Hot spots: Kenya. (International Insight).

The landslide with which the Kenyan electorate at the end of December defeated the presidential candidate of the long-ruling Kenya African National Union (KANU) party, Uhuru Muigai Kenyatta, opting instead for the banner bearer of the opposition National Rainbow Coalition (Narc), Mwai Kibaki, generated a wave of enthusiasm in the local financial and business communities. The Kenyan shilling, which prior to the elections had gone through a difficult period, rallied to two-year highs in the exchange markets, in a big sell-off of dollars by banks anticipating a vigorous official campaign to rebuild the battered economy and an early resumption of lending by foreign creditors and aid donors.

The optimism is not altogether unfounded. For one thing, a smooth transfer of power such as that which has now occurred in Kenya is still a rare thing in Africa, recent similar changes in Zambia, Ghana and Senegal notwithstanding. In addition, Kenya has been a democracy in name only for decades. From its independence in 1963 to 1991, KANU was the only party on the ballot. Then, the now departed Daniel arap Moi, at the helm for 24 years, dipped deep into public coffers and used every trick in the book (including violence that he fomented between various ethnic groups in the country) to maintain his grip on power.

Kenya has, thus, an unusual opportunity to make a new beginning. Kibaki promises that "corruption will now cease to be a way of life in Kenya." He says that restoring the economy to health will be his "first priority" and that he will set up a panel similar to South Africa's Truth and Reconciliation Commission to look into past "economic crimes." Moi's unwillingness to fight corruption and venality in official circles had been one of the main reasons why international donors and lenders suspended aid back in 2000. Now, the IMF is said to be considering a USD 1 billion package for Nairobi, including monies from the World Bank and bilateral lenders, if the new government implements two anti-corruption laws that have been gathering dust. Any such package would pave the way for a rescheduling of debt owed to commercial creditors and make the country more attractive to foreign investors.

Kenya urgently needs sizeable injections of foreign aid to combat dire poverty, rehabilitate a collapsing infrastructure, and improve living standards for a population of which the majority ekes out a livelihood on less than a dollar a day. To give Kenya a successful new start will not be easy for the incoming government, however. Politically, the administration will be based on a fractured 15-member coalition that has no common ideology to bind it and is notable mainly for the giant egos of its party leaders. It may not hold together very well as unpopular decisions have to be made to reform the economy and get it going again. There is a distinct risk that the alliance, now that it has gained power, will be as inclined as KANU has been to let itself be torn asunder by ethnic rivalries and by its leaders' quest for personal aggrandizement and enrichment.

In the economic arena, one difficult early task will be to straighten out the lopsided fiscal accounts, which have been hurt by the weakness of the economy and by KANU's profligate election spending. ...