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The politics of a monetary union: The case against it

The politics of a monetary union: The case against it

‘Members (of the EAC) are searching for ways of harmonizing variables used in computing key economic indicators,’ stated a news report in the newspaper ‘DAILY NEWS’ on January 6, 2012. ‘Harmonising the variables used in computing key economic indicators,’ you say?

One would have expected that these are already uniform and, as such, did not need harmonizing. For all practical purposes, they should be standard across the globe, applying in equal measures to, and routinely practised on the ground by, most (if not all) of the countries of a civilized world.

In computing the Consumer Price Index (CPI), would the EAC countries use different statistical ‘weights’ for the basket of items involved? For instance, the important item of food commands 51.9 per cent of the total ‘weight’ in Burundi, compared to only 27.2 per cent in Uganda next door. In-between are Rwanda (35 per cent); Kenya (36 per cent) and Tanzania (48.8 per cent).

Why shouldn’t the five countries have struck in the first place an average of the different weights (39.78 per cent) as standard for the region? Is that what they are trying to do today, on the road to a Monetary Union? I mean: ideally, there should be one common, universal way of arriving at prevailing macroeconomics across the board.

It seems that this is not the case on the ground -- as implied by the ongoing efforts within the East African Community to ‘harmonise variables’ among its five member states. No wonder there’s continuing confusion and chaos in the world of economics -- what with different countries applying different methodologies and ‘variables’ to arrive at such macroeconomic fundamentals as the rates of economic growth, consumer price index (CPI), inflation, et al.

Indeed, amenable macroeconomic fundamentals are crucial to economics. This is in terms of whole systems, especially in so far as they relate to general levels of a given country’s output and income -- and to the interrelations among the different sectors of the economy. Today, Tanzania and its EAC partners are caught in the throes of a struggle to forge social, economic and political integration.

This is ostensibly designed to culminate in an EA Federation under a single President. To that end, we’ve seen the formation of several common institutions. These are an East African Legislative Assembly; an EA Court of Justice; an EA Customs Union, and an EA Common Market. Establishing these has been relatively straightforward and easy.

By comparison, it’s going to be an uphill task to put in place the remaining institutions. These include an EA Monetary Union and an EA Federation -- complete with an EA Central Bank, a single currency, and a Federal President! Cobbling together these latter’s already proving to be a Sisyphean task akin to that of the legendary King Sisyphus of Corinth who was condemned to forever roll a heavy rock uphill in Hades -- only to have it roll back downhill as he neared the top!

Some of the EAC member countries, especially Kenya and Uganda, have been inordinately zealous in pursuing the ultimate integration goal. This has been to the point of seeking to fast-track the processes involved, with political federation coming into being as early as in 2013 -- and 2015 at the latest!

However, this is unlikely to be a reality on the ground any time soon. Although we’ve had a Customs Union for six years -- and a Common Market beginning July 2011 -- there still are formidable hurdles in the way to make them efficient and effective as a matter of course.

For example, non-tariff barriers (NTBs) still play havoc with efforts at full economic integration. There still are major drawbacks in the envisaged Right of Establishment, free movements of labour, persons, capital, goods and services among the member countries. At first, Tanzania was blamed for putting the brakes on fast-tracking the integration processes.

It now seems that other EAC members are willy-nilly joining the ‘Don’t-Rush-in-Where-Angels-Fear-to- Tread’ bandwagon... What with the turbulence in international monetary system’s – beginning with the crisis that broke out in the US in 2008, and the ongoing Euro-Zone crisis -- rogress is zilch in achieving macroeconomic convergence within the Community in time for a Monetary Union this year (2012)!

The bottom line? Tanzania’s being proved right in preferring to err on the side of caution rather than rush headlong into a socio-eco-political integration that will ignominiously come apart in a few years hence!

Cheers!

[israellyimo@yahoo.com].

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Author: KARL LYIMO

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