How economic reforms by Mwinyi government improved lives

Dar es Salaam. After years of intense negotiations between Tanzania and the Bretton Woods Institutions over economic reforms, a fundamental agreement was reached in the final years of the first-phase government, former President Ali Hassan Mwinyi reveals in his memoir.

He points out, however, that the matters on which no agreement had been reached by the time his second-phase administration started in 1990 included devaluing the currency and reducing spending in social services sectors, as well as charging citizens a certain portion of the cost of such services.

Mzee Mwinyi says since some of the reforms they had to make went against issues that Mwalimu Nyerere had founded and strongly believed in, it was not easy for Mwalimu to initiate the reforms.

“The task fell on me,” Mr Mwinyi writes in his memoir titled: ‘Mzee Rukhsa: Safari ya Maisha Yangu.’ Roughly put, this is ki-Swahili for ‘Mister Permission: The Journey of My Life.’

“Shortly after I came to power, we finalised the negotiations with the international financial institutions and began implementing the so-called Economic Reform Programme (ERP),” explains Mr Mwinyi.

He writes that the reforms of 1985-1990 were radical and aimed at reducing public nuisance, removing structural barriers, opening up economic growth opportunities and creating an environment conducive to private sector investment and trade.

In the first five years of his administration, Mwinyi notes, saw the major reforms they had to undertake in collaboration with the International Monetary Fund (IMF) and the World Bank (WB).

First, he says one of the biggest problems holding the country’s economy back was the inability to withstand competition in trade with foreign countries because the value of the Tanzanian shilling was inconsistent with the economic potential.

“Between 1986 and 1990 we reduced the value of our currency by 89 percent to the US dollar and we continued to adjust those rates until we reached the true value of our currency,” reads the 491-page memoir.

He discloses that one of the conditions of the IMF for Tanzania was to reduce government spending, but, nonetheless, Mzee Mwinyi says they-themselves also felt that the burden of government spending, including on social services, was greater than the revenue capacity.

“In the early years of the second phase government, we had a budget deficit of ten percent, and our borrowing capacity was limited. So the issue of reducing expenditure was inevitable, and we started charging the people a little more for social services through a cost-sharing policy,” he says.

Another problem, according to Mzee Mwinyi, was the high cash flow within the country’s economy, which led to a mismatch between money and commodities, with inflation climbing above 30 percent.

“In the first budget of the second-phase government, 1986/87, we had to raise interest rates by 50 percent, promising that we would continue to raise interest rates until we reached positive levels by mid-1988, a goal that was not achieved,” notes Mzee Mwinyi.

He says another task was to remove price regulations. In this, he explains that they found that price control was undermining production, including in agriculture, affecting the incomes of farmers, traders and even public entities which at the time were still plentiful and had accumulated losses for many years.

According to the retired Head of State, the private sector was instrumental in reducing and eventually ending the chronic problem of shortage of essential goods and services.

“Thus, we expanded the scope of private sector participation in production, services and trade and continued to allow traders to use foreign exchange earnings to import raw materials, spare parts or goods to stimulate the economy,” he writes.

He says in the first five years they started work on repairing some of the key infrastructure especially after some donors were satisfied with his government’s intention to reform.

He says in the three years of ERP I, total production grew by an average of 3.7 percent and enabled the average per capita income to increase by an average of one percent per year in those three years.

“Relaxation of price controls on agricultural products, timely provision of inputs and supply of goods in stores together helped increase incentives for farmers. Before this reform, there were no products in the markets…,” he says.

Mwinyi says that although EPR I did not achieve all its goals, it gave donors’ hope. So a government delegation met with the group at the Consultative Group Meeting for Tanzania.

“There were 14 donor countries and 11 international institutions, that were satisfied with the success of ERP I and promised to provide us with $1.3 billion intended to help cover the foreign exchange gap due to the negative balance of foreign payments and the social services sector,” he writes.

He says donors were happy to see Tanzania’s economy grow at an average of four percent per year during the ERP I period but wanted the pace of economic transformation to increase by introducing the market economy policy.

Mzee Mwinyi says the first five-year reforms began to bear fruit and, “gave us the motivation to go faster and deeper in the second half with the ERP II, 1990-1995.” This he says, had to re-focus on a number of key issues.

In this second term, Mzee Mwinyi writes that it was necessary, among other things, to make adjustments to public entities to reduce the burden of government-dependent debt.

“However, before privatizing it, we first focused on expanding opportunities for the private sector to increase economic efficiency in production, services and trade.”

During this period he also says they made the decision to start attracting private players by creating an enabling policy, legal and practical environment.

“In 1990, we passed a law to encourage and protect investment which, for the first time, established a legal framework to encourage and protect private sector investments,” he writes.

He says due to the reforms they made, there were short-term and other long-term successes. Short-term successes, he says, were the first fruits of his ‘Rukhsa’ statement.

“The shortage of essential commodities was greatly reduced, if not completely eliminated, the torment of waiting in line for too long or inducing to get the essential commodity was completely eradicated,” he says.

He explains that the transportation infrastructure was improved although by 1990, 50 percent of highways and 60 percent of regional roads were in poor condition.

“By 1995, only 20 percent of highways and 35 percent of regional roads were still in poor condition. Passenger transport in Dar es Salaam, other cities and to the regions had improved,” explains Mzee Mwinyi.

It was during this period, due to the success of ERP I and ERP II that the government allowed investment in mobile phones where for the first time Tanzanians owned the phones and facilitated communication.

“On March 28, 1995, I officially launched the first mobile phone service provided by Mobitel. At that time 70 percent of the available mobile landline services served only 20 percent of the population and we also allowed citizens to own computers and televisions, where before you had to have a permit/license, otherwise you could be called an economic saboteur,” he writes.

He says in the 10-year tenure of the second phase government, the economy grew at an average of four percent, “which, although not enough, was still a huge increase compared to what it was before the economic reforms.”