February 12, 2009 / 1:35 PM / 10 years ago

FEATURE-As Congo's coffers empty, crisis hits poor first

KINSHASA, Feb 12 (Reuters) - An economic crash that may empty Congo’s state coffers within weeks has saddled the country’s poor masses with rising prices and a sliding currency, threatening yet more instability in the vast African state.

The global downturn has stalled Democratic Republic of Congo’s minerals-driven recovery from a 1998-2003 war, raising fears of a return to the social chaos and hyperinflation suffered under late kleptocratic dictator Mobutu Sese Seko.

“The prices have all gone up, and the economy is on its knees,” said a woman haggling for bread with a kerb-side vendor at the chaotic central market in Kinshasa, the dilapidated capital and home to over 8 million people.

“A child can’t just eat bread. It’s not enough,” she said, shoving a loaf and a half into a bag before storming off.

A loaf that cost 100 Congolese francs just two months ago today sells for 150 francs. Essentials like flour, rice, and meat have been subject to similar price hikes.

For many of Congo’s poor, paying more is not an option. They must simply eat less.

The global economic slowdown has seen demand for Congo’s mineral exports plummet and a mining sector that until last year was drawing in billions of dollars in investment is grinding to a halt.

Mineral exports account for around 70 percent of foreign currency revenues. Reserves, which stood at over $225 million dollars in April 2008, are now rapidly drying up, slipping to just $36 million by the beginning of February.

That amounts to less than one day of import cover for a country which has little manufacturing or agricultural capacity and depends heavily upon goods brought in from outside.

“If the current trend continues, optimistically they are on course to run out of money by the end of the first quarter,” said Gregory Mthembu-Salter, a research associate with the South African Institute of International Affairs.

“DESPERATE MEASURES”

The resulting drop in the value of Congo’s franc, which has fallen by around 20 percent since September to 713 per dollar, has made it harder for vendors to turn a profit and restock from suppliers who pay dollars to import goods.

“Before I bought 10 kg for 18,000 francs. In December, that went up to 25,000 ... It doesn’t work out,” said Jackie Ilonga, standing behind a wooden market stall on which a dozen plastic-wrapped frozen chickens were slowly thawing.

In an effort to prop up its fading currency and avoid the kind of scenario which saw inflation hit 10,000 percent in 1994, Congo’s Central Bank has raised interest rates three times since early December, taking them from 28 to 66 percent.

Congo is also courting the International Monetary Fund for around $200 million in emergency relief.

“The government is resorting to desperate measures, and that’s going to have a negative impact on people’s standard of living. But they’re between a rock and a hard place,” Mthembu-Salter said.

Raising cash in the short term, however, will simply delay the inevitable, experts say, unless there is a quick rebound in mineral prices or the government can drastically cut costs.

Congo’s budget minister said this week the state was looking into slashing planned spending of $4.9 billion in 2009 by more than a quarter.

Government salaries and army payrolls are likely to be among the first cuts, raising the spectre of labour strikes and riots by unpaid soldiers.

The timing could not be worse. President Joseph Kabila has already had to invite wartime foes Uganda and Rwanda to send troops into eastern Congo on joint missions to hunt down rebels from their respective countries, stoking opposition in Kinshasa.

Another way to cut state spending would be to secure debt forgiveness, reducing the cost of servicing Congo’s weighty $10 billion external debt.

But the IMF has made it clear that any such move is dependent upon a re-evaluation of a $9 billion Chinese investment and loan package.

With the results of a feasibility study of the Chinese deal now delayed until June, any decision will probably have to wait until at least the second half of the year.

As the crisis gathers pace, many Congolese have an uneasy sense of deja vu.

In 1991 and 1993, hyperinflation led to successive waves of looting that left much of the country’s infrastructure stripped bare. And today’s economic slide has left many with fears of a return to the country’s chaotic past.

“Yes, prices will continue to go up, because, with this government, things just aren’t happening,” Ilonga, the chicken seller, said.

“Here in Congo, if people come to their senses and try to march, the soldiers will attack them and beat them down.” (Editing by Alistair Thomson and Mark Trevelyan)

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