(EPLF). Isaias Afewerki, Secretary General of the EPLF, was elected President. The EPLF was transformed into the only permitted party in Eritrea under the new name of People 's Front for Democracy and Justice (PFDJ). The four-year transition period to a regular government ended in 1997 with the acceptance of the new constitution (which to this day is not fully implemented). The reason given is the prevailing situation of national security. Presidential and parliamentary elections were scheduled for 1998, but were postponed until 2001 because of the border conflict with Ethiopia. Elections did not take place in 2001 either and have been postponed indefinitely. The population therefore has no say in the formation of the government. Opposition groups operate from abroad. There are a number of state-sanctioned (trade) unions, which are closely linked to the PFDJ or are monitored by it.
The legislative, executive and judicial branches are not separated.
The majority of the 150 seats in parliament are held by loyal members of the PFDJ, ex-combatants and the military, rarely meet and have no mandate to initiate, assess or review legislation. It therefore cannot and will not hold the government to account. However, this will change when the new constitution comes into full force (which is unlikely for now). There are no effective other accountability mechanisms.
The judicial system is weak and lacks capacity. So-called Special Courts have been set up to deal with corruption. These Special Courts are also used to try dissidents. In principle, the Attorney General decides which cases will be tried in the Special Courts. However, the executive branch is influenced here.
There is no democratically elected government. After the 30-year war of independence, Eritrea was governed from 1991 to 1993 by the Central Committee of the Eritrean People's After independence in 1993, there was great optimism in Eritrea. The reconstruction of the country was set in motion. Considerable (political, social and economic) progress was made. The new constitution was drafted in a reasonably democratic manner. These developments have earned Eritrea a good reputation among the international community. However, the positive developments came to a halt due to the 1998-2000 border war with Ethiopia and the subsequent 'cold peace'. The government, arguing that it does not want to jeopardise the unity of the country, does not give room to oppositional voices and initiatives for democratisation.
To this day, no room is given to opposition parties. In preparation for the national elections (originally scheduled for 1998 and then postponed to December 2001), two commissions were set up in 2001 to draft legislation on the registration of political parties and to draw up the electoral code. The draft election legislation was adopted by the Parliament in February 2002 and an Election Commission was set up, which has not yet reported. However, national elections have not yet taken place. Local elections were held in May 2003 and regional elections in all 6 regions in May 2004. This removed the official barriers to national elections. Discussion by the parliament of draft legislation to make political parties possible has been postponed.
For the current political situation see chapter history
Eritrea is one of the poorest countries in Africa, with a GDP of over US$9.4 billion (2017) and a GDP per capita of, estimated, US$1,600 (2017). Inflation is high, the trade balance heavily negative, and there is a large shortage of foreign exchange.
However, there is potential for development. Eritrea has two ports along busy shipping routes in the Red Sea and possible oil and gas reserves. In addition, the construction, fishing and agricultural sectors (including flowers), as well as tourism, offer opportunities for growth. However, regional stability and good economic governance are important preconditions for economic development.
However, following the stagnation in the peace process between Eritrea and Ethiopia, Eritrea's economy and trade have almost come to a standstill. The government attributes this almost entirely to the recent war with Ethiopia and the stalemate in the peace process in addition to the ongoing drought. The main economic policy line has remained unchanged for several years and is based on private sector-led growth and open competition between public and private enterprises in a free market. However, there is a huge gap between these formal policy intentions and practice.
The state, the ruling party (PFDJ) and the armed forces have gradually gained a stronger grip on the most vital (and hard currency generating) sectors of the economy, through regulation and ownership of semi-public companies. The private sector is increasingly being squeezed out and there is no enabling environment that invites investment. In practice, there is no free market in Eritrea.
Eritrea has an economic policy that, on the whole, strongly restrains trade, economic output and potential foreign, but also domestic, investment in the country. In July 2003, the government introduced a non-transparent system of import licensing, price controls and hard currency checks, whereby intended imports are checked against the prevailing 'national priorities'. In practice, state-owned companies have thus gained a virtual monopoly on imports. The import licences are also required to be able to effect payments to foreign suppliers, which always have to go through Eritrean banks. State-owned companies enjoy preferential access to scarce hard currency through full government control of the financial sector. The IMF has urgently advised Eritrea to modify the current import licensing system and replace it with a price mechanism.
Since 2003, Eritrea has had a dual exchange rate system, with an overvalued and fixed official rate and an equally fixed preferential rate, which is closer to the parallel rate. The parallel rate is about 60% above the official rate. The government benefits from this system when it comes to raising and buying hard currency itself. However, the IMF has calculated that the current system and the accompanying control of the money market harms the Eritrean economy much more than it benefits the state in the form of this hard currency 'tax'. Not for the first time, the IMF has made an impassioned plea for the gradual liberalisation of the exchange market and the abolition of the dual exchange rate system.
The structural deficit in the trade balance has continued to widen due to a drop in exports of goods of more than 70% and an increase in imports of 14%. As a matter of fact, the export of goods in 2017 was only $624 million per annum.
As noted earlier, domestic and external debt has risen to unsustainable levels, with the NPV of external debt reported by the IMF to be 65% of GDP. The burden of external debt servicing is only now being fully felt, with the expiry of the grace period of several concessional loans. Eritrea's external debt is unsustainable, but the country does not qualify for the HIPC initiative.
Due to the lack of substantial demobilisation and the rigid application of the National Service programme, entrepreneurs are facing large labour shortages, which is having a strong negative impact on the continuity and volume of production and services.
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