Nobel laureate warns Uganda

Developing countries like Uganda have no choice but to make sure that their financial systems serve their development agenda, Prof Joseph Stiglitz, a Nobel Laureate in Economics, has said. The Professor of Economics at Columbia University in the USA made the remarks while delivering the keynote speech at the 20th Joseph Mubiru Memorial Lecture entitled: “Market Failures in the Financial System: Implications for Financial Sector Policies, especially in Developing Countries”.

Prof Stiglitz noted that while as a rich country USA can withstand losses in trillions of dollars  that came forth following the global financial crisis in 2007  backwater states like Uganda can ill afford to waste even a coin. Scathing in his attacks against the circumstances that led to the failure of the financial markets in developed states, the economist decried the ‘greed’ that drives financial institutions to promote devastating market products like subprime mortgages at the expense of social returns.

“Throughout the world, banks and the financial sector more generally have become widely criticized. They didn’t do what they were supposed to do, and they did what they weren’t supposed to. Recent scandals throughout the world entailing bankers , have led to the view that there is a moral deficiency, a culture of corruption  and that it’s a systematic problem,” Stiglitz noted.

As such, there is need for increased regulation where undercapitalised banks must be shutdown, connected lending restricted, an insistence on only reputable bank owners and managers plus a constraint on excessive risk taking. Also, Stiglitz adds, incentive structures in banks need to be controlled since they encourage excessive risk taking and so to is the intertwinement of banks. All financial institutions need to be transparent, uphold good accounting standards and must be restricted from conflict of interest.

Discussing his paper, acclaimed academic, Prof. Mahmood Mamdani, who apart from teaching at Columbia University too is the Executive Director of Makerere Institute for Social Research (MISR), disagreed with Stiglitz on a number of fronts. Mamdani had issue with confining the causes of the global financial crisis to a mere failure of markets assisted by a laid back regulator. And as far as finding solutions are concerned, he felt the status quo needed to be examined and completely fresh ideas sought.

For President Yoweri Museveni, who was attending the annual lecture for the first time, countries like Uganda were faced by a double edged sword of failing markets and not having working markets at all.

The lecture hosted by Bank of Uganda is in recognition of Joseph Mubiru’s contribution to the financial and economic development of Uganda. He served as the first central bank governor between 1966 and 1971.