Africa’s Strongmen at Mercy of Currency Crises; IIF

HARARE – Omar al-Bashir, the Sudanese President ousted by the military in a shock move on Thursday, is the latest victim of a currency mismanagement crisis that has already claimed the thrones of several African leaders, according to the US based Institute of International Finance (IIF).

In a report released Friday, IIF tracked the history of several African leaders removed recently mostly through military coups and concludes that there was one common trend in their economies-currency mismanagements, high inflation and fiscal deficits.

Its statement took readers through a chronology that includes the forced stepping down of former Angolan president, Jose Eduardo dos Santos to the dramatic stepping down of Zimbabwe’s long-time ruler, Robert Mugabe.

Dos Santos

IIF then warns that such scenarios may visit the leadership in Venezuela, where President Nicolas Maduro has been battling a terrifying surge in hyperinflation.

It says in Sudan’s case, al-Bashir’s fate was sealed in 2011, when a break away with South Sudan left it with little oil revenue.

Sudan lost 60 percent of its reserves.

Thereafter, said IIF, Sudan began a long battle against foreign currency shortages that triggered an inflationary surge, and public anger.

“With the loss of oil revenue, the government monetised the deficit, causing inflation to spiral and reserves to dwindle as the central bank maintained an overvalued exchange rate,” Jonah Rosenthal and Garbis Iradian, economists at IIF, said in a note Thursday.

In Venezuela, where inflation is more than one million-percent, making its currency, the bolivar, one of the world’s worthless units, President Maduro has managed to hold on thanks to continued support from the military and outside powers such as Russia, according to analysts at Bloomberg.

“But if Sudan and Zimbabwe are a guide, he will also need to solve the currency chaos,” the report said.

“Nobody survives hyperinflation,” according to Daniel Osorio, president of Andean Capital Advisors, a New York-based firm that advises money managers on Latin America.

“Sooner or later, it pushes you out,” the firm said, referring to Maduro.

Al-Bashir is far from the only African leader to be hit by balance-of-payments crises.

Zimbabwe’s Mugabe was ousted by the army in November 2017, after a serious squeeze of foreign reserves caused havoc.

Robert Mugabe

In Angola, long time ruler, dos Santos was pressured by his ruling party to step down earlier than he wanted in 2017.

But one of the first things his successor, Joao Lourenco, did was devalue the kwanza to try and end a dire scarcity of hard currency.

“One of the root causes of the 75-year-old’s downfall was his inability to manage a shortage of foreign exchange that sent inflation soaring and hammered living standards,” Bloomberg said of Al-Bashir.

Bouteflika

“The government’s decision to ramp up spending while pegging its currency only exacerbated the situation. The central bank devalued the pound almost 40 percent to 47,5 per dollar in October. But it was too little, too late. And Algeria’s Abdelaziz Bouteflika, who was forced out of power this month, faced his own currency problems. The 2014 crash in oil and gas prices crimped the Arab nation’s dollar earnings. While it avoided the kind of economic pain seen in Sudan, it spent more than US$100 billion of reserves to prop up the dinar and avoid tough measures such as a major devaluation or turning to the International Monetary Fund for a bailout,” said Bloomberg.

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