Kenya's international image, already severely tarnished by allegations of high-level corruption and abuses of human rights, received further body blows following the brutal repression of demonstrations in July and August. With fresh elections imminent, the question everyone is asking is whether Kenya's economy will survive the political turbulence this time around. AHMED RAJAB, editor of Africa Analysis, offers some suggestions.
Panic and speculative transactions dominate the foreign exchange markets in Kenya, following the Saba Saba (7 July) riots in the country. The political disturbances triggered a chain of events in the forex market which further dented Kenya's already vulnerable economy. The first casualty was the national currency.
On 6 August the Kenya shilling slumped to its lowest value against the US dollar since early 1994. Appeals by the reformist and independent-minded central bank governor Mr Micah Cheserem for forex market traders not to panic were ignored.
Indeed, the previous day the central bank had intervened in the market and sold an estimated $21m to commercial banks to enable nervous foreign investors to quit the market. After the intervention the shilling appeared to stabilise. But this could not be sustained for long. Several hours later, the currency's value against the US dollar slumped. Some reports said that the shilling had depreciated by about 9% against the dollar and the British pound in the first week of August.
The shilling's beating had resulted in part from a shortfall in expected revenues from coffee and tea, the country's key commodity exports. Receipts from tourism, the other main source of foreign currency but one which is highly sensitive to the vagaries of political life, also declined significantly. But the decline in the value of the shilling should make Kenya a cheaper destination and it has helped exporters of agricultural produce.
But the foreign exchange market was rocked largely by the decision by the IMF to cancel a three-year Enhanced Structural Adjustment Facility (Esaf) loan worth $205m which was extended in April 1996. Disbursements were made on condition that President Daniel arap Moi's regime carries out a number of reform pledges. The regime's inability - some say unwillingness - to confront seriously the issue of corruption, including its handling of the multi-million-dollar Goldenberg International financial scandal, forced the IMF to cancel the aid package.
All the accused in the...