The East African
Community Secretariat is currently in
the process of creating a Monetary Protocol that will guide the member states
into Monetary union beginning in 2012. This process, like many other
integration processes, would have gone unnoticed . But recent events in the
Europe have brought this process to focus
locally. It is important to gain some clarity on what monetary union
is and what it is not.
Monetary union is a process not an event. You
won't wake up one sunny morning and find the notes in your wallet magically
transformed from Kenya Shilling to EAC Shillings. You will not walk down Haile
Selassie Avenue and find 'Benki Kuu ya
Kenya' called 'Benki Kuu ya Muungano wa Afrika Mashariki'. These ,among other
things, will not happen overnight. In fact, the prospects of a common East
African currency and a common East African Central bank being established
within the next 10 years should be minimal given the current pace of
integration. It took the EU a decade
starting in 1989 till 1999 to convert
into the Euro.
Monetary union is
harmonization of monetary systems. It entails analysing how each country's
banking system works and coming up with ways to harmonize them. It also
requires coordination of monetary policies across the central banks within the region. This would mean uniformity in dealing with
key macroeconomic factors such as inflation, interest rates and exchange rates.
It would mean creation of regional bodies such as a East African Central Bank
and inevitable creation of an East African Shilling.
Monetary union is
not Fiscal union. Fiscal policy entails
how a country governs its spending and how it gathers revenues. This has the potential of becoming a major
sticking point in the future as it encompasses a wider array of issues. How are
governments going to harmonize their spending? How are they going to prioritize
their needs? How are they going to raise debt?
How indebted can governments be?
From the ongoing
Eurozone debt crisis, a lot of lessons can be derived for our protocol drafters
at the EAC. The most important being
that without fiscal union, the monetary union is susceptible to shocks
and potential failure. News reports regarding Greece's suspect ability to
services its debt began making the rounds in 2010. The was Greece was busy borrowing from the
Financial markets and spending the monies on social programmes and a bloated
civil service while on the other hand not increasing its revenue base. There
was pressure both in Brussels and Athens albeit of different and opposite kinds on the Greek government. On one hand, the Eurozone big economies (
France & Germany) began putting pressure
on the Greeks to institute austerity measures to save their economy
while on the other hands ordinary Greeks were protesting and rioting against their governments for
trying to take away the benefits they
have been enjoying so far. So as
political will wavered , the situation kept on getting worse. This was until it
became clear that Greek's defaulting on
it debt moved from the realm of Probability to Certainty; It was just a matter
of time. A rescue package had to be hastily negotiated with both the EU and the
holders of Greek debt taking the heat for the quagmire. The Greek politicians
that had been on surviving ended up losing their jobs and ordinary Greeks are
set to feel the sting of austerity. This is far from over with Portugal, Spain
and Italy beginning to show signs of
wavering and the debt markets demanding higher yields from these countries'
debts.
A major lesson learnt from the Eurozone
is Political Union is equally ,if not more, important for
both Monetary or Fiscal union to work.
This brings to question what standards of governance are applied within the region.
Which broadly translates into the need for some form of Political Union at some
point in time. Also, political motivations govern a lot of the factors involved
in running an economy. Would a government risk its political survival by not
borrowing to pay for a social programme important to the electorate because it
is the financially prudent thing to do?
In Kenya, this would be the equivalent of the
halting of the free primary education programme. Can a Kenyan politician
risk the backlash? What if we have an errand member in the union like Lesotho
where the King's household expenditure is so lavish to the point of borrowing
from South Africa to sustain it. And what happens to his subjects?
We cannot have a
government lavishing goodies to its citizens at the expense of economic
stability in the region. But neither can we encroach on a country's sovereignty
with the pretext of ensuring our economic stability. The principles of the rule of law and good
governance have to be uniform and
acceptable across the region but cannot be forcefully imposed. With integration, we are throwing our lot
with countries that have seen civil wars for decades, with countries with a
strong military influence in political life, with governments formed along ethnic lines and with countries resistant to
integration.
To say that
integration is an uphill task is an
understatement. There needs to be a lot work on the diplomatic front to have
some form of governance principles across the board that member states will use
to check each other. There also has to be room for constructive criticism and consequences for not adhering to these
standards.
