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The economy of the Democratic Republic of the Congo - a nation endowed with vast potential wealth - has declined drastically since the mid-1980s. The new government instituted a tight fiscal policy that initially curbed inflation and currency depreciation, but these small gains were quickly reversed when the foreign-backed rebellion in the eastern part of the country began in August 1998. The war has dramatically reduced government revenue, and increased external debt. Foreign businesses have curtailed operations due to uncertainty about the outcome of the conflict and because of increased government harassment and restrictions. Poor infrastructure?, an uncertain legal framework, corruption, and lack of openness in government economic policy and financial operations remain a brake on investment and growth. A number of IMF and World Bank missions have met with the new government to help it develop a coherent economic plan but associated reforms are on hold. Assuming moderate peace, annual growth is likely to increase to nearly 5% in 2000-01, but inflation will continue to be a problem. |
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Sparsely populated in relation to its area, the Democratic Republic of the Congo is home to a vast potential of natural resources and mineral wealth, yet the economy of the DROC--a nation endowed with vast potential wealth - has declined drastically since the mid-1980s. Agriculture is the mainstay of the economy, accounting for 57.9% of GDP in 1997. Main cash crops include coffee, palm oil, rubber, cotton, sugar, tea, and cocoa. Food crops include cassava, plantains, maize, groundnuts, and rice. In 1996, agriculture employed 66% of the work force. Industry, especially mining, remains a great potential source of wealth for DROC. In 1997, industry accounted for 16.9% of GDP. The Congo was the world's fourth-largest producer of industrial diamonds during the 1980s, and diamonds continue to dominate exports, accounting for $717 million or 52% of exports in 1997. The Congo's main copper and cobalt interests are dominated by Gecamines, the state-owned mining giant. Gecamines production has faltered in recent years, due in part to a competitive world copper market. Despite the country's vast potential, under the Mobutu regime widespread corruption, economic controls, and the diversion of public resources for personal gain thwarted economic growth. The unrecorded and illicit transactions of Zaire's unofficial economy were estimated in the early 1990s to be three times the size of official GDP. The Congo's record with multilateral and bilateral donors has been uneven. Despite a succession of economic plans financed by the World Bank and the International Monetary Fund (IMF) since independence, budgetary imbalance, inflation, and debt consistently plagued the Mobutu government. In early 1990, both the World Bank and the IMF suspended most disbursements, and most bilateral aid was cut off. Unable to make debt payments, Zaire's borrowing rights with the IMF were cut off in February 1992; its World Bank credits were frozen in July 1993. Despite the introduction of a new currency, the New Zaire (NZ), currency issuance remained disorderly, and largescale inflation rose to over 9,000% by early 1994. In May 1997 the AFDL, led by Laurent Kabila, overthrew the regime of Mobutu Sese Seko. Under President Kabila the government and state enterprises began a program of reconstruction. The government began to reform the corrupt tax system, civilian police force, and repair the damaged road system. In August 1998, a war broke out in the Democratic Republic of the Congo. At that time, some progress had been made in the economic reconstruction of the country, but major problems continued to exist in transportation infrastructure, customs administration, and the tax system. Government finances had not been put in order and relations with the IMF and World Bank were in disarray. Much of the government's revenue was kept "off book," and not included in published statistics on revenue and expenditure. Relations with the World Bank were on hold as a result of the government's failure to finalize an agreement for administration of the International Bank for Reconstruction and Development (IBRD) Trust Fund for the Congo. The outbreak of war in the early days of August 1998 caused a major decline in economic activity that continues to the present. The country has been divided into rebel- and government-held territories, and commerce between them has stopped. The economic and commercial links among the various sections of the country are not strong, but they are important. After a surge in inflation during August 1998, the government began enforcing price control laws. It also began regulating foreign exchange markets. Taken together, these measures have severely damaged the ability of businesses depending on imports to continue operations. Furthermore, the small gains against inflation and currency depreciation were quickly reversed when the foreign-backed rebellion in the eastern part of the country began in August 1998. The war has dramatically reduced government revenue, and increased external debt. Foreign businesses have curtailed operations due to uncertainty about the outcome of the conflict and because of increased government harassment and restrictions. The wide spread between the official rate for buying the new currency, Congo francs (FCs), and the black market rate for buying dollars has forced merchants to price their imported goods according to the official rate for buying local currency. Poor infrastructure?, an uncertain legal framework, corruption, and lack of openness in government economic policy and financial operations remain a brake on investment and growth. A number of IMF and World Bank missions have met with the new government to help it develop a coherent economic plan but associated reforms are on hold. Faced with continued currency depreciation, the government resorted to more drastic measures and on January 1999 banned the widespread use of U.S. dollars for all domestic commercial transactions, a position it later adjusted. The government has been unable to provide foreign exchange for economic transactions, while it has resorted to printing money to finance its expenditure. Assuming moderate peace, annual growth is likely to increase to nearly 5% in 2000-01, but inflation will continue to be a problem. |
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