Bailing out firms or not: Is the Washington Consensus ending?

By David Sseppuuya                                                      

The debate and subsequent clarification by the Government of whether there should be/will be a financial bailout package for distressed local firms has elicited a lot of hand-wringing. And so it should.

The very names of the purported enterprises have sent tongues wagging, arguing the merits and demerits of using taxpayers' money to rescue private sector players. Whether the bailout idea was ever there and is simply being let to lie or was simply speculative or even disinformation, suffice to say that the fact that it is taking up a considerable portion of public dialogue is instructive. The very idea of throwing a lifeline to flailing firms has, in concert with two or so other developments, brought into sharp relief the prevailing economic ideology that many countries in the world, including Uganda, have followed over the last 30 years.

At the end of the 1980s and beginning of the ‘90s, with their economies ailing, just about every African country signed up to a package of economic reforms that included liberalising markets, opening up for free trade, deregulating by removing government control of commercial and economic enterprises, and financial reforms that involved devaluing local legal tender and letting it float or find its level against international currencies. These are among the policy prescriptions that are broadly known as the Washington Consensus and they form the ideological foundation on which the World Bank and the IMF have steered the global economy in the last quarter century.

I have heard them being increasingly challenged as having aspects that are not necessarily applicable to specific local situations. In Tanzania last year, I talked to a number of voices challenging shilling devaluation, wholesome privatisation, and foreign (market-dictated) control of banking. In Uganda, we have heard of plans for the re-establishment of a national airline (whose predecessor exited as a zombie state-owned enterprise) of a need to rein back commercial banks from setting their own (high) interest rates and a desire to take back control of key commercial banks.

Now the very idea of using state (actually the people's) funds to help ailing enterprises is also playing into the very same ideological shift: part of the rationale for deregulation and de-nationalisation some 25 years ago was that state-owned enterprises, otherwise known as parastatals, were inefficient and were a drain to the taxpayer, whose money was being used to prop them up. The reasoning went that "sell them to the private sector, who would manage them better, and save the national coffers for other critical public services", and hence the divestiture by asset sale/concession/IPO shares/auction/pre-emptive rights/debt equity swap/repossession/and management buyouts of firms like Uganda Blankets, Foods & Beverages, Kilembe Mines, Uganda Breweries, Uganda Commercial Bank etc.

The thinking was that market forces would see them either sink or swim. And so, putting public money in all/some/any business would see the clock turning full circle, 25-30 years on, to the status quo-ante, except that these would be private and not public enterprises. Is the Washington Consensus unravelling?

Proponents of a bailout talk of protecting local enterprises in order to grow the local commercial and industrial bases, boosting exports, jobs, and so on. Worthy though these arguments could be, the question is how competitive our firms would be even when given a financial pull. If a bailout is ever to come to fruition, any candidates must be scrutinised for their strategic value to the economy, competitiveness, and the integrity of their operations - are they being run on standard corporate governance principles, and what returns would they bring to the country if taxpayers' money is thrown at them?

At the end of the day, we should be mindful that the supposed shs1.3 trillion bailout package is a healthy 4% of this financial year's shs26.3 trillion national budget. What is its source? What would the opportunity cost be?

The writer is a media consultant

dsseppuuya@yahoo.com