Editorial

• Shilling stronger on high demand

Analysis

• The general elections, poverty and takrima

• Haughty indifference, or masterly inactivity?

Shilling stronger on high demand
This week has followed anticipated trends; the shilling has been in demand throughout the week as corporate customers have been selling dollars to meet tax and other payments due at the end of the month.
Accordingly, the interbank has seen prices coming down; from highs of 1,142/1,149 during the middle of the month, the market was quoting levels of 1,132/1,138 at the close of business yesterday. Having seen this trend, importers have mostly elected to stand aside, perhaps waiting to time their purchases until the end of the week when it should have touched bottom, or otherwise until next week after having completed their shilling payments.
This market is now driven by supply and demand, with the Central Bank intervening every day this week, but at market prices, reinforcing the belief that they are not influencing the direction of the market, but only to cool down any pressure on the shilling. Once the month-end is over, importers should step in with their demand, which is likely to reverse some of the gains made by the local currency this week.
Indicative TZS rates
As At 17.00 27/07/2005
USD 1,133/1,137
GBP 1,978/1,985
EUR 1,365/1,371
JPY 10.06/10.10
ZAR 169.75/172.50
KES 14.80/15.00
Local Money Markets
There was no activity of note in the money markets this week, with the highest volumes peaking at 16.3 billion on Tuesday; on other days, volumes were less than 5 billion. Prices remained within the range of 4% - 6%.
The BoT has been offering repos once again every day this week, an amount of TZS 10 billion on Monday and Tuesday, with 20 billion offered today. Prices have been at market levels, and they have been mostly subscribed; suggesting that there is enough liquidity in the system, with investors focused on investments of a shorter tenor.
Government Securities
In the T-bill/bond auction held yesterday (auction number 609) the Bank of Tanzania once again offered 48.60 billion of bills, the same as last week. Against that, 42.7 billion was tendered and 41 billion was successful.
There was no particular direction to yields, with the benchmark 91-day paper dropping slightly to 10.39% from 10.54% the week before. Of interest was that the 35 day and 91 day paper were both oversubscribed, reinforcing the perception that investors are only looking to short-term investments at the moment.
Global Markets
The markets this week have been focused on the policy announcement late last week by the Chinese Central Bank, which set the background for a small revaluation of the yuan against the US dollar. Accordingly, the yen, which often trades as an East Asian proxy for the Chinese currency, and other major currencies in the region got a boost when the news was announced. However, this week the Chinese authorities have suggested that there may not be any further adjustments, which is what the markets had anticipated all along; accordingly, the yen gave up most of its gains and is now trading at almost the same levels as before the announcement.
In the UK, the CBI released some positive news on the manufacturing front, but that was not enough to dispel the gloom around sterling; the markets are convinced that the Bank of England will soon have to cut UK interest rates to prop up sagging consumer demand and the weakening housing market.
In the US, the markets are focusing on the 2nd quarter GDP figures, which are due to be released this Friday. This will likely provide clues as to the state of the economy, and the pace at which the Federal Reserve will tighten interest rates.
Indicative Major Currency Exchange Rates
As At 17.00 27/07/2005
GBP/USD 1.7425/1.7450
EUR/USD 1.2025/1.2050
USD/JPY 112.25/112.75
USD/ZAR 6.6650/6.7150
USD/CAD 1.2350/1.2450
USD/KES 75.75/76.50

The above is for information purposes only. Barclays Bank (T) Ltd. And its employees accept no liability whatsoever for any direct or consequential loss that may arise from its use.Barclays Bank (T) Limited, Treasury Department.
Tel: 2129745/6/8 ;Fax 2129749 Reuters Dealing BBTZ

back to headlines

The general elections, poverty and takrima

Tanzania will hold its third multi-party elections this October. This will also be the general elections where the president and lawmakers will be elected. The elections are expected to be free and fair but only if the element of corruption is kept out, writes Timothy Kitundu.

 Any nation anticipates free and fair elections as they spearhead peace, tranquillity and good governance, as long as those elected have not manipulated, rigged, or used bribery even in the form of takrima, in the process.
In the coming general elections, Tanzania can achieve the objective of getting democratically elected leaders only if a number of problems can be addressed.
One of them is poverty among voters, and the other is the legislation that creates an environment of corruption or bribery. The law that has of late provoked amongst the public is the part of the Electoral Laws Act no. 4 of 2000, on normal or traditional hospitality popularly known as takrima.
The second problem that needs immediate attention if the country is to experience free and fair elections in October is the issue of poverty. Although we are told that the economy has grown to over 6 per cent, and inflation has been reduced to 4.2 per cent, poverty has increased.
This is hitting people particularly in rural areas. Taking into consideration that the rural population comprises a bigger number of voters, it is apparent that a big majority of rural voters will vote not for the competent leaders but for those who are able to bribe them.
As many Tanzanians live on less than one dollar per day, it is very difficult for a rural voter to reject any kind of financial ‘assistance’ given by a candidate requesting  their support.
A study undertaken by the Research and Analysis Working Group, confirms that poverty is still a problem and can easily influence the coming general elections.
The report has noted that there are specific social groups in both rural and urban areas who are more likely to be poor, who face the risk of sliding into poverty or extreme poverty. The groups include, among others, unemployed youths, the elderly, women and those engaged in hazardous occupations.
Unless the issue of poverty is addressed, election candidates will continue to use poverty as a weapon targeting the above-mentioned social groups.
Taking a closer look at takrima, one will clearly note that, although the law was passed in good faith, it is full of ambiguity.
The provisions of section 98 (2) and (3) of the Electoral Law (Miscellaneous Amendment) Act no.4 of 2000 was amended to read; “for the purpose of subsection (1), anything done in good faith as an act of normal or traditional hospitality shall be deemed not to be treating”.
The phrase is immediately followed by subsection (3) which reads; “Normal or ordinary expenses spent in good faith in the election campaigns or in the ordinary course of the election process shall be deemed not to be treating, bribery or illegal practice.”
The ambiguity of this law appears in considering the following; the demarcation between bribery and takrima. Can a normal voter differentiate between the two? And in which forms can takrima be allowed; in the form of cash, rewards, food, drinks or clothes?
Similarly, government officials have failed to defend takrima whenever it is closely linked with corruption. Their reply has always been that “if you feel that so and so’s hospitality goes beyond the borders of takrima take him or her to court.”
We all know that there is poverty among voters. We are also aware that the outgoing MPs have been paid their Tsh. 30 plus million in terminal benefits. We are also aware that there is a fierce war between new entrants to contest for constituencies against the old ones. What then will prohibit the old MPs from utilizing takrima so that they retain their constituencies? The election results will tell us the whole story.

back to headlines

Haughty indifference, or masterly inactivity?

Twice a month the governing council of the European Central Bank (ECB) meets on the 36th floor of the Eurotower in Frankfurt. The lifts must be permanently out of order, leaving members so out of breath by the time they reach the boardroom that they can no longer think straight. What other explanation can there be for why the bank has left interest rates stuck at 2% for no less than 25 months?
The bank's many critics claim that the euro area's economies are being choked by an excessively tight monetary policy, and that the case for lower interest rates is overwhelming.
It is true that in 2001-03, after stockmarkets slumped, the ECB cut interest rates by less than America's Federal Reserve did, but that was partly because American rates started off at a much higher level, and America's inflation rate fell more sharply. Real interest rates in the euro area have been negative or near zero for most of the past two years, their lowest point for more than 25 years.
This suggests that policy is fairly loose, as does the growth in the M3 measure of money supply, which has exceeded the ECB's desired range for four years running. The euro area's official inflation rate may well understate inflation, because the harmonised index of consumer prices, which the ECB tracks, excludes the housing costs of owner-occupiers, a large slice of the cost of living. Calculations by the OECD suggest that if such costs were added in, average inflation in the euro area last year would have been 2.7%, not the published 2.1%.
Bond yields probably have a bigger effect on economic activity in the euro area than short-term interest rates. Over the past year, ten-year government bond yields have also fallen, from 4.3% to 3.2%. Julian Callow, an economist at Barclays Capital, reckons that the combined fall in the euro and long-term bond yields since the start of this year are equivalent (in terms of their impact on GDP) to a cut in short-term interest rates of around one percentage point.
The recent slide in the euro and bond yields may explain why the OECD, which argued that the case for a half-point interest-rate cut was “compelling” in its Economic Outlook in May, now seems more relaxed. In its annual survey of the euro area it appears relatively content if rates are held at 2%. But if the euro strengthens and economies remain weak, then the case for a rate cut will gain ground again.
So could the ECB not cut interest rates further to cushion economies as reforms are carried out? With inflationary expectations now well anchored just below 2% and the core rate of inflation at 1.6%, there seems little danger of inflation surging out of control. However, the ECB argues that if the lowest real interest rates for a quarter of a century have failed to spur demand, then another half-point cut is unlikely to do the trick. In the next breath officials then add that lower interest rates would risk stoking up household-credit growth, which is already running alarmingly fast. The ECB cannot claim both that interest-rate cuts won't work and that they risk fuelling excessive borrowing.

Here lies the real vulnerability of the ECB: its public communication. Even if monetary policy is not stifling growth, the bank's language constantly gives the impression that policy needs to be tight to guard against the ever-present threat of inflation. If you keep telling people there is nothing you can do to boost growth, it is no wonder that they spend cautiously. It may not be interest rates that the bank urgently needs to change, but its tone.

back to headlines