Is devaluation the panacea for an ailing economy?

[posted 1 Apr 2006, 1430]

Opposition Leader Mahendra Chaudhry warned that Fiji may be forced to take strong monetary measures soon in view of the critical state of the economy. 

“The UNESCAP report released yesterday supported our concerns that the economy was in a critical shape with low investor confidence, sharply declining exports and increasing debt burden,” Mr. Chaudhry said.

The report makes it clear that Fiji’s economy is now simply sustained by external factors such as tourism and remittances. The Reserve Bank has already been forced to impose monetary controls in a bid to control the situation.

“If the negative trends continue, the Bank will have no choice but to devalue
Fiji’s dollar and tighten up on exchange control regulations by June this year,” Mr. Chaudhry warned.

Fiji’s Foreign Reserves are sinking fast faced with declining exports and high imports. At December-end, it had sunk to a mere $822m, capable of buying less than 3 months of imports and services. This compared with reserves of over $1billion a year ago.

Mr. Chaudhry said despite these facts, the Prime Minister continued to hoodwink the nation with claims of a 5% growth in the economy and investment levels at 17%.

“This is sharply contradicted by the ESCAP report which puts growth this year at well below half the figure quoted by the PM and investment levels “at far below 5% of the GDP”, hardly sufficient to create enough jobs to cater for the young people entering the work force each year,” the Opposition Leader said.

“If this government returns to office, it will mean bankruptcy,” he warned.

Mr. Chaudhry also questioned Mr. Qarase’s claim that “the average recent economic growth of 3.5% had been the highest for 20 years”.

“Mr. Qarase is deliberately overlooking the fact that under the People’s Coalition Government in 1999/2000 the economy had grown by 10% in just one year.

“This was a remarkable achievement by any standard, and completely unprecedented,” Mr. Chaudhry said.