The apparent failure of the Central Bank of Kenya to stem the shilling's slide has stung the Government into action.
Prime Minister Raila Odinga on Tuesday created a team of technocrats cutting across various sectors, and including representatives of the Treasury, the Central Bank, Office of the President, Planning Ministry, the statistics office, the private sector and Vision 2030 Secretariat.
The team is expected to come up with fresh measures to bolster the shilling.
A statement from the PM’s office supported the general view that CBK’s efforts have so far failed to deter speculators — blamed for the driving down the unit — from continuing to profit from the shilling’s weakness.
The local unit is now the world’s second worst performing currency this year after being battered by double-digit inflation, foreign investor dumping, riskier assets in emerging markets, and a loss of confidence in CBK’s policies.
Experts have said the local currency’s freefall, if not arrested, will push inflation (cost of living) to higher levels hurt the economy and breed more civil unrest.
Parents with children in universities and colleges abroad are finding it costly to pay fees and other charges because predicting a daily or weekly exchange rate for the local unit has become difficult in recent weeks.
Both the Central Bank Governor Prof Njuguna Ndung’u and Finance Minister Uhuru Kenyatta are out of the country attending to different matters.
Uhuru, who is also the Deputy Prime Minister, is attending his confirmation of charges hearings on Case Two at the International Criminal Court Pre-Trial Chamber II at The Hague, while Prof Ndung’u is said to be attending some meetings abroad.
In August, Uhuru asked CBK to restore monetary stability and said his ministry was in discussions with the bank about policy.
"We’ve got this crisis that’s blowing up hard. We’ve got a situation at the moment where the Finance Minister is in The Hague, the Governor is still abroad, so we’ve got this crisis here and there are questions of who’s in charge? Who is managing it? Everybody’s saying ‘Who’s in the driving seat’?" Robert Shaw, an independent Nairobi-based economist told the Reuters news agency.
"In terms of whether that is a go at the Central Bank Governor, there are a number of questions as to how it’s being handled by the Governor, from the beginning to now," said Shaw.
The local currency on Tuesday recovered slightly after sliding steadily over the last three weeks, trading at Sh99.65 against the dollar, after weakening to an historic low of Sh104, but it is still down 23.5 per cent so far in 2011.
The meeting called by Raila came, as it emerged that more Kenyans are finding it difficult, if not impossible, to afford basic necessities with the weak shilling pushing many into the poverty bracket.
"While recognising the measures already taken by the Central Bank of Kenya to address this problem, the Prime Minister reiterated the need for further action to restore confidence in the financial market," said a statement from the PM’s office.
"It still creates uncertainty," Kennedy Butiko, deputy head of treasury Bank of Africa told Reuters, adding: "But the initial market reaction is for people to sell the dollar because they perceive the committee will have to come up with guidelines that will favour the shilling."
In recent days the Central Bank has been engaging in desperate and disjointed intervention measures to contain the depreciation, which experts are warning has reached alarming levels in as far as economic stability and quest for survival for ordinary Kenyans is concerned.
With majority of Kenyans barely managing to make ends meet due to rising costs of living, the unavoidable continuous surge in inflation and upward adjustment of interest rates by commercial banks is expected to make a bad situation worse.
"As manufacturers we are worried because it is becoming impossible to run profitable companies in this regime," said Kenya Association of Manufacturers chairman Jaswinder Bedi.
Although manufacturers of essential products have painstakingly absorbed most of the rising costs of production associated with importation of raw materials and energy to cushion consumers, it is becoming increasingly apparent this cannot go on for much longer.
Over the past months, the prices of basic commodities like maize flour, sugar, cooking oil, wheat flour and paraffin have hit the roof.
Also on an upward trend has been the cost of electricity, after Kenya Power decided to increase the pass-on fuel surcharge from Sh6.7 per unit to Sh8.2 per unit, apparently due to the rising costs of oil used by independent power producers (IPPs).
The move is having heavy toll on manufacturers and consumers alike.
On Thursday the Prime Minister constituted a high level technical team of key stakeholders in the private sector to come up with comprehensive measures to arrest the decline, with the outcomes expected next week.
While a fortnight ago President Kibaki assented to the Price Controls Bill to contain the runaway increases in basic commodities, implementing it in the current environment of the shilling’s turbulence could prompt some manufacturers to relocate to other countries, leading to loss of jobs and more poverty.
It would also prompt hoarding of essential goods by traders in the hope of profiteering from higher prices caused by the any ensuing shortages.
Manufacturers of such goods believe it could trigger speculative trading, making availability of the very products it is meant to make affordable another headache for Kenyans.
"The cost of manufacturing has gone up particularly in terms of energy and importation of raw materials," said Kenya Private Sector Alliance (Kepsa) chairman Patrick Obath.
He added that Kepsa is undertaking study on the impacts of the shillings on Kenyans and what the CBK must do to tame the freefall.
"It is important for Kenyans to know the impacts of the depreciation of the shilling on the economy," he said.
As CBK continues to battle with commercial banks, which it is accusing of causing the freefall as a result of speculation for selfish short-term gains, the impact has leave a trail of desperation among Kenyans.
Reuters quoted analysts saying the government needs to look beyond just monetary policy to resolve the crisis, as the risks to the wider economy from the shilling’s weakness are significant.
"A coordinated approach, going beyond the limits of monetary policy alone, is needed.
This suggests a joint solution is in the works covering fiscal policy, possibly lumpy capital imports, cooperation from the private sector, and a determined stance from the central bank," Razia Khan, Head of Research, Africa, at Standard Chartered bank told the news agency.
Since January, the shilling has depreciated by 25 per cent against the dollar from Sh80.94 at end of January to a historic high of Sh104 to the greenback this week.
In tandem, inflation has increased from 4.5 per cent in December last year to a 16.6 per cent last month and projections are that when the Kenya Bureau of Statistics releases new figures anytime this week, inflation will surge to anything between 17 and 18 per cent.
Deputy Prime Minister Uhuru Kenyatta put in a firm defence before the ICC Pre-Trial Chamber II judges when he faced off with Prosecutor Luis Moreno-Ocampo at The Hague on Thursday.
But the anticipated cross-examination of Uhuru by Moreno-Ocampo was a bit of an anticlimax as the prosecutor did not press him on allegations that he was involved in the actual planning and execution of reprisal attacks in Naivasha and Nakuru, claims that are at the heart of the prosecution’s case.
Deputy Prime Minister Uhuru Kenyatta shakes hands with family, friends and supporters outside the ICC building on Thursday. [PHOTO: EVANS HABIL/STANDARD]
Addressing the judges from the witness box Uhuru, who is also Finance Minister, said during cross-examination by the prosecutor that Raila, by telling his supporters election results were being rigged, fanned tensions and then failed to use his influence to quell the violence that followed the announcement of the 2007 presidential results.
Uhuru said Raila should have gone to court to register his dissatisfaction with the outcome of the election and seek legal redress rather than call for mass protests.
In response to Moreno-Ocampo’s claim that many Kenyans have no faith in the Judiciary, Uhuru said this was not an excuse for anyone unhappy with the outcome of the 2007 elections to resort to any form of violence.
He alleged Raila was the first to link him to the Mungiki’s actions when the PM said he was in State House planning violence with the Mungiki.
However, he told the Pre-Trial Chamber judges he had no evidence Raila was criminally responsible for the violence, but insisted that the Kriegler Commission had established that there was no rigging of results at the tallying centre at the Kenyatta International Conference Centre (KICC).
The prosecutor was appearing in court for the first time since making his opening statement in the case, while Uhuru was making the rare move of being a witness in his own defence.
"I will not say that he was criminally responsible because I have had no evidence of him supplying guns. But he has political responsibility because of the inflammatory statements."
He added: "Had he used his political voice to tell his supporters to stop the violence, I don’t think it would have gotten to the level of 600,000 displaced," Uhuru said.
"Politically yes, he has responsibility. But criminally I have no evidence of him organising (for) weapons," added the DPM.
Pressed by Moreno-Ocampo to state whether other ODM leaders, including Eldoret North MP William Ruto, were involved in planning the attacks, Uhuru said he was not privy to information of prior organisation.
He, however, told the court the strong words used during the campaign and claims of vote rigging had fanned tension.
The Finance minister rejected claims he used the Mungiki to carry out retaliatory attacks against opposition supporters in Nakuru and Naivasha.
Uhuru denied having any links with the Mungiki. Moreno-Ocampo strove to link Uhuru with the Mungiki using excerpts from a publication by Peter Kagwanja authored in 2002, when Uhuru was then the Kanu presidential candidate against Narc’s Mwai Kibaki.
Uhuru said the attempt to tie him with Mungiki was unfounded and pointed out Kagwanja was then in the opposing camp.
Pressed by the Prosecutor why the author would link him to Mungiki Uhuru replied it was only Prof Kagwanja who could explain the basis of connecting him with the outlawed sect then.
In frustration Moreno-Ocampo remarked: "Mr Kagwanja today is working for you so it’s very complicated."
But Uhuru denied this saying Kagwanja works for PNU and he (Uhuru) is in Kanu.
Earlier, Uhuru told the court he neither participated in any meetings with the Mungiki nor attended any meetings to plan violence and he had no evidence that some members of ODM were involved in distributing weapons for the violence or planning the chaos.
He said, however, that statements made during the elections contributed in raising temperatures, which cause of the chaos.
Asked if he handled security matters as a minister, Uhuru responded: "The prosecutor does not understand our system. We have only one police force and the Local Government ministry does not have a security organ."
Uhuru disputed allegations that his co-accused, Head of the Civil Service Francis Muthaura could have authorised anyone to enter State House saying that could only be done either by the President or the Comptroller who reports directly to the president.
Further Uhuru trashed claims that he dished out Sh100 million in cash for the violence.
But as Ocampo pushed him further to state what he was worth and whether he could afford that kind ofmoney, the court intervened.
Uhuru said he knew Prof Peter Kagwanja as PNU advisor but he did not know his exact role.
Uhuru said he was aware there were public announcements by Mungiki of support of his candidacy but added that he had not solicited for that support.
Uhuru told the court that Kanu publicly denounced Mungiki.
He said even when Mungiki leaders Maina Njenga and Ndura Waruingi tried to get Kanu tickets during the elections the party rejected them.
"As a party we did not want to be associated with them. We continued with campaign without their support," he said.
He denied having ever seen former Mungiki leader Ndura Waruingi on TV claiming Uhuru was a member of the sect. "But when it has come to my attention I have come out and denied it."
In his writings on Mungiki, Prof Kagwanja claims Uhuru publicly denounced Mungiki but covertly supported them.
But Uhuru responded that he had never discussed with Kagwanja anything to do with Mungiki.
"I have no idea what his sources are, and he is best suited to say why he believes so. He did not interview me when doing the article," he said.
Moreno-Ocampo implied that Mungiki considered him a traitor hence some decided to give evidence against him. Uhuru said he had no link or association with Mungiki and had no idea why they would give false evidence against him.
Uhuru said the biggest Mungiki victims were the Kikuyu community through extortion and killings.
"I can only assume those pushing the link between me and Mungiki were doing so to cost me votes in Central Province region," he added.
He denied claims by a prosecution witness that he attended a Mungiki meeting hosted at President Kibaki’s State House in Nairobi on December 30.
It is on this day that President Kibaki was sworn in for another term and several Government officials including political party officials were present at the function, which Uhuru told the court he attended.
Meanwhile, Pre-Trial Chamber II has allowed Muthaura to attend court sessions for the confirmation of charges against him, whenever he feels strong enough to do so.
Muthaura who arrived at The Hague 10 days ago in the company of his wife and son, was given the go ahead by Pre-Trial Chamber II judge Ekaterina Trendafilova.
"Mr Muthaura you are free to go back to the hotel whenever you feel that you are not at ease," the judge said.
The Head of Civil Service’s right to be present during the whole court sessions was waived following the court’s decision to have the hearings held from 9.30am to 8.30pm from Monday.
Additional reporting by Evelyn Kwamboka at The Hague