There were several things that created Malawi’s currency troubles. After having great economic success in his first term as President, Mutharika took full control of economic policy in his second term. He punished those who questioned his actions, and harassed or jailed anyone who questioned or opposed him. This alienated countries who had been providing aid to Malawi such as Britain and the U.S. During this time, one of the country’s main exports, tobacco, decreased in demand due to the poor quality of the product. To add to Malawi’s troubles, Mutharika did not want to devalue the kwacha as recommended by the IMG, because he said that it would cause the prices of commodities and services to go up, which would hurt the poor people in Malawi
…show more content…
Britain responded by freezing their $550 million aid to the country and was soon followed by other aid donors, including the U.S. When the IMF wanted to adopt an exchange rate of 280 kwachas to the dollar, Mutharika refused, causing the IMF to halt a $79 million loan program it had in place for Malawi. An ESF loan or a reduction in public borrowing would have helped to stabilize the kwacha, but since Mutharika and the IMF could not agree on an approach, Mutharika made the situation worse by resorting to capital controls to help rectify the problem. (MALAWI: IMF Recommends Devaluation., 2012) This only resulted in higher taxes and an increased cost of living. However, there were already other things working against their economy such as the shortage of fuel, the rising cost of living, and an increase in the black market foreign exchange …show more content…
When protesters demanded economic and political reform, they were shot dead by the police who claimed they were looters. People were murdered and there was no accountability. The police were given the right to search premises regardless if they had a warrant or not. There were no rights, equality, or justice for the people.
The situation turned worse when the demand for tobacco declined. This is Malawi’s second-biggest source of foreign currency, so when it plummeted by 80%, it was a big hit to the already bad economy.
Lastly, I think part of the problems were the rigid practices of the IMF. It was put in place to help countries with struggling economies, but maybe there could have been more compromising discussion rather than a take it or leave it approach. Every country has a unique set of issues that I don’t feel that IMF customizes its solutions to due to the lack of knowledge needed to make such decisions. There is also the problem of moral hazard. If what they propose is counterproductive to a country, there is no
Britain responded by freezing their $550 million aid to the country and was soon followed by other aid donors, including the U.S. When the IMF wanted to adopt an exchange rate of 280 kwachas to the dollar, Mutharika refused, causing the IMF to halt a $79 million loan program it had in place for Malawi. An ESF loan or a reduction in public borrowing would have helped to stabilize the kwacha, but since Mutharika and the IMF could not agree on an approach, Mutharika made the situation worse by resorting to capital controls to help rectify the problem. (MALAWI: IMF Recommends Devaluation., 2012) This only resulted in higher taxes and an increased cost of living. However, there were already other things working against their economy such as the shortage of fuel, the rising cost of living, and an increase in the black market foreign exchange …show more content…
When protesters demanded economic and political reform, they were shot dead by the police who claimed they were looters. People were murdered and there was no accountability. The police were given the right to search premises regardless if they had a warrant or not. There were no rights, equality, or justice for the people.
The situation turned worse when the demand for tobacco declined. This is Malawi’s second-biggest source of foreign currency, so when it plummeted by 80%, it was a big hit to the already bad economy.
Lastly, I think part of the problems were the rigid practices of the IMF. It was put in place to help countries with struggling economies, but maybe there could have been more compromising discussion rather than a take it or leave it approach. Every country has a unique set of issues that I don’t feel that IMF customizes its solutions to due to the lack of knowledge needed to make such decisions. There is also the problem of moral hazard. If what they propose is counterproductive to a country, there is no