When Bill Clinton was elected as American President in 1992, he found the economy in complete shambles. The unemployment was at its worst. The cost of living too, was unbearable and the inflation rate was at its worst. His predecessor, President George Walker Bush Senior had messed up the economy when he attacked Saddam Hussein’s Iraq in the 1990 Gulf war that had cost the Americans a lot of resources and badly affected the economy.
That was the time when Bill Clinton’s political strategist called James Carville coined the famous phrase ‘it’s the economy stupid’ statement. The then Chairman of the Federal Reserve, Alan Greenspan embarked on the mission to revive the economy. He made a number of concessions by subsidizing most sector of the economy, cutting on the taxes, reducing the interest rates and encouraging access to credit. These fiscal and monetary policies resulted into an immediate turnaround of the economy.
Inflation was drastically reduced; the unemployment rate was reduced to manageable levels and the cost of living went back to normal. Within a short time, the American economy was booming. President Bill Clinton’s political fortunes blossomed tremendously to the extent of easily winning the second term. Actually, Alan Greenspan is ranked as one of the best performing American Secretary to the Treasury, while Bill Clinton is still ranked as one of the best American Presidents in history, because of the way they turned around the economic situation in the mid-90s.
The point to note here is that the performance of the economy determines the political fortunes of the leader. If the economy is hit by a recession, it’s the political leadership that pays the price. When President Barrack Obama was hit by the challenges attributed to the credit crunch, he took measures to mitigate the situation. The same monetary and fiscal policies were implemented. Now as our country suffers one of the lowest economic downturns in history, we expect our Secretary of the Treasury to revamp the situation.
The Secretary to the National Treasury, Ramathan Ggoobi, is the Chief Financial Officer of the State who also advises the President on all matters concerning the economy. Ramathan is fairly a well-grounded man when it comes to matters of the economy. This stance, since he lectures economics in one of the highest institutions in the country. I came to know him when he was writing a column in one of the weekly newspapers in town some years ago. There are rumors that Ramathan won the favor of the President when he designed the much-talked about Parish Development Model.
But in the years gone-by, Ramathan was a very rabid critic of President Museveni’s economics. If you had told Ramathan that he would one day work with Museveni, he would slap you in the face! They say that time heals everything, and in this case with the passing of time, Ramathan has managed to get integrated in Mr. Museveni’s government as the Principal Secretary to the National Treasury, replacing Keith Muhakanizi who had held that position for very many years. We used to listen to Keith on the talk show that runs on Capital FM radio where he championed very capitalistic submissions.
He for instance, strongly believed in the liberalization of the economy and used to defend the privatization policy with arguments that made us believe it was the best economic alternatives. It’s fair to say that during Keith Muhakanizi’s and Governor Tumusiime Mutebile’s time, the economic policies were not as harsh as they are today. If you asked any Ugandan on the streets of Kampala today, he will tell you that the taxes are higher today than they were, the interest rates are higher than ever before and the banks are not offering any credit. There are widespread outcries that the Ugandan government is not paying its civil servants on time and it is reluctant to pay its treasury bills as well.
When government does that, the economy constricts translating negatively on the cost of living in the country. When you don’t pay the civil servants on time, the purchasing power of the people is undermined. This has the trickledown effect of spreading poverty within the population. Mr. Ramathan justified this constriction of the economy and tightening of the money by saying that he was trying to arrest inflation that had become rampant. But he forgets that fighting inflation is not an end in its self. It should be a means to an end.
If you fight inflation by not releasing money into the economy, it obviously means that you are impoverishing the people and making life very hard. People can neither buy nor sell anything. Government is the biggest center of business. If it doesn’t conduct business, the whole economy crumbles. If it doesn’t release money to pay for the treasury bills, pay civil servants, reduce on the taxes and the interest rates, the whole population suffers.
Unfortunately, Mr. Ggoobi believes that constricting government participation in the economy is the best way to fight inflation. It tantamount to implementing negative economics that retards the economic progress of the country. How did we know that Mr. Ggoobi had implemented negative economic policies? Civil servants can testify that they are not being paid on time. In an interview with BBC’s Allan Kasujja, President Museveni himself confessed that Ggoobi had refused to release the money into the economy. The reason Ggoobi gives is simply to ward off the biting inflation. But the inflation we have encountered has not been caused by internal factors. We have endured imported inflation as a result of the war in Ukraine that caused the rise in fuel prices.
How do you mitigate imported inflation by restricting financial flow? Perhaps, if the inflation was driven by internal factors, then we could speculate on embarking on that cause of action. The way forward? Mr. Ggoobi must revise his actions by looking into reducing the interest rates, allowing citizens to access credit facilities, pay all civil servants on time and pay all the treasury bills. Of course, he may not cut the taxes but he needs to release money into the economy to give it the much-needed breathing space. He also needs to know that government is the biggest player in the economy. If it doesn’t play, the whole economy stagnates.
- Fred Daka Kamwada is a seasoned journalist, blogger and political analyst for over a decade in Uganda
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