“We are still living in the era where profits are privatised and losses are socialized”

Interview: Kugan Parapen

‘It is totally unacceptable that those who have engaged in irresponsible profit maximizing behaviour over the years emerge unscathed from the crisis and that it is up to the taxpayers to foot the bill’

Will corruption still be rampant in public bodies? Will a political dynasty still be ruling the Republic? When do we wake up from this nightmare? Many questions with simple answers…’

‘The structural imbalances within our economy are here to stay and will likely give rise to further economic problems down the road’

Kugan Parapen, economist and member of Rezistans ek Alternativ notes that the government instead of consolidating itself – which he had thought should be the case in February last in his interview – has weakened itself and our democracy by the opaque way in which it has been governing. He is worried about the state of the economy and the continuing depreciation of the rupee, and fears that recovery is not likely in a near future, and certainly things will not go back to the ‘old normal’, as the changes brought about in the world of work and social living generally is forcing a new culture to emerge.

Mauritius Times: The Government appears to be pulled in different directions and at pains to manage, on the one hand, the economic crisis in the wake of the Covid pandemic and, on the other hand, the opposition’s attacks on both the economic and political fronts, especially with regard to issues of good governance, alleged corruption, etc. It certainly has a lot on its plate. How do you see it doing?

Kugan Parapen: Barring the MMM-PSM chaotic start in 1982, this has got to be the worst first year in office for any government in living memory. One gets the impression that whatever could have gone wrong has gone wrong.

Governing a majority government with a minority electoral support was always going to be a major challenge for Pravind Jugnauth in any circumstances. Back in February, in these very same columns, we concluded that the current regime had to consolidate itself if it was to stand the test of time. Some nine months later, we observe that it is quite the opposite that has happened. The government is as isolated as ever and getting increasingly unpopular. Will there be a turning point?

We’ve seen many pro-government supporters celebrate Joe Biden’s presidential victory in the United States, and this comes as quite a surprise given the similarities between the Trump administration and the Mauritian government. Let’s elaborate.

There is no doubt that the values of democracy have suffered greatly under President Trump as epitomised by the ill-timed nomination of Judge Amy Coney Barett to the Supreme Court days before the presidential election. Parallels can be drawn to the attempt of the MSM government to nominate politically tainted individuals on both the Electoral Supervisory Committee and the Electoral Boundaries Commission prior to the last elections as well as their malicious move to prevent those who refused to declare their ethnic identity to be part of the last general elections.

We seem to have gone one step further in the wrong direction on the domestic front though. Our Parliament, the supposed sacred temple of our democracy, has turned into a horror show. While we had become accustomed to the systematic selective reporting of political events by the national broadcasting service, the current speaker of the National Assembly has upped the game to a whole new level. In hindsight, this had to be expected. With parliamentary debates being live, this process had to be reinvented. It had to occur at source…

The weakening of the democratic fabric is unfortunately not the only similarity. As in the United States, the Mauritian population is as divided as ever with the disturbing emergence of a far-right culture. Resorting to a divide and rule strategy has been a popular play by politicians with their back against the wall and has had mixed results depending on the political set-up. This brings us to the potential game changer, Angus Road!

Since his exoneration by the Privy Council in the Medpoint saga, Pravind Jugnauth has played the high moral standards card relentlessly. When his collaborators were perceived to lack such standards, the Prime Minister was prepared to axe them; the last high-profile victim being Ivan Collendavelloo. The whole campaign in 2019 was centred around the fact that he was different from Navin Ramgoolam. Should the allegations in the Angus Road affair be proven to be true, things could unravel very quickly on the political front.

The upcoming village elections will be a good barometer…

* As regards the economic situation, we should ideally have an experienced hand looking after the Finance and Economic Planning portfolio in these particular testing times. Do you have the impression that the economy is receiving the attention and leadership that the current challenges call for?

The economy is in dire straits and unlikely to improve markedly anytime soon. There seems to be an ever increasing disconnect between the government and the private sector while the spectre of mass unemployment is looming large, especially in the tourism and manufacturing sectors.

Initially the government played into the hands of the private sector by loosening labour laws, but had to backtrack following major discontent from trade unions and the population in general. We get the impression that the government is buying time and hoping for the best.

It seems that the government expects a return to normalcy in 2021. While a recovery is on the cards in 2021, it will likely take many more months for the economy to return to pre-Covid levels of economic activity. Unfortunately, the mismanagement of macroeconomic affairs over the years has taken its toll such that the scope for fiscal stimulus remains quite limited.

Government recently announced another line of credit with India to the tune of Rs. 12 billion and, if tapped, this will further increase the indebtedness of a country already crippled with debt. Remember that the Minister of Finance changed the methodology for the calculation of public debt in his last budget. Do you change a winning formula?

Rezistans ek Alternativ has been advocating for a new economic model for many years and the pandemic presented a unique opportunity to lay the foundation for this much needed model. Alas, the status quo has been maintained. Are we throwing good money after bad money once more? The structural imbalances within our economy are here to stay and will likely give rise to further economic problems down the road. How can we expect different results if we keep repeating the same mistakes?

The introduction of the Contribution Sociale Généralisée (CSG) is in effect a disguised progressive income tax which along with the Solidarity Tax for high earners reduces the fiscal burden imbalance. However, the exemption of high earners of the public sector, including MPs and Ministers from the CSG contribution, leaves us dumbfounded. This might have more to do with political calculations rather than those of economic nature – this would not be the first time…

* There are also threats facing the Global Business sector and major issues in the aviation and tourism sector, in the sugar industry, and business is not doing well. Economists have been talking of lack of “visibility” on the economic front generally; the common man is concerned not only about the long term, but he is now worried about the here and now as regards his job, his standard of living… Do we have answers to all these questions?

A recent survey carried out by Statistics Mauritius points to at least one household in three experiencing a fall in income since the end of the lockdown while no more than one in ten households experienced a rise in income… Figures do not lie. The population has been hard hit by the pandemic and the oil spill.

Given the uncertain outlook, there is a real possibility for the standard of life of the average Mauritian household to stagnate, if not deteriorate, in the foreseeable future. There will obviously be a bounce back once the airspace reopens and frontiers become more permeable. However, the long-term prospects aren’t very bright with most of the traditional economic sectors struggling to expand further while new promising sectors are not emerging.

In so many ways, Mauritius has missed the train. On the technological front, we are lagging behind while our renewable energy sector is a midget version of what it could have been. Access to new technological products like mobile phones and smart TVs has little to do with an improvement in purchasing power but rather a collapse in costs of production.

What will Mauritius look like in ten years? Do we expect much fundamental change or rather an updated version of the current setup? Yes, our road infrastructure will be improved. Yes, the metro network will probably be expanded. Yes, a few MUGA centres will have been built in other regions. But what else?

Will life be more expensive than it currently is? Most likely. Will the level of indebtedness of the country have increased? Yes. Will corruption still be rampant in public bodies? Will an electoral reform be forthcoming? Will a political dynasty still be ruling the Republic? When do we wake up from this nightmare? How do we change things around? Many questions with simple answers.

* There is moreover widespread concern about the functioning of the MIC and the opacity surrounding the disbursements of funds and conditions attached thereto, if any, to the large distressed companies. What’s your take on that?

It was obvious to seasoned financial observers that the State would have to support the tourism and manufacturing industry in the pandemic context. Back then, the debate was centred around whether the country should have recourse to quantitative easing (money printing) to fund the bailout programme. Ultimately, the government decided to plunder the accumulated reserves at the Bank of Mauritius…

While the primary reason behind the setting up of the Mauritius Investment Corporation Ltd (MIC) was to rescue the hoteliers and the manufacturers, one cannot ignore the broader picture. A wave of defaults in key economic sectors locally would have significantly weakened our domestic banking sector with the possibility of one or more of the major banks going under.

The historical credit over-exposure of some banks to the tourism sector is hardly a secret in financial quarters and is an incongruity that has repeatedly featured in the reports of international financial organisations as a key risk for the Mauritian economy. Unfortunately, little action was taken at the local level to address this financial time bomb.

In the face of contagion to the financial sector during the sub-prime crisis in 2008, the Bush administration launched the Troubled Asset Relief Programme (TARP) and invested nearly USD 300 billion in US banks to shore up the industry. The concept of being ‘too big to fail’ was coined to explain the intervention of the US authorities. Eventually, this major bailout of the financial sector would fuel the Occupy Wall Street movement and trigger the Dodd-Frank Wall Street Reform Act.

By all accounts, we can say that the local economy has also experienced its ‘too big to fail’ moment in the wake of Covid-19. It remains to be seen whether a far-reaching reform of our financial and banking sector will ensue. To many, including some in the financial sector, it is totally unacceptable that those who have engaged in irresponsible profit maximizing behaviour over the years emerge unscathed from the crisis and that it is up to the taxpayers to foot the bill. It seems we are still living in the era where profits are privatised and losses are socialised.

Coming to the modus operandi of the MIC, the lack of transparency is of course a major concern and, without any doubt, a red flag. Some members of the Board of Directors seem to be conflicted while the track record of the current regime at effective management of public assets is dreadful, to say the least. Truth be told, the reserves at the Bank of Mauritius ballooned mainly due to the non-rupee denomination of these reserves!

* On the other hand, our sugar industry is, as always, going through difficult times. Now the tourism industry has been hard hit by the Covid pandemic and is looking for massive funding from taxpayers through the MIC to keep it going. The question that arises is how long will it remain viable and at what cost. What do you think?

The outlook for the tourism industry is clouded with uncertainty. No one can predict with precision what the industry will look like in the coming years. In the best-case scenario for hoteliers, tourists flock back to the destination and a return to normalcy is only a few months away. The likelihood of such an occurrence is minimal. The base case scenario is a slow and progressive recovery over the next three years. Given the highly leveraged business model of the hotel industry, such a scenario will be a painful experience.

If we remember correctly, the debate around the sustainability of the tourism sector was raging even before the pandemic struck with many thinking that this particular sector had already peaked, especially after taking into consideration ecological and social constraints.

That said, the tourism industry is a major pillar of our economy and the economy is heavily dependent on it for foreign exchange earnings. An imminent demise of the sector would spell trouble for the economy at large.

Currently, the quasi-shutdown of the tourism industry is expected to be of cyclical nature but should the shutdown transform into a more structural one, we will have a major challenge on our hands. The short-term survival of the tourism industry is vital for the local economy; however, over the long-term, it would be wise to revisit the domestic economic model to ensure a lesser dependence on this particular sector overall.

* PMSD leader Xavier Duval stated recently that we could soon go the Zimbabwean way what with the constant and “vertigineuse” depreciation of the rupee. Isn’t that farfetched?

In this instance, I believe it is the journey that matters more than the destination. We can all agree that we are far from experiencing the economic and social hardships of Zimbabwe but the ultimate question that we need to answer is whether we are closing in on the Zimbabwean experience.

An honest assessment from any savvy economist would surely point towards a weakening of economic fundamentals and a worrying worsening balance of trade deficit. Remember that for a number of successive years, we’ve relied on foreign powers and on the reserves of the Bank of Mauritius to fund our national budget. Jugnauth’s governments have broken the piggy bank and that says it all.

At the worst in Zimbabwe, locals lost confidence in the local currency and preferred to hoard US Dollars while inflation was rampant. The same cannot be said of Mauritius at this stage. But one should never say never. The Mauritian Rupee has weakened significantly in 2020 on account of a major economic slowdown and should recover somewhat once borders reopen fully. However, the trend for the local currency has always been a depreciating one since Independence and that is worrisome.

An increasing number of Mauritians keep part of their assets, mainly their savings, in non-rupee terms and that suggests a lack of confidence in the long-term value of the local currency. If that sentiment becomes mainstream, a run on the Mauritian rupee could occur, especially if it coincides with major economic shocks.

* The world will hopefully have the Covid vaccines soon. Will things get better thereafter, that is will we be going back to the ‘old normal’?

The positive news regarding the development of seemingly effective vaccines by Pfizer Inc. and Moderna have been celebrated across the world and there is a collective belief that life could go back to the ‘old normal’ in the future.

If history is any indication, we should expect human life on earth to be altered permanently in many ways going forward. The pandemic has negatively affected many industries including the travel and hospitality industries. At the same time, numerous industries have benefited from the crisis as Covid-19 has ushered in a new lifestyle.

Humans have discovered the need for greater self-sufficiency while a new work-from-home culture has emerged. Many of these cultural changes are here to stay. Are we going to be better off in this new world? The jury is out…

* Published in print edition on 20 November 2020

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 *