Ethiopia suspends forex reserves
August 16, 2012 (Daily Monitor) – The Ethiopian government has suspended the provision of foreign currency in a decision that has been linked to the political uncertainties surrounding Prime Minister Meles Zenawi’s deteriorating health.
A notice to this effect has been issued by the regulator, the National Bank of Ethiopia, to the country’s commercial banks as Addis Ababa also appealed for food aid.
According to Agriculture minister Mitiku Kassa, the number of aid recipients was 3.2 million over the last six months, and have now increased due to the failure of rain in some parts of the country.
The country’s foreign currency reserves are running alarmingly low and can only cover the importation of basic goods such as petroleum, medicine and food.
The measure is likely to lead to a black market boom that would further weaken the country’s import-export trade, observers say.
Banking in the Horn of Africa nation of about 85 million people is highly centrally regulated.
Industry insiders say massive capital flight and illegal transactions are the main reasons for the rapid depletion of forex reserves. One of the fastest growing sub-Saharan Africa countries, Ethiopia’s growth has touched seven per cent annually for the last nine years, according to the IMF.
Big businesses owned by Mr Meles’ ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) play a key role in the daily operation of the economy. The EPRDF owns banks, insurance firms, manufacturing and construction giants, hotel chains and media outlets among the more than 85 companies under the Endowment Fund for the Rehabilitation of Tigray.
The EPRDF is a coalition of four largely ethnically-based political parties, with the Tigrayan People Liberation Front (TPLF) — representing Tigrays, who make up less than five per cent of the population — running the show and providing the power base for Meles and his government.
Mr Meles, a Tigray, has been absent from the public eye for two months due to an undisclosed illness, fuelling speculation of an internal power struggle his absence.
Government officials refute this and say the long-serving premier would resume office soon. However, the government has to date failed to provide proof that he is alive.
Ethiopia has lost $11.7 billion to outflows of ill-gotten gains between 2000 and 2009, a recent Global Financial Integrity report says.
“That is a lot of money to lose to corruption for a country that has a per capita GDP of just $365. In 2009, illicit money leaving the country totalled $3.26 billion, doubled the amount in each of the two previous years,” part of the report reads.
About $194 million in cash or 314 metric tonnes of food is needed for the next four months. Forty-one per cent of the hungry as located in the Ethiopian-Somali region and the rest in Oromiya, Southern and Amhara regional states.