Meles sterilizes (By Kirubel Tadesse)

(21 March 2011, By Kirubel Tadesse)--In his first press conference after being reelected in October, Prime Minister Meles Zenawi forecasts another double digit growth, promises to contain inflation and sees no chance of popular revolts happening in Ethiopia.

PM Meles said the earliest indicators the government has shown say that current 2010/11 fiscal year will register an eleven percent GDP growth rate.“We have the data on agriculture growth and they have their own models in the ministry of finance and statistics authority on the basis of which they predict the overall growth rate once they get the agriculture data in,” said Meles explaining why the government puts the 11 percent forecast for the budget year which is in its eight month.

The economy-GTP in action
The government is busy striving to implement a five year Growth and Transformation Plan (GTP) that envisages growing as high as 14.5 percent annually. The International Monetary Fund (IMF) said the target, even the base case scenario of 11 percent growth, is overambitious and needs to be toned down.

During this press conference on Saturday, March 12, Meles announced that the first year of the GTP performance so far has been encouraging; the foreign currency reserve is well above the target, and efforts to narrow the trade gap are looking up.
 

“The imports for the past six months have increased by some 30 percent but exports by some 50 percent. So what has happened is imports have slowed down when compared to exports… and that is exactly what we wanted to do through the combination of instruments we put in place including the devaluation,” said Meles.
Meles insisted his government is currently seeing, for the first time, success in its effort to lessen the country’s huge trade gap, since the September birr devaluation of 17 percent.
 

“We have done better than planned in the export sector, that among other things, is reflected in the higher foreign exchange reserve of the National bank which is significantly higher than planned. 

We have kept the money supply within the limits that we agreed with the IMF in spite of the fact the foreign exchange reserve has very significantly gone beyond plan, so we are generally quite comfortable with the trade figures,” Meles elaborated while admitting he had hoped to see faster export growth than is being seen now.
 

Meles also said searching for the five year plan financing [1 trillion birr] that comes half in budget is progressing well and tax collections in the first six months have increased by up to forty percent. Since the target was 28.8 billion birr in the period, to collect 25 billion birr, Meles said [40 percent of tax collection growth] is more than enough.
 

“We had sort of two targets; one that we used for the budget and the other that we used for our internal evaluation; for the budget we used a lower target. So, as far as the budget is concerned we are safe,” Meles commented to Capital during the press conference adding that as long as the assistance from the international community sustains, there are no spending concerns.

Containing inflation
Since the September devaluation that soared the cost of imported items, annual inflation mounted double digits with the latest figures of Central Statistical Agency showing in February 16.5 percent inflation.  

The government placed a price cap on major food commodities that came to a small success as some supplies such as sugar are hard to find in the market. Admitting the shortcoming, Meles said the contingency plan is now in effect.

“I have the latest data and the latest data shows the month to month figure has fallen very significantly. We believe we have a handle on it,” Meles responded to Capital stating that inflation targets remain on tolerable bounds and the market is reacting to the measures the government is putting in place.

Meles explained that the contingency plan, in the event the private business doesn’t cooperate in stabilizing the market after the price cap, was that the state will import basic commodities to distribute it directly.

Sugar and edible oils [15,000 tons monthly which is the country’s total consumption] are immediately entering the market and wheat and other commodities are soon to be following, according to the PM.

Such imports also will help to “sterilize” excess foreign currency reserves. According to experts sterilization is a monetary action in which a central bank such as the National Bank attempts to protect itself from the foreign exchange market to counteract the effects of a changing monetary base.
 

“The sterilization process is used to manipulate the value of one domestic currency relative to another. For example, to weaken the U.S. dollar against another currency, authorities there would sell more US dollars and buy the foreign currency, while in our case the plan seems to be to buy commodities from aboard using foreign currency but to sell to it to dwellers and collect the return in birr,” one expert said explaining the process.
 

Meles said since inflation is being controlled, after considering preferential lending to specific sectors such as through the Development Bank of Ethiopia… the government will, in three weeks time, lift administrative caps in place on commercial banks for the past eighteen months.
 

Kawarja sect- an emerging threat
While responding to questions, Meles said an extremist Muslim group called Kawarja was to be blame for the burning of Christian churches earlier this month in violence that also claimed one life.

There are reports that up to fifty churches were burnt and around 3,000 Christians displaced since March 2, when Muslim youths attacked the community around Jimma area.

According to Meles, the Kawarja sect with other extremists have been preaching religious intolerance in the area and the youth there have a tendency to try to take justice in their hands when whatever injustice they say happened, contributing to the violence.
 

“The government has been trying to stop the violence. That has been done quite successfully in spite of the property damage and the death of one Ethiopian,” Meles said.
 

Uprising concerns
Among international issues Meles discussed during the March 12 press conference, he welcomed the recent move by Burundi to come on board with the Nile deal to help the number of signatories of the agreement reach the much needed six but downplayed its significance to limit Egypt’s long year efforts’ to stop Ethiopia’s access the Nile resource.

Addressing questions related to popular revolts, Meles said his government has been particularly concerned with the crisis in Yemen as it could create fertile ground for al Qaeda and that has a negative consequence for Ethiopia and the horn of Africa.

But Meles says other than that his government didn’t see the relevance to discuss the issue in the context of Ethiopian current situation.

“Given my knowledge of these people; they must be very worried about what is happening in North Africa. They must be planning all dirty, evil things - planning for such a scenario,” said Siye Abraha in an exclusive interview with Capital. Siye is a former EPRDF senior figure who now leads the main opposition group.  He argues that Meles’ government is currently working to avoid facing a similar fate like Egypt and Tunisia’s regimes.

“Honestly speaking we have not discussed it in the party or the government,” Meles said to Capital when asked to comment about Siye’s remarks.

The PM said such threats would only come if the government failed to deliver the promises of the GTP. “What worries us is finance for the implementation of the project [GTP], what we discuss day in day out is how to get the finances. What worries us is the implementation capacity, inflation, land grabs and so on… that is what determines stability and progress in Ethiopia,” Meles elaborated.

“We are not worried that there will be a North Africa type revolution in Ethiopia, it is simply not possible. The circumstances for it do not exist,” Meles further said while also admitting that it could be tried. 

According to the PM, some people could try to instigate popular revolts in Addis Ababa and the Eritrean government has given instructions to “its messenger boys” to try it. 

“We are also aware that some parties who are legally operating in Ethiopia are praying that this happens and may be playing a few games to try to accelerate such an event. So we are watching these issues very carefully… these are security issues, police issues… they are not basic political issues so we don’t feel we need to discuss them as a government or as a party,” Meles said to Capital during the press conference Source: Capital Ethiopia