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149 Chapter 17 Events Leading to My Resignation As I said earlier, we were expected to pursue in Belgrade the negotiations which had started with the IMF and World Bank in Dar es Salaam. After several meetings with these officials in Belgrade, I invited the IMF mission to return to Dar es Salaam in November, hoping to conclude the negotiations then. The World Bank agreement to provide the long-term credits to Tanzania was, in any case, contingent upon the IMF reaching agreement with us on the adjustment measures and the provision of their balanceof -payments support. So when we returned to Dar es Salaam, I concentrated on working with my staff on a programme which would be acceptable to both the President and the IMF. Bo Karlstrom, a senior member of staff of the African Department of the IMF, led the mission to Tanzania in November 1979. They arrived in the third week and were booked into the Hotel Kilimanjaro. They worked with us for about a week before finalising a package of proposals I could put in front of my colleagues in the Government. The proposals included a programme of adjustment measures, accompanied by credit facilities and possibly bilateral grants for the rehabilitation of the economy. I kept the President briefed continuously on the salient points of the negotiations as we progressed. However, although he was prepared to accept most of the proposed financial assistance measures, he was adamantly opposed to any proposals to strengthen the management of the parastatals by involving outside participants as shareholders. He was also adamantly opposed to the devaluation of the Tanzania Shilling. It was apparent to me that he was being advised by other persons against doing anything affecting the exchange rate or touching on publicly-owned corporations that were either bankrupt or loss-making. The President was aware of the huge Treasury subsidies being given to many of these corporations. Their indebtedness to 150 the National Bank of Commerce had grown, in my view, to an alarming proportion and was threatening the very solvency and viability of that bank itself, since repayment of bank loans was proving impossible in many cases. I had myself commissioned a Danish expert, who studied the National Milling Corporation’s operations. The study had revealed rampant misuse of their trucks by uncontrolled and dishonest officers and drivers which, in my judgement, could only be rectified by managers or supervisors having a stake in the NMC trading operations. This suggestion smacked of capitalism, and was, of course, taboo in those days. But it was necessary to be frank with the President, since I could not think of any alternative solution. At this time, I had in mind the possibility of inviting people such as those who had previously owned Chande Industries to repossess part of their old shares in National Milling in order to re-instil a sense of stake-holding to facilitate better management and control of the assets. After all, it was Andy Chande himself who was the first Managing Director of the giant state-owned National Milling Corporation, and he had initially been quite successful in reorganising and running it. Regarding the exchange rate, I should mention that in the eyes of many observers at that time, the Tsh was highly overvalued. The official rate of exchange was fixed at US$1.00 = 9.60Tshs. This was the rate the Bank of Tanzania was using to buy Shillings smuggled into foreign centres, including Zurich, London and even Nairobi. Because of the lack of confidence in the future of the Tanzanian economy, these smugglers were prepared to surrender their Shillings at rates between US$ 1.00 = 20.00 and 30.00 TShs. The Kenya Shilling had recently been devalued to US$ 1.00 = 12.00 KShs. But even at the devalued rate, the Kenya Shilling was being exchanged in the black market and along our ‘closed’ shared border at the rate TShs 3.00 = KShs 1.00. I therefore failed to understand the advisors who were briefing the President on this matter. The IMF Mission considered that if we took the other measures, such as reducing defence spending and improving the management of the parastatals in order to avoid the huge subsidies currently going to them, we could devalue to US$ 1.00 = 12.50 TShs and thereafter run things smoothly. I recall that I was able to persuade them to agree to a two-step adjustment:first to US$ 1.00 = Tsh10.80, [3...

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