Folks, this is a very interesting article. Has some very good points. What Can We Do About the Dalasi? Email This Page Print This Page The Independent (Banjul) October 28, 2002 Posted to the web October 28, 2002 Ousman Manjang Banjul Bakoteh Layout October 2002 Free fall The dalasi's continued free fall is becoming a cause for growing concern for people of all walks of life and from all over the country. But with this, more and more ordinary people are beginning to grasp some elementary but basic lessons on how modern economies work. People who have until recently been trapped in the economy of subsistence and have had only little clue about the way money-economy works are now beginning to wonder about the mystery that shrouds money as a commodity, its role in the economy and the arithmetic's of its exchange ratios. As the fall of the dalasi is being increasingly perceived as the main cause behind all recent price-rises and soaring cost of living, the clamour for the arrest of its decline is growing rapidly. But can anything be done? Haven't we, our government, and its cadre of professional economists chosen the one and only path to economic prosperity, the neo-liberal, free-market and private sector-led option. Doesn't that choice inevitably wrest from our hands the duty and the right to do anything like controlling or regulating the most important commodity in the capitalist market: money. It seems to me that state intervention to stop the dalasi's fall would be a most heretic violation of one of capitalism's most fundamental laws, the one on supply and demand. According to conventional capitalist wisdom, the dalasi's value in relation to other currencies is the direct result of our collective economic efforts as a nation. It reflects the volume of our products and services that others are prepared to buy, in relation to how much we are ready to buy from others. The more we sell to, or the less we buy from people from other currency areas, the more the dalasi's value would appreciate. Vice versa, the less we are able to sell and the more we buy from others, the less the dalasi's value will become. It follows therefore that to keep the dalasi strong and rolling we need to produce more and make others buy our products and services. This fundamental law of national economics is straightforward enough. But it is when we begin to apply this law to the Gambian economy and its dalasi that the learning curve becomes difficult to overcome. In fact the harder we look at it the less we find this law applicable to Gambian realities. First as a nation of re-exporters, the value of our currency depends significantly on not what we produce, but what others do which we are able to import and re-export to other neighbouring countries. Secondly, the favourable rains of recent years and the bumper groundnut harvests that followed ought to have helped the dalasi appreciate, or at least to be stable; not to come tumbling down as it has been over the last six months or so. After the coup in July 1994, everyone expected the dalasi to take a nose-dive down the doldrums. Luckily that did not happen. Attempts at explaining this are still only speculative and on the whole unconvincing. The dalasi seems to be defying all logic: when expected to depreciate it goes up, when it should appreciate it goes down, as it is doing now. What is going on? Some of us have been prompted to ask. To have a clue, we may have to go down memory lane a little. Inevitable turn-around Though at the time of the military take-over in July 1994 The Gambia's reserves could cover an impressive five and a half months of import, everyone knew a turn-around to the worst was inevitable. Our re-export activities , which then accounted for about 80% of our exports and 35% of imports, were severely affected by the suspension of repurchases of CFA franc notes outside the CFA zone in August 1993, accompanied by a tightening of border control by Senegal and a substantial devaluation of the CFA in January 1994. Poor rainfall and the confusion surrounding the sale of the Gambia Oilseeds Processing and Marketing Company to Alimenta was plunging the groundnut sector in to serious crisis. The radical militancy of the early days of the 1994 coup itself plunged the business community into near paralysis and there was significant slow-down in economic activity. Rumours of impending shortages rattled both government and consumers into panicky measures that began pressing prices high. The donor community cut off almost all aid and left the new military government with almost no external resources. To make matters worse acrimonious travel advisories were being issued by some foreign governments and tourist arrivals dropped down by half in the 1994/95 tourist season. Decline in tourist-related services followed automatically. An arbitrary style of rule and general instability led to political and other uncertainties that in turn sent ripples through the economy slowing down growth and even causing reversals in a number of key economic indicators. Real GDP, which had recovered substantially in the 1980s and early 1990s dropped by more than 4% in 1994/95. Government revenue also tumbled by more than 5% under the period 1994/95 through 1995/96. By this time however, both domestic and international pressures were mounting for a return to civilian and democratic rule. Perhaps to prepare itself, by making itself more electable, Government resorted to a spree of public expenditure that was very popular at the time but that made little economic sense, given the gloomy economic background. Expenditure increased to about 30% of GDP by the end of 1996. Overall deficits, excluding grants, grew fourfold; domestic debt doubled, reaching 24% of the GDP by the end of 1997 and broad money growth multiplied as Government resorted increasingly to domestic banking for the funding of its activities. Not withstanding all these, however, the dalasi dwindled only a little and remained fairly robust, to the great surprise of many. Few could explain this. Some believed it was due to the growing volume of remittances by the swelling overseas Gambian communities, others the strength of the pre-coup economy, while still others resorted to weird magical explanations. Then the 1996/97 elections came and went. The military AFPRC-regime changed to the civilian APRC government. Old wine in new bottles? Not completely so, as we shall see. Wooing the donor community With the coming in of the new government in early 1997 there came what seemed a new official policy of arresting the economic decline and improving relations with the donor community. The donor community were to be wooed over by reforms in the controversial area of governance. The new regime soon heralded important changes in Government's policy framework. The framework was developed in a series of UNDP supported workshops on good governance and public administration. The programme worked out included components such as: local government reforms; review of constitutional and electoral processes; promotion of civic education and strengthening of parliamentary structures. Though the implementation of the programme has been somewhat one-sided, Government's declaration of intent alone got a number of important doors opened. Government entered an Enhanced Structural Adjustment Facility (ESAF) arrangement with IMF in August 1998. Remarkable progress was made in reducing macro-economic imbalances. A number of institutional and structural reforms were carried out and the fiscal regime was tightened vigorously. Following the usual IMF dictat the Gambia's trade policy was further liberalized, reducing tariffs by down to 17% from rates that were as high as 93% and cutting the tariff bands to less than five from thirty-six. This, according to many, helped boost the country's competitiveness. Furthermore, moves were made to strengthen the national accounts and to improve price, monetary, customs and balance of payment data. In efforts aimed at bolstering private sector participation new laws were introduced to strengthen the supervision of financial institutions and monetary policy operations. A new regulatory and privatisation framework was established and plans were started for the setting up of a one-stop investment centre and an export-processing zone. Inflation was managed below 4% a year and both exports and imports recovered. External balances improved with reduction in the current account deficit and international reserves started to grow again. The real GDP growth was increasing to nearly 6% and gone were the fears of imminent economic collapse and that the state might not be able to pay salaries. Confidence in the economy was growing again and this could be seen in the boom in private construction and rise in private consumption. Shooting it's self in the foot By the third quarter of 1999, Government began spoiling things for itself, or shooting it's self in the foot, as some will say. In a rash move, it seized property belonging to the Gambia Groundnut Corporation without any compensation accusing the company of sabotage and money-laundering. Alimenta, the Swiss owners of the corporation took the matter to the International Centre for Settlement of Investment Disputes. In 1993 the previous PPP-regime had sold the Gambia Oilseeds Processing and Marketing Company in a privatisation exercise that was done with little transparency and without any support mechanism for Gambian farmers and the agricultural sector in general. In an effort to right those historical wrongs or as some belief, in a crude effort to use the company for its own political gains, the new regime had gone and ruffle the feathers of one of the biggest players in the world of groundnuts. Since then, Gambian farmers have been without any sure and certain market for their nuts. As if the damage was not sufficient enough, Government turned around to fumble with the next "best" thing that was around. This happened to be the re-export trade, which together with tourism, the groundnut trade and foreign aid, are the four main pillars of the economy. So at around the same time of the Alimenta debacle in 1999, Government introduced the Pre-shipment Inspection Programme (PIP), to everybody's consternation. Not only was the programme introduced at a bad time, but the awarding of the contract was done without competition and not enough time was allowed for adequate preparations. Clamour from the business community and a vociferous public outcry could do little to stop a headstrong government from doing what it was hell bent on doing. In less than three months loss of custom revenue was reaching about 1.5% of GDP. Well up to about nine months into the programme, Government was refusing to admit its mistake and by the time the programme was quietly stopped in September 2001, substantial damage had already been done and it was almost already late. By this time, when the lessons of the PIP's failure ought to have been fresh in the mind of the authorities, government once again decided on another non-competitive award: this time the mobile telephony operations, 80% of which was privatised in violation of a contract with Alcatel, a long-term telecommunications collaborator. It was not until April 2002 that government was forced to rescind on this affair. Then in July 0f 2001 Government surprised everyone with the introduction of new D100-bills, claiming that it was in response to requests by the business community. Few knew who those businessmen were, when, how and where they had approached the authorities to make known that their requests. What Government can do True, over the last year or so, the whole world's economy has been experiencing what looks like a slow-down, if not a downright recession. Many countries, especially so-called developing ones, are currently in the throes of some serious economic difficulties. But a good deal of what is now happening to the Gambian economy seems to me to have been self-inflicted. Damages to national economies can be done easily and rather quickly, but once they are done, some damages can take generations to rectify. It is therefore important that policy-makers go about their business with utmost care, discipline, transparency and patriotism. Proposals, before they are adopted as policy, must be subjected to thorough, all-round and critical scrutiny. Policies, once adopted, must be followed with religious fidelity. There is no point drawing a budget that will not be adhered to. The whole policy-making process must be transparent enough to allow inputs from citizens and above-all as a mechanism against corruptible and other "non-economic" influences. True also that The Gambia is and continues to be one of the least developed countries of the world. On top of this is the fact that the country is of a small size and very scarce resources. The foundation for all the pillars of our economy lies on very shaky grounds. The rains decides our harvests, foreign tour operators determine the number of arrivals, the volume of our re-exports depends on the temperament of neighbouring custom officials, and the level of our earnings on the mood of the donor community. Only long-term strategies, enlightened and dedicated governance and the participation of the broad masses of our peoples can make any significant difference. Meanwhile, our policy-makers continue to act like hostages of international financiers, the donor community and the two Brettonwood institutions, the World Bank and the IMF. Other than the rains, it is these two institutions that really rule the Gambia, like most other African countries. The line has been drawn in the so-called Medium-term Economic Framework. Its landmarks are the PRSP, the HIPC initiative and PRGF programme. Nevertheless, the little room left for Government to manoeuvre, if properly utilised, can go a long way in arresting the current economic decline and even helping to eradicate some of the worst facets of mass poverty in The Gambia. As far as saving the dalasi is concerned, Government can take the following short-term measures: ?Revamp currency exchange sector, by stricter control of the parallel market, closer monitoring of its activities, and weeding out of unserious vendors. ?Temporary ban on official purchasing of expensive vehicles; luxurious and non-essential goods; military wares, etc; ??Revitalise groundnut trade by widening marketing outlets. Temporary transformation of embassies and other diplomatic legations into groundnut selling missions to boost up foreign earnings. ?Curtail publicly paid overseas travels. ?Temporary government intervention, if not take over, in the management of fishing companies with a view of intensifying the marketing and export of high value fish and other sea-food products in a sector where returns and come quick and big. ??Run a promotional campaign for the export of horticultural products by using diplomatic offices to scout for markets, simplifying export procedures, and pressing down freight costs. ??Introduce fuel rationing for non-essential, luxurious and private motoring. And introduce less expensive and more environment friendly fuel like our groundnut oil as alternative to gas oil. Remember the first diesel engine invented by the German Mr. Rudolph Diesel was fuelled with groundnut oil at its first run in the Paris World Fair of 1900. ??Launch sensitisation campaign for custom officials, airport and other border-post officials and the general public on the need for the promotion of exports, hassle-free import/export procedures and the horrible consequences of corruption. I am not saying that these are by themselves any guaranteed or even suitable solutions to the dalasi crisis. But they have a common underlying suggestion behind them, one of urgency, originality and, above all, the spirit that Government ought to, and can do something, about the dalasi, for the sake of Gambians. _________________________________________________________________ Protect your PC - get McAfee.com VirusScan Online http://clinic.mcafee.com/clinic/ibuy/campaign.asp?cid=3963 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html To contact the List Management, please send an e-mail to: [log in to unmask] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~