Governments are finally cracking down on paying aid to poor countries where corruption is rife.
The African nation of Zambia has seen local currency the Kwacha plunge after the plug was pulled on international aid.
The International Monetary Fund led the way by stopping lending to Zambia.
Then Britain, Ireland, Finland and Sweden followed suit after $4 million in aid disappeared, says a report from expat benefit monitor ECA International.
The action led the kwacha to drop 19% against the euro.
“Although the long-term impact of corruption on a currency’s value is impossible to calculate, it seems obvious that foreign investors might think twice before pumping money into a persistently corrupt country, for fear it might not be put to good use,” says a blog by the company.
Neglecting the poor
“Less investment means less demand for a country’s currency, making it more likely to weaken over time.
“Similar considerations apply to international aid. After all, what is the point donating funds to help a country’s poor if the money just ends up in the hands of corrupt officials?”
The writer, Andrew Payne, goes on to explain that many countries do not have the resources or expertise to root out corruption.
“Zambia will probably make some highly visible but token efforts to persuade foreign governments it is doing its best and at some point they will have little option but to relent, because the alternative would mean neglecting the poor completely,” he added.
“However, the corruption will persist, as it does in so many countries, deterring private investors at least, and weakening currencies, for decades to come.
Pulling out of trouble
His comments were part of a foreign currency review that also looked at events in South Africa.
Instead of a sliding currency, the rand has strengthened with the news that President Ramaphosa has announced reforms to tackle corruption in the government and business. The rand moved up 4% against the euro.
Another currency seemingly pulling out of trouble is the Turkish lira.
The central bank hoisted interest rates by 6% to 24% to try to tackle inflation and a decline in the value of the lira.
Annual inflation is running just shy of 18%, but the me3asurers to halt the country’s economic problems say the lira rise 9% against the euro.
