US considers funding cut for central Africa over forex
The US Congress is examining a law that would withhold American backing for the International Monetary Fund (IMF) support to the central African region until the six-member bloc effects 'proper reporting' on forex reserves.
If passed, the proposed law will compel the Economic and Monetary Community of Central African States (Cemac) make accurate foreign reserve disclosures or risk losing IMF support.
The legislation, to be known as the Central African Exploitation and Manipulation of American Companies Act (Cemac Act), or H.
R. 2325, was introduced in the US House of Representatives on March 25 by Congressman Dan Meuser and Congressman Bill Huizenga and referred to the Committee on Financial Services.
While regional central bank, the Bank of Central African States (Beac), is keen to build up the region's foreign currency reserves, US officials and energy sector actors fear that forex rules will slow down energy investments in the bloc.
The proposed law is already attracting support from key players in the energy sector, who say it will remove opacity in foreign exchange reserves management by the regional central bank."The African Energy Chamber (AEC) strongly endorses this bill, which signals to the Bank of Central African States (Beac) that their opaque and restrictive foreign exchange policies are no longer acceptable, and stands in solidarity with US lawmakers in calling for Beac to act with pragmatism and common sense to avert further economic harm to the region," the chamber said in a statement.
The AEC has consistently taken a strong stance against the foreign exchange restrictions imposed by the Beac, describing the policies as 'absurd, hostile to foreign investors' and out of step with global financial norms."By restricting the flow of foreign currency in the region, these regulations undermine investor confidence, delay payments to contractors, prevent repatriation of capital and inject unnecessary risk into energy projects," AEC said.
The regulation is expected to reduce foreign investment in the region by $45 billion by 2050, while reducing government revenue for Cemac countries by $86 billion.
According to the AEC, the introduction of the Cemac Act marks a significant shift in how the international community views Beac's policies."US lawmakers, reflecting the views of the AEC and many African business leaders, are taking decisive action where African governments should have acted long ago. African businesses overwhelmingly support this legislation because it holds Beac accountable and compels much-needed reforms.'There was no immediate comment from the bank on the proposed legislation, but Beac has recently been at loggerheads with extractive industry and energy sector players, who have fought the regulations restricting transactions in foreign currency.
The Beac argued that the regulations would strengthen monetary policy by restricting payments in foreign currency, requiring licensed intermediaries for transactions and reinforcing the obligations of credit institutions. But opponents argued that it would hurt foreign flows of investments.
The regulations stipulate that transactions between a resident of the Cemac zone and a non-resident must go through a licensed intermediary, and credit institutions would have to reduce their foreign currencies holdings and regularly report their forex amounts to the bank.
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