There may be
some sense in the theatricals of the Directors of our prestigious Central Bank
(CB) -- making their show on the pavements of our Wall Street. But with a
Deputy Governor leading it, it was much more than third-grade street drama. Et tu Brute, you seem to be leading the wrong
flock of monetary policy neophytes who have morphed into potential sources of
conflicts and giving rise to substantial governance issues -- the very ones who
supported by their high-command are convinced that they have enough of angst to
display it publicly. The former governor of the Reserve Bank of South Africa
Tito Mboweni disagrees and he reminds us that “central banks are special institutions,
almost as special as the judiciary, and their independence must almost be elevated
to the same level as that of the judiciary.”
As for the monetary policy stance, credit to the private sector has been comatose especially for the credit-starved small businesses. They were many who did not have much faith in the Stimulus Package and doubted the claims that it will shore up our economic performance by 1.5% given the absence of any transparency on the methodology used to arrive at such a figure. Both the IMF and the Economist Intelligence Unit (EIU) believed that the Stimulus Package was a big futile gamble. “There is the danger that the measures will not be effective in protecting a small open economy from the effects of global slowdown.” Thank God, as confirmed by the MEF’s survey, our local enterprises were spared the full brunt of the crisis.
Purchasing power –Rs 420
Et tu Brute,
you stand the risk of falling between two stools and became an easy target for
assertions that your position lacks coherence. Meanwhile our preoccupied, but
more aggressive Caesar, is calling the shots and emerges unbruised as an
institution-builder sparing no efforts in “making the institution more visible and
understood”, striving
to “uphold the
Bank’s credibility” and
permitting himself to advise others, who should be lending their ears, that it
is time to bring in measures to counter the low and falling savings rate. Second fiddles are an interesting breed: they spend too much of their
valuable time trying to see through the fog that seem to cloud their minds.
Instead of indulging in such gimmicks, they…
Yellow Fever
The yellow metal’s magical and mythical qualities were on full display
last week. Our Bank of Mauritius joined the central banks of China, India,
Mexico, Russia, Sri Lanka, Kazakhstan, Venezuela and the Philippines, among others,
in choosing to boost its reserves of gold in preference to the
dollar-denominated securities. Because risk aversion has returned and worries
about banks solvency and the volatility of the dollar have resurfaced, physical
gold is the safest haven of all. A veritable chorus of policymakers in
countries running current account surpluses has declared that the reserve
currency role of the dollar is unsustainable. Gold is a good anchor and hedge
to have in these volatile circumstances.
Gold has
jumped 27 percent this year in Dollars and Yuan, 31 percent in Roubles and 22
percent in Euros as investors sought to diversify their holdings. Since the
yellow metal has been on a tear since end November last year, central banks
which typically buy U.S. dollars to store their foreign exchange reserves have
had a growing taste for gold which can be seen as the latest sign that the
greenback's status as the world's sole reserve currency is in jeopardy.
It is true
that gold accounts for just 3-4% of the central banks’ total foreign exchange
reserves. Why? Whereas stock markets and commercial banks hate gold because it
represents competition for your investment dollars and savings and because they
can’t make any money on it, it is more logical for central banks to shift toward
holding a basket of currencies in their reserves, including currencies of some
emerging markets -- i.e. to diversify into some tradable currency. The choice
by central banks to diversify away from the dollar by using gold rather than
other currencies is partly a bet that interest rates around the world will stay
low for a long time. But it also reflects central bankers' growing distrust of
all paper currencies, not just the dollar. “The growing anxiety about all paper currencies is a reaction to the enormous
amounts of debt that many countries have assumed in order to recapitalize their
banking systems and pull their economies out of recession.” But as soon as there are signs of
economic normalcy - which would include credit markets starting to function
more smoothly, somewhat healthy economic growth, and labour markets starting to
tighten -- gold prices will be coming down.
But
before the return to greater stability worldwide, our flirtation with gold at
$1,200 would have been a fruitful one even if we would have been a wee bit
wiser had we opted for Palladium not Platinum. The loss of investor faith in
the paper currency is adding to the rise in gold prices. The dollar’s fate is
predicted to get worse as the U.S. continues on its borrowing binge bringing
its total liabilities close to about $60 trillion. Gold meanwhile will continue
to be the favourite.
Central
banks are not known for their investment acumen but the new kids on the block
have grown wiser. Bloomberg of the 16th December notes that “central banks, holding about 18 percent
of all gold ever mined, are expanding their reserves for the first time in a
generation as a nine-year bull market drives prices to a record”. Exceptional times need exceptional
measures. And our CB against all odds has chosen to stand up to be counted
among the exceptional ones, the new kids on the block.
Joint
Management of Tromelin
Instead of a Franco-Mauritian agreement (a proposal from Edouard Balladur to Sir
Anerood Jugnauth in 1994 - courtesy of Week-end dated 13 Dec 09) on Tromelin we have now the new
proposal of an agreement for the joint management of Tromelin.
Tromelin has
an Exclusive Economic Zone (EEZ) of
280,000 square kilometres (110,000 sq miles), contiguous with
that of Réunion
and such joint management allows France to claim an Exclusive Economic Zone
(EEZ) of more than 200 nautical miles around each of the small islands in the
Îles Éparses, which together with the EEZ claims for the islands of Réunion and
Mayotte a total more than one million square kilometers in the western Indian
Ocean. Is that all part of our strategy and concomitant “windfall gains” of our quiet diplomacy? Our Big
Brother of the IO-Rim countries who is watchful to the strategic moves in the
Indian Ocean is not so happy about this. What about our comrades on the left,
especially the MMM Foreign Affairs Spokesperson who was so voluble on the Bank
of all banks’ saga but strangely quiet on this important issue that will see
the visit on Tuesday of Mouchel-Blaisot, administrator of the Terres Australes et Antartiques
Francaises (TAAF)? By
then, there should be some solid reactions from our comrades.
Stimulus Package Demystified
The rap on the Stimulus Package has come from the recent report released
by the Mauritius Employers Federation on the impact of the global economic
crisis on the local enterprises confirming what we had been saying in these
very columns - it seems that we have administered the wrong medicine to the
wrong persons. We were also doubtful on the quantum that has been doled out to
the sunset industries and the big companies. In the midst of the crisis,
requests for funds had already stopped and whatever had been dished out were
being used mostly for recurrent expenditure, and barely Rs 150 millions have
been spent from the Savings and Recovery Fund. The MEF’s survey confirms that
only 11.7% of enterprises have sought financial help from government and banks.
In fact the Stimulus contribution has been relatively modest if not
insignificant and crediting it for having preserved that many jobs is not
serious.
How can we know for sure whether a job would have disappeared were it
for Stimulus money? How to distinguish or strip out jobs that could have
continued to resist anyway? What was the methodology used to come with the
figures on the amount of jobs saved ? Both in terms of fiscal and monetary
policies we have shown that they were not expansionary but contractionary. The
budget deficits without the creative accounting that was masking the dismal performance
of investment in physical and social infrastructure had come down from -4.3% of
GDP in 2006/07 to -1.2% in 2007/08 and 2.1% in 2008/09. The actual figures of
public sector investment as a % of total investment and as a % of GDP show a
marked decrease.
|
%
|
2006
|
2007
|
2008
|
|
Public Sector investment to total
investment
|
31.7
|
20.5
|
15.5
|
|
Public Sector Investment to GDP
|
7.7
|
5.5
|
4.2
|
As for the monetary policy stance, credit to the private sector has been comatose especially for the credit-starved small businesses. They were many who did not have much faith in the Stimulus Package and doubted the claims that it will shore up our economic performance by 1.5% given the absence of any transparency on the methodology used to arrive at such a figure. Both the IMF and the Economist Intelligence Unit (EIU) believed that the Stimulus Package was a big futile gamble. “There is the danger that the measures will not be effective in protecting a small open economy from the effects of global slowdown.” Thank God, as confirmed by the MEF’s survey, our local enterprises were spared the full brunt of the crisis.
|
% Growth
|
Q3-08
|
Q4-08
|
Q1-09
|
Q2-09
|
|
Credit to Private Sector
|
4.1
|
7.9
|
0.1
|
1.5
|
Purchasing power –Rs 420
Resilient Mauritius promised a theoretical trickle to the teeming base
of a bent cone - the famous trickle down theory. But very little seeped down.
The public has seen through it and they do not like it and they are saying so,
they say it is 420-Char Sau Bees! Some prices are already going through
the roof and the poor cannot afford them; there is a complete disconnect
between the leaders and their flock. Beware of the fury of the patient man! His
purchasing power is continuously being eroded. Over the past four years, the
inflation rate cumulatively added up to around 35% and workers have been
compensated cumulatively by only 17 %, resulting in a loss of purchasing power
of around 19%. The loss of purchasing power is drastically hurting all classes.
Both the indicators on savings and consumption reflect to some extent
this deterioration in households’ standard of living. Gross Domestic Savings
has remained at 10% of GDP while the growth of consumption by households has
continued to decline from 7.8% in 2004 to the estimated 3.0% in 2009. Even
imports of goods are being affected with an estimated negative growth of -13%
in 2009 compared to a + 5.5% growth in 2005. In terms of the distribution of
the national cake, we are not surprised that workers are getting a lower share
and the situation is even worse for the lower strata of our society given the
meagre salary compensation awarded to them. And moreover the debts of
households have increased without a consequent improvement in their standard of
living.
|
% of GDP
|
2005
|
2008
|
|
Compensation of Employees
|
37.2
|
36.0
|
|
Gross
profits
|
49.5
|
51.4
|
