Blues Gone Bland

By Samad Ramoly

Here we go again, our advocates of reverse affirmative action are exposing their exchange rate fetish. The following is an excerpt from The Economist to debunk the ongoing deception:

“In setting its interest rates, the Federal Reserve worries about growth and inflation. It does not concern itself unduly with the dollar. Policymakers in emerging economies, by contrast, cannot afford that luxury. In countries prone to high inflation, a stable exchange rate helps to anchor prices. Such economies have also usually borrowed in dollars or euros, because their creditors insist on being repaid in hard currency. A precipitous fall in the currency can make these debts insupportable. For these reasons, emerging economies must often raise interest rates in the teeth of a slowdown in an effort to defend their currencies. Rich countries can afford to treat their currencies with benign neglect. Emerging economies cannot.”

A country’s competitiveness is indeed not a zero-sum game. That is, it does not rest on policies dictated by the whims of fat cats whose wish is to have the cake and eat it. Real competitiveness is the legacy of an environment conducive to productivity gains everywhere. Truly, persistent rupee depreciation acts as the single most pervasive disincentive in the creation of the required synergy. The more so when the manufacturing process has a high import content.

In addition to more competition in the financial sector, the key to slashing domestic borrowing costs, so that they compare favourably with our foreign competitors, is to convince market participants that the rupee is volatility-proof. Interest rate differential is essentially a reflection of risk premium. By the way, is there any good Samaritan to enlighten navel gazers to the fact that, say, euro’s behaviour on international markets is not Mauritius-grown?

A downturn is inherent to economic and business cycles. It should be an additional incentive to dump exotic and delusional thinking. The relevance of the response is all that matters and it tests the mettle of leaders in all walks of life.

* Published in print edition on 29 October 2010

An Appeal

Dear Reader

65 years ago Mauritius Times was founded with a resolve to fight for justice and fairness and the advancement of the public good. It has never deviated from this principle no matter how daunting the challenges and how costly the price it has had to pay at different times of our history.

With print journalism struggling to keep afloat due to falling advertising revenues and the wide availability of free sources of information, it is crucially important for the Mauritius Times to survive and prosper. We can only continue doing it with the support of our readers.

The best way you can support our efforts is to take a subscription or by making a recurring donation through a Standing Order to our non-profit Foundation.
Thank you.

Add a Comment

Your email address will not be published. Required fields are marked *