Sweeping Devaluation Version 2 -2017
Propelling the
Wheeler-dealer Speculative Trade Regime & a Predator Parallel Currency Markets
into a Whirlwind Tailspin
Public Lecture - RL
Vol. XI No. CCCXCIII, MMXVII
Costantinos
Berhutesfa Costantinos, PhD
Professor of Public Policy & Sustainable
Institutional Reforms
Abstract
Once again, the Birr has seen a round of devaluation,
shearing off 15% of the purchasing power vis-à-vis other currencies, driving
the parallel market from 1$ to 27 Birr to 30+ Birr and meteoric rise of prices
of goods in stock. Birr has had two drastic & numerous stealth devaluations
since the 90s but the nation is still unable to improve its balance of payments;
hence, the assumed actions of the state for more devaluations to right this
evil. This lecture argues that devaluation alone may not prove right, as aggregate
supply suffers after devaluation because of more expensive imported production
inputs, wage indexation and costlier capital.
Further, Ethiopia’s trade performance has been held back by a recipe of
factors that require macro policy therapy: high trade costs, onerous red tape, baffling
macroeconomic framework and policy mix ups that seem with reach, only elude, appears
manageable only to resist realisation. Only targeted structural transformation
and regional cooperation, juxtaposed to trade-friendly macroeconomic policy and
financial reforms would, if properly sequenced, enable it to use its abundant
factors of production.
The panacea for its persistent balance of payment deficit
and debt unsustainability is import substitution of food products by production
of cereals (wheat, maize, barley malt etc., edible oil, sugar, fertilizers and
other items) that are draining the nation billions. Ethiopia has 72 million
hectares of arable land and its river drain 122 billion cubic meters of water
out the nation. With proper policy and strategy, this can be and must done.
Imports part of the value chain of domestic production (machinery, spare parts,
raw material, etc.) for exports have a high import gist; devaluation badly hurts
their competitiveness in foreign markets. This can be ascribed to poor
governance and fragility of states. Economic governance involves improvements
in the technical competence and efficiency under a more accountable,
transparent and predictable public domain, whose missing links point to the dismal performance of states. While its
economic performance is invigorating, Ethiopia faces predictable armour of
trials rife in poor nations with too few wherewithal, while also wrestling with
the perpetual glitch of sequencing policy reforms, all subject to doctrinal
reins. Given the slim margins for manoeuvre imposed by a complex knit in its governance
fabric, getting the priorities right are the central issues to be addressed.
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