Saturday, December 10, 2005

Economics 101

I really wish I had paid more attention in my economics courses at Harding. I managed to memorize the material required on tests, but I didn’t take it in well enough to understand the international monetary system and how that system would someday affect my life! Now we are learning economics the hard way.

Reuters news service reports that the Zambian kwacha has appreciated 37% against the US dollar since the International Monetary Fund awarded the country a debt relief package. The IMF gave Zambia a $3.95 debt relief package and the G8 conference resulted in another write-off plan that will cut Zambia’s foreign debt to $300 million by May. That’s down from $7.1 BILLION in May of this year.

That means there is more money in the Zambian economy to be spent, and it also means that the amount of dollars the government is buying has come down. Those factors affect the value of the dollar in relation to the Zambian kwacha. When we arrived in Zambia, the exchange rate was around 4,800 kwacha to one US dollar. The Reuters report said that Wednesday’s rate was 3,500/dollar and predicted to go even lower.

In practical terms, when we got here in June we could get 1 million kwacha for $210. Now it takes $285 to get that same 1 million in kwacha. It’s hard enough on a personal budget, but the mission has taken a hard hit as well, since US dollars support a portion of the work here. Many students are sponsored in school by generous donors in the US, and those students have watched their tuition bills climb as the value of their US support declines.

Export sectors of the economy, especially agriculture, are also feeling the effects. The Reuters report says the president of the national farmer’s union predicts job losses in the agricultural sector. That will “cause higher levels of poverty in a country where 69 percent of the people live way below the World Bank poverty threshold of $1 per day. “

Optimistic economists think that the devaluation is an overreaction and that the rates will improve in coming months. We shall see. In the meantime, we are counting our kwacha carefully.

1 comment:

Anonymous said...

This should mean that imported goods will become less expensive, but somehow I doubt that prices will fall, since the free market seems to be slow to react over there. I see this as an opportunity for Zambians to invest in new supplies and equipment to improve productivity. Every time something changes in the economy some choose to put a negative spin on it. Devaluing or apreciating, neither are good or bad in themselves, they help some people and hurt some people. I can't help but think that this will help more than it hurts, though, especially the government.