Congo, Democratic Republic

Congo, Democratic Republic of, (named Zaire, 1971-97) fixed its exchange rate in the early years, but began to adjust the rate more frequently under the impact of recurring deficit-driven monetary expansion, within a context of commodity price shocks, domestic political conflict and both domestic and international hostilities. It endured a decade of hyperinflation before it moved, with difficulty, to introduce basic macroeconomic controls in a somewhat improved political situation, but with enormous social, economic and infrastructural damages still unrepaired.

Years Targets and attainment Classification
1974-78 currency fixed to USD since its issue in 1967; central bank had relied mainly on credit controls over significant, largely foreign-owned, commercial banking system, but credit ceilings abolished (though selective credit floors retained) 1974 in favour of high reserve requirements and interest rate controls, while import controls introduced; central bank is major lender (within or despite limits) to government, monetary policy geared to growth subject to external balance and price stability; 1974 foreign-owned and some locally-owned businesses nationalised; 1976 stabilisation programme: exchange rate devalued and peg switched to SDR, global and selective credit controls reintroduced, supported by rediscount policies, but large budgetary slippages; 1977-8 armed conflict in Shaba region augmented exchange rate fix AERF
1979-89 late 1978 three small devaluations, 1979-81 larger devaluations, partly formalised parallel rates; 1979 small denomination banknotes replaced in currency reform which induces severe liquidity squeeze; repeated attempts at stabilisation undermined by world commodity price movements and poor domestic policy implementation, typically with high public spending driving monetary expansion; late 1983 large devaluation, link to SDR abandoned, interbank forex market with weekly auctions, exchange rates unified 1984 (parallel premium largely disappears); 1984 treasury bills and later bonds issued regularly, reserve requirements now varied more widely and enforced, some interest rate liberalisation; multiple exchange rates re-emerge 1986, re-unified 1987, floating but with varying intervention loosely structured discretion LSD
1990-2000 1990 official rate is set by central bank, interbank market ceases to play intended role, parallel premium revives; political tensions answered by relaxation of spending controls and monetary expansion; 1993 credit ceilings replaced by prudential rules relating bank lending to deposit structure, interest rates raised, money market reorganised, currency reform  with 1 new zaire = 3m old zaire, but further rapid depreciation, high dollarisation, and widening economic crisis; 1997-9 new government and then major war with different parts of DRC occupied by five neighbouring countries, many Congolese killed or displaced, and destruction of infrastructure; currency reform 1998, with 1 Congolese franc = 100,000 new zaires; official exchange rate fixed late 1998 then adjusted 1999-2000, exchange restrictions deepened, renewed hyperinflation, soaring parallel premium unstructured discretion UD
2001-2017 forex market re-opening 2000, liberalisation early 2001, exchange rates re-unified and floated May 2001, together with fiscal-monetary stabilisation and commitment to wider reform; 2002 legal autonomy law for central bank drafted, efforts to increase its operational effectiveness, in deeply damaged and highly dollarized monetary and financial system; issue of non-fungibility between bank reserves and currency; late 2002 power-sharing peace agreement signed, but some hostilities continue in east of DRC; central bank bills available from late 2002 (to absorb excess liquidity) but take-up low; from 2005 periodic macro policy slippages; as of the end of the period, despite floating exchange rate and fiscal ‘anchor’ in form of ban on central bank financing of budget deficits, there is no active money market and efficacy of monetary policy is weakened by high dollarisation, institutional and administrative weaknesses, and lack of credibility and undercapitalisation of central bank; statistical database has room for improvement loosely structured discretion LSD

Selected IMF references: RED 1972 pp25, 29-32; RED 1975 pp31-3, 50; SR 1975 pp5-9; RED 1977 pp31-2; RED 1979 pp29-30, 56-7; RED 1982 pp28-32, 46-7, 52; RED 1983 pp62-6, 76-7; SR 1983 pp3-10; RED 1985 pp25-7, 43-5; SR 1985 pp4-6, 18-20; SR 1986 p20; RED 1987 pp51-3; SR 1987 pp11-12; RED 1988 pp29-30, 43-6; BISD 1991 pp11-14; SR 1991 pp4-5, 7-8, 13, 16-18; RED 1994 pp10-11, 17-18; SR 1994 pp2-5; BISD 1996 pp7-17, 27-31; SISA 2001 pp38-40; SR 2001 pp9-15; SISA 2003 pp24-35, 38-40; SR 2003 pp10-14; SISA 2005 pp6-15; SR 2012 pp14-15, 57-8; SR 2014 pp8-9, 11-12; SR 2015 pp14-15; SR 2019 pp13-15.

Other references: Beaugrand (1997, 2003).

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