Mauritius’ economy has been flat lining at an annual rate of around 3.5% for a number of years now. People had been looking therefore for something higher from the new government. In a public statement on 26th January, the Minister of Finance, who is normally serene in the face of difficulty, lost his cool. He said that it was for the nation to believe in the promised ‘economic miracle’ for it to materialize and that it was unrealistic of the people to expect instantaneous gratification like an ill-mannered child.
This phenomenon of low growth seems to have affected even the most performing economies of the world, China being the latest on this list. Instead of publicly blaming the huge amount of indebtedness of particularly state enterprises during the era of high growth, China is employing all its energy to contain the panic which threatens to sink the economy even further. The aim is to get back on the high growth path without losing time on side issues.
In the case of Mauritius, our domestic investment rate has repeatedly refused to pick up from its level of around 18 to 19% of GDP these past several years. This is where focussed action was called for to redress the situation. The global situation has something to do with it, no doubt. But we chose to leave the burden of adjustment to monetary policy alone, so that Mr Bheenick was alone to shout out that government policy should also do its part to pull up investment in the economy.
The question must be asked as to why people in general are feeling so jittery about the economy’s prospects even now. It must be said that there have been little signs of a veering away from the previous track record by way of new economic initiatives. Much has been spoken about – smart cities, ocean economy, additional public investments, etc. Concretely, the public has little idea of how this translates itself into better economic prospects for them.
On the other hand, not only did we not break new grounds in preceding years as far as the economy is concerned. With the oncoming of the new government, certain old ghosts were even dramatically resuscitated. People had barely overcome the trauma associated with the loss of savings/investments with fake and unregulated financial institutions like Whitedot, Sunkai… when they were hit in the face with the Bramer Bank/BAI strike down once the new government was installed.
The care and meticulous attention with which such a delicate situation should have been handled to preserve the serenity and confidence of the public and of entrepreneurs was absent. What ought to have been managed with an eye to the future was drowned in the dramatization of the immediate. Somewhere, this manner of handling the matter has hit a raw nerve, not only of savers and investors, but of the country’s image altogether.
One just has to recall how America reassured that all is now in safer hands by passing the Dodd-Frank Act in the aftermath of the financial debacle of 2007-08 caused by financial institutions having “lent” trillions of dollars against assets that had material existence only on paper. Or, the recapitalisation process of banks, with bail-in arrangements, stress tests and what-have-you that EU countries and the US adopted immediately to restore public confidence in the financial sector, rather than going on a course of self-justification or digging deeper to run down the public’s trust in the financial system.
Mauritius would stand to gain by putting behind all this mess. Projecting ourselves as wrongdoers has been fully unhelpful towards opening up vaster vistas for the economy. In fact, unknowingly perhaps, we’ve been shooting ourselves in the foot by not managing problems discreetly enough in the interests of the longer term.
It must be said that the government has tried to patch up the mess so created. It has set up the Maubank which was inaugurated this week, bringing together the remains of the erstwhile Bramer Bank and the once-again-hit Mauritius Cooperative Bank, after injecting Rs 3 billion rupees in the new venture. If Shridhar Nagarajan steers this new entity out of muddy waters into profitability, it will be the removal of a thorn in the flesh and, by the same token, an unnecessary stigma from our banking system.
But a bank does best when it has plenty of sound business to transact. Hopefully, politicians will not pull levers in the opposite direction to set back the mess once again. They must be kept at arm’s length, together with their political clientele coming to seek support for fundamentally flawed projects ending up as bad and irrecoverable loans. Those who have a duty of oversight to see to it that errors are rectified before they assume unmanageable proportions should do their work. It is the least one will expect from the latter.
It will also bring back the much regretted lost optimism about our financial sector as a whole if, like the Americans and the Europeans, we don’t keep digging into misdemeanours of the past but concentrate rather on restoring the lost confidence in our financial sector. It’s worthless seeking to draw political capital out of all this mishap. There is a long journey ahead and it should help if we concentrate on what we can do rather than destroying goodwill on which a whole sector depends for its business. Repairs should be undertaken discreetly until the ship is able to float back on the ocean without much ado. Cold reason should gain the upper hand on worthless sensationalism in dealing effectively with the situation.
Hopefully, the mess brought about on the insurance/investment side will also be sorted out, at a cost, no doubt, given the precipitation with which all this was brought down. Mauritius has a track record of not leaving behind those who put their trust in its financial sector by placing their funds into it. We should live up to this track record, recuperating as much as possible from the counterpart assets of the companies that have been made defunct. Here again, given the morose state of the local and international economy, the priority should be to straighten up matters and set the sight on the future instead of going on amplifying the past.
We should bear in mind that it has historically been established that it takes longer to sort out the consequences of a financial crisis than one caused by business cycles. We are dealing wih a domestic financial crisis and, unfortunately for us, it has been precipitated at a time the international economy is still struggling with the sequels of the international financial crisis which sparked off in 2007-08.
We should act discreetly but promptly enough therefore to put behind the various bad things that have visited our financial sector, expand its scope and multiply efforts at restoring its lost credentials. This will pave the way for a more confident local financial sector to take up the fresh challenges springing out from global uncertainties regarding the fate of small jurisdictions like ours on which there is a tendency to heap all the blame when things don’t go right at the global level.
More than anything else, we should ensure henceforth that more ‘fit and proper’ persons are put in charge of managing our financial sector, without political interference. That will keep us from hitting the bottom of an economy that was doing not so badly in prevailing difficult international economic conditions. If we manage to keep a constructive focus, we could foster once again growth of our economy on a wider provision of international services, of which financial services should remain a major one.
* Published in print edition on 29 January 2016