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Wednesday, December 13, 2006

Goldenberg -The Scandal That Never Was?

On Jamuhuri Day I had an interesting discussion with a prominent lawyer friend of mine who's involved in one of the many Goldenberg cases pending in our courts. He tells me that Kenya didn't lose a single cent in the Goldenberg scam and that, on the contrary, we got some much needed foreign exchange.

The way he tells it, following the end of the Cold War and the suspension of donor aid, Kenya needed quick cash to plug the gaping hole in our budget. A World Bank accountant (I've forgotten his name) came up with a scheme whereby the World Bank would provide compensation in hard currency for fictitious exports by Goldenberg, and then the Central Bank would purchase the same dollars for Kenya shillings which the government could print in infinite quantities. In the end therefore, while we did suffer the inflationary consequences of printing money, the "free" dollars from the World Bank helped tide us over in the lean years of aid suspension. In effect the real loser was the World Bank and this accounts for the fact that no successful prosecutions have been secured over the scam.

I have difficulty believing this version of events principally because everyone who has investigated the scam invariably comes up with figures of between Kshs 13B and Kshs 68B that we are said to have lost. Also, as I understand it, the 15% export compensation was paid, not by the World Bank, but by the Kenya Government. And the lack of successful prosecutions is simply down to the political mathematics of both the Moi and Kibaki administrations.

Anyone who could explain the mechanics of the scam and the money lost in simple English?

3 comments:

3N said...

Gathara, I get more confused by the Goldenberg Scandal as time goes on.
I remember following Kamlesh's defense to Ringera's commission and he suggested the same thing that this lawyer is arguing.
Somehow there seems to have been a benefit to Kenya that came from this transaction.
Either way, one thing I believe is that several key people (kamlesh, moi, saitoti etc) also corruptly benefited their bank accounts as well.
As to why no one has been prosecuted, it is a very simple explanation. There is no way of nailing anyone without implicating Moi and the ex president has immunity over any prosecution.
If we can be able to recover some of the stolen money, I would deem it more appropriate instead of carrying out a long investigation and wasting tax payer's money with no prosecutions.

coldtusker said...

There may be some truth to the story BUT there was some skullduggery involved.

The government had a FIXED exchange rate for forex. This was STUPID Economics since it allowed for a thriving black market. I believe in FREE MARKETS thus the so-called black market was genuine i.e. real value of the Kenya Shilling.

Note that my comments are based on my belief that free markets with minimal interference make more sense than STUPID IDIOTIC laws & regulations that benefit a few.

coldtusker said...

Example - not representative of what happened but merely illustrating a point. This is VERY simplified.

CBK US$ Rate = 50/-
Parallel Market aka "real" rate for US$ = 60/- (+20% premium)

Only an idiot (or screwed exporter esp agricultural exporters) sells US$ to the CBK at 50/-.

Tourists visit Kenya but change money through "street dealers" at 58/- who add 2/- & sells to an "importer" at 60/-.

No more aid from Donors, moi wants a new Merc valued at $200,000.

Thus CBK prints KShs Kshs 10,000,000 ($200,000 x 50). Add 20% premium for the parallel market = KShs 2mn. Total = KShs 12mn. Gives money to Transnational Bank or other politically connected bank.

Pattni takes a loan of KShs 12mn from above PC bank then goes to the Parallel market to buy the $200,000.

He sells forex US$ 200,000 to CBK at 50/- = KShs 10mn.
Makes a false "export" claim of 30% netting him an additional KShs 3mn.

Repays loans of KShs12mn & pockets the KShs 1mn as a fee and expenses.

Multiply above by 1,000.

There are other complex considerations including the surging inflation, high interest rates & plain thievery.

A liberalised currency would have solved these problems since demand & supply would have matched.

Those with preferential access to the forex benefitted.

Examples: When there was no forex for other businesses, biwott got enough forex to buy out Mobil - now Kobil.

I hope this helps!