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Ugandan Traders Threaten to Strike Over High Interest Rates

Traders around the country are threatening to close their shops and storm the Central Bank (Bank of Uganda) to protest “government indifference” to the plight of borrowers. They say their businesses are collapsing because of high interest rates on loans.

As a measure to curb the double-digit inflation, currently standing at 27 per cent, Uganda’s Central Bank increased the Central Bank Rate from 20 per cent in October and November 2011 to 23 per cent this month.

The move by the Central Bank to tighten the monetary stance has forced commercial banks to increase their lending rates to as high as 35 per cent. That has caused uproar not only from business community, but also private borrowers as banks apply the new rates on old loans.

The traders have the support of legislators from across the political divide who also fault the government for its alleged failure to control the soaring interest rates

“We have been petitioned by the traders association of Uganda to the effect that if government doesn’t act they would close business and mobilize people to agitate against banks, and possibly withdraw their money,” said Stephen Biraahwa Mukitale, chairman of the parliamentary committee on the national economy.

He said his committee met with traders and bankers Thursday.

“What is at stake,” Mukitale said, ‘is to have a dialogue, a multi-stake-holder’s dialogue.”

Earlier this week, the city traders’ governing body, Kampala City Traders Association (KACITA), agreed on a string of measures, including a temporary boycott of banking to protest continued power shortages, high rent and high interest rates charged on loans.

Mukitale was optimistic a solution would be found by Monday next week.

“A lot of negotiations are going on,” he said, “but there are a number of steps that can be taken administratively.”

The legislator advised traders not to go ahead with their threatened strike.

“Traders have supplies from international suppliers. If you close, who is going to pay your international commitments? Even traders have loans to pay,” he said.

Mukitale explained that under the current policy of economic liberalization, what is required is more regulation but not directives from government.

He hailed Uganda’s effective bank supervision which he said helped the country’s financial system survive the global financial crisis. “We didn’t have loose portfolios without collateral,” he said.

Mukitale cautioned however that the Central Bank may be overstretching the monetary tool.

“By continually increasing bank rates,” he said, “they are basically saying no more job creation,” as businesses would not be able to borrow from commercial banks.

He added the private sector seems to be competing with risk free portfolios such as bonds and treasury bills at high rates.

Mukitale said he was optimistic the strike will be called off.

“There is no winner if there is a strike. Not government; not the traders; not the banks; everybody will lose. Nobody is a winner if the traders strike,” he warned.