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So
much talk about good governance: how about putting it into
practice?
Adam
Smith, a Scotsman and founder of modern economics, is
reputed to have advocated the laissez-faire doctrine of free
markets in 1776. It is not quite certain whether he also
advocated that governments should not interfere at all with
the working of markets. However, free market capitalism,
following in his wake, has imposed the view over centuries
that the markets operate most efficiently if left to
themselves without government interference. If we consider
the havoc that the working of the free capitalist markets of
the United States and Europe is currently wreaking on global
markets, we would think twice before accepting wholesale
this kind of laissez-faire doctrine. We must at least learn
a lesson.
There
is currently a Bill making the rounds of the US Senate and
Congress, requiring the American public to pump in some 700
billion dollars to salvage the private sector credit markets
which operate on the laissez-faire principle. It is being
said that, short of this amount, both the financial market
and the economy would face dire consequences. Hundreds of
billions have already been injected before that into the
financial markets of the US and Europe by the central banks
and the Treasury to prevent their collapse. In an
interconnected world, Mauritius will not get away from those
consequences should an economic recession hit the West due
to the failure of the free market system. We can take
mitigating action as may be necessary.
The
question that one may ask is whether those financial markets
have fallen into disarray despite all the good governance
principles that the West has been broadcasting to the rest
of the world since more than one decade. What about the
voluminous financial regulation the West has been imposing
for years on the rest of the world? Has it forgotten to
practise what it has been preaching to us? There is much
resistance in the US, despite the scare of economic
recession being cleverly distilled by Western media, to the
proposal to bail the private sector out of the great
indulgence it has been thrusting upon itself for years.
People are asking whether it is fair for all the huge
profits of yesterday to have been pocketed by rich private
individuals in the period before while socialising today the
huge losses and risks their mishandling of markets has
occasioned. In Europe, the new proposal is to give 100%
deposit insurance to depositors so as to keep up their
confidence in the failing financial institutions. One may
wonder whether this is not a licence for the financial
institutions to continue employing deposits as rashly as
before.
The
hypocrisy of some who ride high on principles without
abiding by the same is well known. Just as well known is
their hypocrisy when they credit themselves without batting
an eyelid with the dividends they appropriate from the good
work done by others but keep harping on the latter’s
inefficiency for whatever they would have not got quite as
all right. When the going is good, controls are seen as
anathema by the private sector against the so-called
business friendliness. We are told that our competitors
would be getting a more liberal treatment from their
controllers; that their competitive edge is being eroded.
But when loose controls throw the system out of gear or
bring reprimands from foreign governments on our poor
practices, it is workers who run the risk of being thrown
out of jobs. This is what has been going on in America: the
wealth owners have landed with “golden parachutes” in
the crisis but the workers are being laid off in the
thousands. Consumers are becoming poorer by the day.
Take
the case of the monetary policy being followed by the Bank
of Mauritius (BoM). Its Monetary Policy Committee (MPC)
found the latest pretext for not changing the interest rate
at its 29th September meeting. The pretext was
the ongoing financial crisis. The MPC has been prioritising
a falling interest rate stance since at least half year now
and it should be quite clear that it is bent on protecting
the “vulnerable” private sector! As usual, the private
sector attributes all its weakness to local parameters. The
MPC is of course sorry that high inflation has been hitting
your purchasing power hard and it even acknowledges that the
going is likely to be tough for the people’s purchasing
power in future. It tenders apologies but maintains that it
should continue to adopt a monetary policy that will more
likely depreciate the rupee than repair the damage already
done to you through past inflation. Never mind the inflation
you have been paying for due to past rupee depreciation!
Where was the MPC when billions of rupees of windfall
depreciation gains were being pocketed by the individual
private sector exporters? Where has all this money gone so
that the MPC has to keep standing up for the private sector
against the people?
Our
private sector appears to have acted even more smartly than
the American one. It has remained quiet about the enormous
exchange gains it has been pocketing in the past by actively
promoting currency depreciation. It has laid off workers and
is continuing to do so if it cannot go on making money at
the same pace as in the past. It has managed to get the
entire tax system geared to its benefit while savers have to
bear the brunt of taxation on every identifiable source of
income and even on their past savings in the form of their
residences through the NRPT. Before any crisis has hit over
here, the private sector has already convinced the MPC of
the Bank of Mauritius that it should take no chances by
raising the interest rate. It has prepared the ground for
further currency depreciation by keeping the interest rate
on hold.
Its
lobby appears to be so strong that it has, other than
diverting the BoM from its main pursuit, i.e. the control of
inflation, caused a rift in its governing body. We are no
longer to expect the serenity that an institution like the
BoM should inspire or the collegiate responsibility which is
the hallmark of such institutions worldwide. The
prolongation of the conflicting situation at the BoM is
undermining the country’s goodwill. The private sector
should have been able to put a brake to its destabilising
influence by allowing even a small increase in the interest
rate over the paltry 25 basis points it conceded the last
time. It should have allowed the institution to be also run
for the good of the wider public. But it will not relent as
its appetite is large. This is how our top institutions are
putting the principles of good governance into practice.
It’s a pity that it should have come to this.
M.K.
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