Devaluation of the Fiji dollar

[posted 15 April 2009,1600]

The decision to devalue the Fiji dollar by 20% will create more problems than it will solve, says the Fiji Labour Party.

“Above all, it will undermine confidence in Fiji’s economy, deter investment and cause severe hardship to the poor,” Labour Leader Mahendra Chaudhry said.

The price of fuel will go up by 20%, so will the cost of all imported goods including staple food items such as milk, rice, flour and sharps, cooking oil, meat and canned stuff as well as everyday consumer products - increasing hardship for the ordinary people,” Mr Chaudhry said.

The cost of locally produced goods and services will also increase as an expected consequence of the devaluation. Agriculture and the construction industry will be hit particularly hard.

Devaluation will also substantially increase our debt servicing charges as more Fiji dollars will be required to repay loans denominated in foreign currency.

“If the real objective to devalue is to arrest the flight of capital, this would have been better achieved through tighter monetary controls already put in place by the Reserve Bank,” Mr Chaudhry said.

There is little substance in the RBF’s claim that devaluation was necessary to boost exports and tourism because the Fiji dollar had appreciated by about 20% since 2007 against the currencies of its major trading partners, Australia and New Zealand. This is not likely to happen in view of the already depressed state of these sectors.

Nor can one take any consolation from RBF’s claim that inflation will subside in the next 12 months. We all know that prices once they go up, do not come down.

The gains from devaluation, as claimed by the RBF, pale into insignificance in comparison to the devastating effects it will have on our economy and the lives of the vast majority of our people who will have to struggle harder to put food on the table and provide for other basic necessities of their families.