Ethiopia-Eritrea: The Two Victimized Farmers

The following was posted on the Awate Forum by Hayat Adem. We are bringing it to the frontpage.(AwateStaff)
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I don’t know how to relate with the Greece and European crisis, but I reflected on the Eritrean Nakfa and Ethiopian Birr currencies and the issue of the village of Badume.

Let me tell you why I characterize the Birr-Nakfa currency as a last straw effect for the border war between Eritrea and Ethiopia. Both countries were benefiting from the Birr as a common currency while both were cursing it at the same time. The fact that Ethiopia’s birr was allowed to work as a legal currency in another country must be seen as an advantage to the issuer of that currency. Ethiopia was accessing Eritrea’s markets without needing to go through a dollar-medium. Port fees were being paid in Birr. All imports from Eritrea needed not pass through hard currency. Ethiopia had a leverage to influence Eritrea’s economy using its monetary policy as a tool and had differing macro-economic policies. Eritrea’s economy was then shaping up as export-driven open economy. Ethiopia’s economy was investment-oriented import-control, highly regulated one. Both had one currency but divergent policies and views.

Background

When Eritrea was liberated and before it carried out a referendum, the Mengistu regime of Ethiopia left Eritrean banks empty. The Ethiopian Peoples’ Revolutionary Democratic Front’s (EPRDF) transitional government rushed 150 million Birr to maintain just the basics of market and livelihood in Eritrea. That 150 million Birr was not a loan nor was it a declared aid. And later in the years, the regime and Peoples’ Front for Democracy and Justice (PFDJ) owned business branches were able to borrow up to 2 Billion birr at different times directly from the Ethiopian banks. That direct borrowing was only possible because birr was a legal-common currency in both nations. Many Eritreans, including those who were acting individuals on behalf of PFDJ business companies were able to secure loans from Ethiopian banks. Eritrea and Eritreans were able to have direct access to huge Ethiopain markets. All imports and exports to and from Ethiopia and to and from a third-country through Ethiopia were so easy and smooth with the use of Birr under the existing policy of the time.

But Eritrea was impatient to declare divorce from the Birr and print its own note for a good reason. One is purely a policy issue and understandable. Eritrea wanted to exercise its own monetary policy, rightly so because it is one policy tool to manipulate and manage macroeconomic affairs. Eritrea didn’t want to continue depending on decisions coming from the Ethiopian national banks and bear the effects. The other reason has nothing to do with the economy and everything with image and pride projection. Money notes are also symbolic national tokens. As a new nation, Eritrea was ambitious of projecting and asserting its political identity aggressively to put herself on the map, and this, too is understandable. So Eritrea announced its plan to have its own money and rushed to print Nakfa and leave Birr.

Ethiopia welcomed Eritrea’s move to replace Birr by Nakfa. Why? Ethiopia believed then that the disadvantage of sharing Birr with Eritrea as a common currency far outweighed the advantage. Ethiopia thought Eritrea was unfairly maximizing gains at the expense of Ethiopian economy by abusing Ethiopian currency and products in black markets and practices of money laundrying, creating parallel markets for currency exchange and products and service. The Ethiopian authorities thought the coming of Nakfa was a good thing for the Birr and were visibly as happy as the Eritrean authorities.

If both embraced Nakfa, what was the problem then?

The problem was both were welcoming Nakfa for different reasons and those reasons became very important tand needed to be compromised or reconciled or transformed, otherwise, they would become a monster problem standing on the way. Eritrea wanted Nakfa without losing all the benefits and advantages it used to enjoy when it was using the Birr. Ethiopia wanted Nakfa to remove all unfair advantages of trade and exchange Eritrea was getting from using the birr. I have looked into ways I thought could have been better options (at least compared to what we had to go through and still yet), and it definitely was not a problem without a solution but for the parties it seemed it had to be handled the way they did.

So Eritrea insisted for Nakfa and Birr to float in both markets in parity and without restriction, and for any imbalances of accounts and value adjustments of the two monies, Eritrea suggested both banks do inventories every 6 month and clear them off. Ethiopia categorically rejected this proposal stating once Nakfa starts circulating, Birr and Nakfa will have two separate and fenced market grounds and every transaction onwards can only be effected through a medium (dollar, euro, etc) and only bank to bank (using LCs). We need to ppreciate that this was the only macro policy issue on which the two leaderships collided head-to-head since they became governments. It was the biggest macro inter-nation issue that brought them to a direct confrontation. All other differences before were not that big as an issue or if they were, the leaderships were somehow finding a way to work some common ground around them. So far I know this was, the only issue that seemed neither ignorable nor solvable without offending one side or the other.

So Eritrea strongly objected the use of banks and dollar to reconcile transactions and insisted on Addis to accept the parity and free circulation of Birr and Nakfa in both markets. When Addis Ababa failed to change its view, Eritrea insisted more strongly to at least write off the LC option and allow individuals to conduct transactions direct without having to go through the banks. Eritrea’s justification was that people of both sides interconnected and act as one market actors, and that both markets transact at micro scales and that they are more of traditional than modern. Ethiopia’s rejection remained firm and insisted that all transactions needed to be treated as two country transactions, and it would only treat it with the same policy it followed with other neighboring countries. However, Ethiopia came up with a minor concession proposal that it could allow 2000Nakfa/dollar transaction of border markets without banks and dollars. That was not good enough for Eritrea but it had to say “whatever” and leave it there.

There was another issue that both needed to agree on and solve. When Nakfa comes to replace the Birr, what happens to the Birr that would be recalled from the Eritrean market? It wouldn’t have been an issue if Ethiopia allowed Nakfa and Birr to work in parity but since Ethiopia blocked that option it now became an issue. Eritrea asked to be paid in hard currency for the collected Birr amounts citing the legal terms of “pay to the bearer” printed on the note itself. Ethiopia was, I would say either dubious or tactful (your pick) on this that it didn’t object and it didn’t agree. They said, “We agree to solve this in a reasonable and fair way based on advices and lessons from IMF experts and precedence of other countries that had passed though similar issues.” Eritrea agreed to Ethiopia’s proposal. Securing Eritrea’s agreement was critically important for Ethiopia because they needed to print a new Birr notes and coins at the exact time Nakfa comes out, it would have been impossible for them without the consent of Eritrea. Had Eritrea not agreed, the Birr collected from Eritrea’s markets to leave space for Nakfa would slip in to the Ethiopian market. This would have damaged Ethiopia’s economy because the economic price values of those notes were transferred to Nakfa, and now it was to be blended with a larger amount of value-carrying Birrr.

Eritrea had old and not-so-modern light industries at a comparative advantage over what Ethiopia had then. Ethiopia was a nearly 100% destination for nearly all Eritrea’s export products. Eritrea’s import share of produce from Ethiopia was also very large. In the meantime, Ethiopia started planting similar light industries to substitute imports. And Ethiopia started taxing and regulating Eritrea-bound outgoing produces while trying to shift the trade to a bank-to-bank system. Isaias Afwerki clearly spoke of disapproval of the Ethiopian “protectionist” policy at the expense of strangulating Eritrea’s economy. These things coupled with Nakfa/Birr-born complications were growing all kinds of pains and irritation, more so visibly on the Eritrean side. So, Eritrea wanted to influence change of policy to favorable conditions. When discussions and lobbying were not doing the magic, PFDJ started looking around on other options from under its table. This is clearly displayed on the personal letter exchanges between Isasias and Meles. You clearly see, Isaias initiating and bringing two clash points (Adi Mirug and Bada) into picture while Meles’ letter redirected the focus to the economic/currency issues.

“Shock and shake them”

So that they get back to their senses; that was all about it. That was Badume. It was not meant to be a total war. It was meant to be a measured dose enough to bring Addis to a favorable policy sense. The reason why Isaias was unreachable to Meles after the May 12, 1998 Badume incident was to let the event run its course and give enough shock to Meles so that he understands well to accommodate Eritrea. The reason why Isaias acted surprised and shocked when Meles took the case to his parliament was because it was not meant to be. The plan was: Meles and EPRDF top leadership get shocked enough; they feel so desperate and hopeless; they try to reach out Isaias, they try again, they try again, they try again; and when about to try something crazy out of desperation, Isaias calls back while EPRDF leaders were so weak, so confused and so helpless. Isaias acts god and the last savior, gives them a life line of hope, they behave well thereafter. Why did Isaias think that they would give him enough time to play with it and that they would not shoot right back? It is obviously because he knew well that they were not ready for that. Not only that, he knew that they would be in split and disagreement on what to do. He knew that they were split on the possibility of conflict with Eritrea and Meles prevailed dismissing the warning against the rest of the ones who saw it coming.

Exactly as Isaias planned it, Meles attempted to reach Isaias when Eritreans forces took over Badume. You can imagine how Meles might have felt disoriented on the development. He is the leader and he argued against what others correctly predicted, and it happened after six months. In a typical situation, that ends the political life any leader though Meles survived it. But Isaias might have gotten what he wanted to had he not overplayed it. If he was reachable the first or second time Meles called him immediately after May 12, he would have gotten what he wanted. But after Meles made his move and involved the parliament, things were moving on a different inertia and dynamics. Amazingly, Isaias always misses the right bus for a few seconds. It was the Nakfa!

Had sober and cool minds been in control of the situation, harmonizing the monetary policy favorably wouldn’t have been difficult. They could have come even with a new currency for both (neither Birr nor Nakfa) or surgically remove the problems in million better ways than by war. So why did Semere Tesfai describe Badume War as a symptom? How can you call a war a symptom?

If someone dies of a certain illness, the cause of the death is the illness but the death itself cannot be a symptom. Therefore, Badume is a consequence, not a cause nor a symptom. When the Badume clash went out of control, Isaias thought he still had on advantage and he tried to expand it quickly to Adigrat and Shire, and cut the Djibouti line. When Wuchu reported to the commander-in-chief that he was halted and at difficulty to go beyond Zalazmbessa and Alitienna, Isaias hanged on him with a single sentence order: “ab adigrat koynka dewlleley”, call me from Adigrat! Isaias still didn’t have any ambition of taking land from Tigray. He was just injecting some more doses to the shock for necessary effect on the part of Weyane. He was trying to punish hard enough. When that was not possible, he still thought he can bring the wisdom of Nakfa (the place)- the art of trench warfare- little cost for Eritrea maximum cost to the Weyane, and for nothing: “the Ethiopians can come and die one by one if they want”. The mentality was one like: And when the chifra Weyane know the futility of taking the lands back, they would come to terms. When Isaias wanted to pass this message in no uncertain words he said: better for the sun to die than for us to withdraw from Badime. Instead there was something that you could have done and still could do and you know it. But if want to fight to the last, you will lose and it is your choice. Such was the thoughts of Isaias then.

Semere Tesfai is so naïve and he is not looking for facts and analyzing them or he is trying to act so smart and he can supply his own facts. If Weyane was planning such a war to take Eritrean lands, lets count the events again. May 6, Tigriay militia killed some officers. Then nothing happens for 6 days. So how is any government planning to expand territory by just killing 5 or 6 officers and go silent for a week? Shouldn’t they open fighting on all fronts and speak the language of war right after they opened the war? Even after 6 days, the one who acted was the Eritrean army by taking Badume. How is that to be counted as a war plan from the Ethiopian side? If Ethiopia open the Badume war, we wouldn’t see them taking it in their parliament and discussing it, mobilizing people for drafting. How would they ask Eritrea to withdraw from Badume if they were on the offensive? Shouldn’t they simply act to evict the Eritrean army from that place? After the Badume incident, the next wave of clashes came after a month. How does that gap show the fact that a full fledge war was planned from the South? So much about Semer Tesfai’s impeccable argument…and that is leaving aside EECC’s evidence and clear ruling, and PFDJ’s acceptance. The ruling said Eritrea committed aggression on the night of May 12, 1998 and took over Ethiopian territory, dismantled Ethiopian local administration. Every analysis on that fateful crisis should start from this fact or else, it suffers from basic deviation and becomes pointless.