(Published in Weekly issue no 397)
In a recent interview in a local newspaper, Manou Bheenick , ex-MoF, Ex-BOM’s governor, the ex-Director of MEPD, the architect of Vision 2020 …. first of all pinpoints ( as we have highlighted before) the pre Covid-19 mismanagement of the economy by the Jugnauth/Padyachy duo - an economy “with runaway public deficits, growing external imbalances, disappearing reserves buffers, declining productivity and slowing growth”. He also emphasises the fact that “the fiscal/debt crisis was already here well before the last election and the outgoing government was well aware of it.”
And he is among the few who understand the colourable accounting techniques used ( à la Sithanen-Mansoor tandem during the Labour days) to hide the extent of the budget deficit and the public sector debt - “Why else would they have done Greek-style massaging of debt and deficit figures? Why else would they have resorted to the subterfuge of setting up off-budget Special Purpose Vehicles to channel large inflows, escaping all accountability and transparency, to undertake very large projects that they had waved through to be implemented in total opacity? “
For our readers, before proceeding further, let us first of all simplify the term “helicopter money”.
Helicopter money is free central bank money financing e.g. from Bank of Mauritius reserves, holding a perpetual govt bond whereas quasi helicopter money is repayable money financing e.g. , advances, lines of credit, taking and buying public or private debt or equity.
To provide a financial ventilator to get the economy out of the ICU, Sithanen has argued for free money financing so as not to raise govt debt. Bheenick, however, argues that debt concerns are irrelevant in the present context, hence we can use quantitative easing or quasi helicopter money as he considers that the debt metrics and other prudential guidelines that have been put in place will not apply under the present exceptional circumstances. He espouses the Central Bank’s financing of development projects, especially the safeguarding of lives more than livelihood.
But Bheenick does not rule out that the “taxpayer and the consumer, through direct and indirect taxes, and by suffering a dose of depreciation/devaluation, and rising inflation, will foot the bill in the final analysis.” He believes we can limit the damage by being more selective, moderate and transparent in our implementation of such financing and as an aside, he goads us to question the status quo in the sense of “the inherited inequities and the ownership concentration which overshadow our entire economic and production structure.”
In his intervention on a local radio today, the Minister of Finance(MoF) was not clear in his stand on the financial stimulus to reboot the economy. He seems to be still stuck in the “unknown unknowns”( a Donald Rumsfeld quote which he wrongly attributes to Blanchard). From the titbits revealed duiring the radio programme on the exit strategy that is being prepared by Government, it seems that all this sudden tumult about helicopter money has been pre-planned by sending some hand-picked economists to the frontlines to prepare the grounds in favour of CB's special efforts to buttress the economy. The MoF does not rule out such financing now that the debate is on and he even singles out the many advanced economies which have adopted in these exceptional times this rather controversial CB’s money financing. He cleverly adds that such monetisation, may be necessary with the expected chronic deflation facing most advanced economies with the impending recession.
This idea of helicopter money with the central banks providing zero-cost, unlimited funding to the government is more relevant and applicable in advanced and large economies, not to a small open economy like ours where ultra-loose monetary policy, whether helicopter money or quasi helicopter money, causes rupee depreciation and inflation.
In many countries, monetary finance has been a precursor of high inflation and while its proponents argue that the risks can be contained provided the quantity of such finance is controlled by independent central banks. With the recent appointments at our Central bank , can we trust our Central Bank’s independence on such a policy issue given the excessive money creation that will be needed ?
Why the excessive money creation? Despite a budget deficit higher nearing 7% of GDP and a public debt/GDP ratio of above 70%, they continue to be overgenerous with public money. And the private sector in this present elan of solidarity? In many countries workers are accepting pay cuts . We understand government helping the needy and the informal sector but meeting the salaries of the personnel of the private sector and full salary for civil servants with its lots of allowances when they have not worked for more than three weeks, that’s an exaggeration . Many workers have put aside enough of their pay to cover for unforeseen circumstances; so should businesses. Indiscriminately, bailing out the private sector is unacceptable !!!
As the NYU professor and popular podcaster Scott Galloway puts it “we need to decide whether the way forward is capitalism or socialism, because as it stands right now, businesses are benefiting during the good times and then enjoying a safety net during the bad”.
The authorities know very well that all these government handouts would further burden the economy and that all these social largesse, present and past, are not sustainable and with forecasts of public debt reaching 84% of GDP in 2020 and being classified as the thirst worst in Sub-Saharan, we stand the risk of becoming the basket case of Sub-Saharan Africa.
You understand now why they want to prepare and manipulate public opinion on helicopter money because such financing, without any impact on public debt and on the ratings from credit rating agencies, hides their economic irresponsibility. But nothing is for free. Watch out for the depreciation of the rupee !!!
