To answer an obvious question about the graph above-what happened in Kenya starting in 1993 and continuing through to 1995 was a concerted effort on the part of the Kenyan government to enact reforms. The reforms, which included an emphasis on corruption and political stability, were significantly encouraged by the World Bank and the International Monetary Fund (IMF) and had an almost immediate impact on inflation.
In 1995, the rate of inflation was 1.6 percent (according to Kenya's Central Bureau of Statistics) down from a staggering 46.0 percent in 1993. After 1995, inflation shot up again and was into double digits by 1997 on the heels of political unrest, tribal differences, poor governance, environmental shocks, and a host of other problems.
In 2002, a new government came into power and inflation tumbled to 2.0 percent, only to rise back into double digits by 2004 where it has remained ever since.
Ultimately, of course, inflation is a consumer issue with high inflation eroding purchasing power. Kenya's experience, though, demonstrates how many other factors can combine to destabilize economic functions. In Kenya's case the lack of a stable political infrastructure is particularly telling.
In a developing country such as Kenya, high inflation is symptomatic of systemic problems rather than exclusively economic problems. With a 2001 unemployment rate estimated by the CIA at 40 percent, and 2000 population below the poverty line estimated at 50 percent, Kenya shares the fate of other developing countries with a dualistic structure-that is where the rural and urban poor are so overwhelmingly disenfranchised that almost no amount of "reform" or macroeconomic wizardry is going to change the basic "haves" and "have nots" market structure.
Using IMF statistics as a basis, Market: Africa Mid-East predicts...