Watch out for EPA Phase II By Rodgers Luhwago 14th June 2009 Professor Ibrahim Lipumba, the National Chairman of Civic United Front(CUF)Despite the governments good intentions of coming up with a stimulus package plan to cushion the national economy from adverse effects, its implementation may create ghost companies that may end up swindling public funds, MPs and an economist have warned. Professor Ibrahim Lipumba, the National Chairman of Civic United Front ( CUF), issued the warning over the weekend in a telephone interview from Dodoma, saying although the government has good intentions on the initiative, its implementation appears to lack a coherent and detailed strategic plan. The economist-turned-politician was commenting on the Sh1.7 trillion bailout package announced by President Jakaya Kikwete on Thursday in Dodoma, when addressing legislators and local elders at Kilimani Hall. According to President Kikwete, the package would be directed at boosting important sectors such as agriculture, food security, infrastructure and investment. According to the breakdown of the funds meant for the stimulus plan, about Sh 21.9 billion would be paid directly to the banks by the government to cover the loss incurred by companies and cooperatives that purchased cotton and coffee from farmers but failed to find good market due to the financial crisis. In his caution, Prof Lipumba said there is every sign that there are no adequate preparations for the implementation of the plan because the same government through the Minister for Finance and Economic Affairs Mustafa Mkulo recently claimed that the worlds economic crisis would have no adverse effects on the national economy. I am getting some feelings that this plan is going to be like a crash programme. Normally crash programmes are implemented without adequate preparations, he said. The economist said since over 20 companies and a number of cooperatives are going to benefit from the stimulus package, there is a pressing need to have details of the companies, including finding out if they were really involved in cash crop purchases before incurring the huge losses as a result of the financial meltdown. I think we still remember the mega scandal in which people formed ghost companies before they colluded with some central bank officials to siphon about Sh133 billion from the BoT External Payment Arrears ( EPA) account through the debt-conversion programme, he said. In that programme, investors were involved in buying the country's foreign currency debt at a discount and accepting payment in local currency. But unscrupulous businessmen incorporated fake companies to access the facility and beat the guidelines that were set by the central bank. Prof Lipumba explained that information of the companies and cooperatives that suffered huge losses after buying the crops should be in public domain to avoid carrying the cross for fake companies. The plan should be implemented in a transparent way, he said. Showing how some crooks may also benefit from the initiative, he said he knew one politician who borrowed money from Tanzania Investment Bank (TIB) ostensibly to buy cotton but diverted the loan to other business. He declined to reveal the name of the politician. He said proper screening of the companies must be made to ensure that the money goes to the targeted firms. However, Prof Lipumba cast doubts on how farmers will benefit from the governments intervention. He said President Kikwete and even Mkulo have not explained how the prices of crops would be improved as a result of the plan. I listened to President Kikwetes address on Thursday and also read the speech budget. I could not find anywhere where an ordinary farmer is mentioned as far as the stimulus package is concerned. Only companies, banks and cooperatives have been mentioned, he said. He said after the plummeting of the prices of cotton and coffee in the world market, the government should have explained how the stimulus package scheme would help stabilize prices. However, reading the 2009/2010 budget speech, Minister Mkulo said the compensation would be made after a verification process. Under the stimulus package scheme, the government would also disburse Sh80 billion to a few banks at 2 per cent interest rate so that they can also lend to the needy. Prof Lipumba also said the fact that the government allocated only Sh 700 million for agricultural mechanisation in the new budget showed lack of seriousness in its bid to improve agriculture sector. Legislators on their part also faulted the plan, saying it would not provide a long-term solution to the countrys economy that is already in a shambles. Leader of the opposition in Parliament, Hamad Rashid, told The Guardian on Sunday that the government needs to do thorough investigations to establish the exact amount of money the financial institutions loaned to farmers. He said now that the government has offered to bailout the institutions, they can mischievously use the opportunity to acquire undeserved amounts of money from the authority. This may turn out to be another EPA where people exploit an opportunity and siphon public money for their benefits. May-be the Sh1.7 trillion could have been spent on buying some luxurious cars and not on empowering farmers and traders, he said. Zitto Kabwe (Kigoma North-Chadema) said the government was not doing any thing serious as it still depends on foreign support to finance the bailout and borrow from banks. President Kikwete in his speech told the CCM elders at Dodoma that under the bailout plan, the government would seek a Sh40bn loan from China to improve the sector. He said governments plan to borrow money from banks would reduce the institutions focus on individual borrowers, and turn to the government where they are sure of getting their money back. Most people are not good at paying back money borrowed from banks, therefore the financial institutions may increase interest rates for personal loan aiming to benefit more from the government, he said. On his part, Bariadi MP John Cheyo (UDP) contends that the plan may not benefit those who deserve it, arguing that no serious evaluation has been done before the launch of the plan. He said there was a need for a thorough investigation into the matter, noting that even the EPA scandal had the same approach. The intention is good but the authority may not come to the bottom-line of how the money was loaned to the needy, said the MP. The Chairman of the Parliamentary Economic and Finance Committee, Abdallah Kigoda, told this reporter that the objective is good but remained skeptical that execution may not meet the desired target. The CCM legislator however commended the government on the move, terming it a great step towards improving the economy badly hit by the global crisis.