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by
Ephraim Munthali, 02 May 2006
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06:35:18
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Weak kwacha for whom?
Finally, government has succumbed to pressure from the International Monetary Fund (IMF) to devalue the kwacha, apparently to help Malawi boost export revenue. But is it in the country’s interest to weaken the currency?
A weak kwacha means the local unit cannot buy as much forex as it once did, having lost its value against major foreign currencies. For example, K15 used to buy US$1 10 years ago but today you need K137 to acquire the greenbuck. My take is that the Malawi economy is too fragile to support and benefit from a weak local currency.
The country needs a strong currency to finance its growing appetite for foreign goods from the international market—at least until we reduce our dependence on imports and are able to produce enough to meet local consumption needs and the export market.
A resilient kwacha is also a must for the country to attract the much needed investors and to reassure them that their assets are safe and profitable in Malawi. The least we can do is to keep it stable so that investors can have confidence in it.
Proponents of the weak currency strategy—most of whom have been brain-washed by free trade gospel preached by the World Trade Organisation, World Bank and IMF—argue that a weak kwacha is the only path leading to riches through increased exports.
They cite China—the world’s fastest growing economy currently threatening to overtake the United States—as one country with an edge on the global market because of its competitive currency, deliberately devalued to make yuan financed products cheaper.
But then, Malawi is not China. For starters, the latter has a solid industrial base backed by advanced technology and manned by an equally sophisticated labour force.
In short, China first sorted out her internal problems to pave way for the growth of its manufacturing sector and encouraged its one billion population to buy locally produced goods.
Thus, Malawi needs to build its internal market first before trying to lure global consumers, especially when her citizens’ hunger for foreign goods keeps growing.
Our current macroeconomic environment—characterised by high interest rates, runaway inflation, galloping transport costs, an inefficient civil service and corruption—does not sound supportive enough for the country to produce goods and services that can compete both locally and globally, with or without a strong currency.
By adopting this policy, we have pleased the IMF and its partners well enough to qualify for debt relief. But I fear that if the exports the weak kwacha is supposed to boost are tobacco, tea and sugar, then we could be in for a currency crisis that might send the economy tumbling unaided down hill.
When that happens, the IMF will be there, waiting with new loans “to bail us out.” The truth is they enslave us.
—Feedback: ephmunthali@yahoo.co.uk |
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