Effects Of Alternative Foreign Exchange Allocation On The Zambian Economy With Specific Reference To The Agricultural Sector: 1985 - 1988

Abstract

In October 1985, the Government of the Republic of Zambia (GRZ) established a system of foreign exchange auctioning. This replaced quarterly rationing by an inter-ministerial committee which by many accounts had become inefficient and corrupt (Sanderson, 1987). The auction, and the host of accompanying reforms, had enormous short-run consequences for Zambian political and economic stability and had long-run potential .for pro-found structural transformation until its cancellation by President Kaunda in May 1987. Because the auction was terminated only recently and the new Foreign Exchange Management Committee (FEMAC) which rations foreign exchange has only been operating for one year, little has been written comparing economic performance and the business climate under the alternative systems. This paper examines the effects of these different foreign exchange allocation systems on agriculture. We will first address three questions at the level of the general economy.