zambian kwacha, the Ghanaian cedi, the Mozambican metical, the Nigerian naira, the Gambian dalasi, the Ethiopian birr, the Botswana pula and the Guinean syli, it is quickly evident that all the world's currencies are not created equal. In fact, much of it literally isn't worth the paper it's printed on.

In the southern African nation of Mozambique, for example, the metical was devalued recently against the dollar, from 40 to $1 to 220 to $1. Yet the easily accessible black market rate is 1,600 to $1.

"You can use meticals in the bathroom, they're worth so little," one international expert in African finance said. The U.S. Embassy encourages travelers outside Mozambique's major cities to carry "readily convertible currencies," such as American dollars.

In West Africa, Liberians need a strong back and well-sewn pockets to carry their currency, one-dollar and five-dollar coins slightly larger than the U.S. half dollar. One bank in Monrovia, the capital, had so much Liberian cash on hand not long ago that officials worried that the stocks of it stored on the second-floor might crash through the ceiling.

Most of black-ruled Africa is in serious financial trouble these days. Paying interest on their international debt gobbles up as much as half the hard-currency earnings of some nations. To lower those payments, African leaders must convince Western lenders that they are on the road to recovery.

But having too much Mr. Money that is worth too little is one of the biggest obstacles to recovery. Overvalued national currencies have over the years discouraged export agriculture and local manufacturing, keeping many resource-rich African nations underdeveloped and dependent on loans and handouts.

Now, however, for the first time since the years when most of Africa gained its independence, governments on this continent are allowing their unrealistic exchange rates to fall. Currency rates are being put up for official auction, pegged to "baskets" of various hard currencies or simply devalued by presidential decree.

Bitter IMF Medicine

Currency devaluation is invariably the cure prescribed by the International Monetary Fund, the lender of last resort for beleaguered economies. In all, 25 countries in Africa are taking the IMF's free-market medicine for recovery, although not always with a smile: The IMF stamp of approval is a necessity for rescheduling debts or borrowing money.

Recent devaluations in Nigeria and Ghana, as part of so-called structural adjustment programs, already have begun to correct economic imbalances. Even Tanzania, the birthplace of African socialism, has devalued its currency as part of a recovery plan designed on the principles of Western capitalism.

But the IMF plans have not worked everywhere. Zambia, racked by food riots and labor strikes, recently revalued its currency, abolished its foreign exchange auction and broke with the IMF. Many countries applauded Zambia, but none has followed suit.

Africa's currencies are sometimes called "soft" because they cannot be freely converted into "hard" currencies outside the country in which they were issued. Hard currencies, on the other hand, including U.S. dollars, British pounds, French and Swiss francs, German deutsche marks and Japanese yen, can be used to buy any currency in the world, anywhere in the world.

Worthless Outside Country

An African traveling outside of his country, for example, finds that his shillings or cedis or rupees are virtually worthless. Even changing them to dollars at home is difficult.

Kenyan law, for example, allows citizens to exchange their shillings for up to $200 each year. That policy is one of the most liberal on the continent, but $200 does not last long in the United States or Europe.

In addition, money is expensive to produce, and most African countries thus make it illegal to take more than a few dollars' worth of local currency out of their borders. Uganda spent as much as $10 million printing its new money. Liberia had 80 million new five-dollar coins minted last summer at a cost of nearly $1 million.

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