Central Bank Governor, Koryom Mayik, Revokes his Parity Decision on the Exchange Rate
The government Chief Whip, Atem Garang: “Mr. Speaker, the governor declared the devaluation of the currency after we have just passed the budget, and this was supposed to be before the budget so that it is reflected in salaries and the rest that is in the budget. And as such, since it is going to affect the budget and affect the lives of our people, the bank of South Sudan is supposed to revoke the decision now.” Former Minister of Water & Irrigation, Paul Mayom: “Mr. Speaker, the declaration of the governor on the 11th Nov. made several children and mothers to go hungry, and went to beg hungry. These families could not afford to buy food yester-night. I want to request the governor to ask the board to suspend the order immediately.” Governor Central Bank, Kornelio Koriom: “Honorable Speaker, I have listened and I have followed very closely the decision of the house, and I respect it. This is the will of the people, and surely we cannot do it otherwise. We shall immediately revoke it.” via Danis Doggiee of the Eye Radio (Facebook).
By PaanLuel Wël
November 13, 2013 (SSB) — On Monday (Nov. 11), BOSS Governor, Kornelio Koryom, declared his harmonization policy by raising the exchange rate FROM 2.96ssp/dollar–Central Bank, 3.16ssp/dollar–Commercial Banks, 4.40ssp/dollar–black market TO 4.50ssp/dollar–Central Bank, 4.6ssp/dollar–Commercial Banks. Governor Koryom justified the parity decision thus:
It will lower short-term exchange rate volatility, provide more reliable access to foreign exchange by the business community and members of the public and help to build buffers for the economy to deal with unanticipated shocks”.
As a result, the black market rate shot up, hovering between 5.7-6.0ssp/dollar. Food prices and cost of construction materials soared; long lines of cars and boda-boda at the petrol stations, with bus and boda-boda fares skyrocketing.
South Sudan, being an importing nation (we import literally everything including cooks, dish washers, waiters and even grave diggers, while we export only oil and it is highly unreliable), the inflationary effect of the parity decision was a foregone conclusion, no matter how good-intended the decision might have been.
Today (Wednesday, Nov 13), after the governor was literally dragged before Parliament (the guys were furious as hell), he revoked his decision declaring that:
“I have listened carefully to the house and i respect its decision. This is the will of the people. We shall immediately revoke the decision.Secondly, I and the Minister of Finance will appear here [before you] next Monday.”
In retrospect, the harmonization decision–harmonizing the official rate (bank rate) with the unofficial rate (black market rate)–was not only unsustainable but it was not actually benefiting anyone.
To be a little bit charitable to the Governor, the parity decision might have been meant to rid the country of the parasitic forex bureaus (owned by none other than those within the Central Bank and the government) that had been exploiting the differences between the official and the unofficial rates. These Forex Bureaus, together with commercial banks, are given around 50 million dollars a month to be given to the public at the rate of 3.16ssp/dollar.
But what do they do instead? The money bureaus give out only 10% of the amount and take the 90% to the black market where it fetches 4.40ssp/dollar. This is how millionaires are minted in South Sudan. Within a year, these thieves would be strolling in V-8, smiling all the way to the bank–Central Bank.
If Governor Koryom’s harmonization policy was intended to put a halt to this loophole, then he was damn wrong because to set the bank rate at par with the black market rate would be to assume that the black market rate is somehow fixed, which is not the case.
The black market rate is driven by the market forces of Demand and Supply. So long as there is more demand for the dollar than the supply can quench, the black market rate would, more often than not, ratchet up to fill the void. For the Central Bank to control the market, it must be ready to supply the quantity of dollars needed each day, 24/7/365.
But that is not possible, because dollars are not printed in Juba town. For Koryom to get enough dollars, South Sudan exports must exceed imports so that there is surplus of dollars.
But we are an importing nation, thus, there is, and will continue to be, shortages of dollars from the Central Bank. This is where the black market guys come in, to do the dirty job left undone by the Central Bank, but at a price/profit, thus the higher their rate. This is market at its best.
The only thing that the decision was bound to bring about was the inflation–increase in prices of all consumer goods and services. But fortunately, inflation touches the BIG FISH in Juba.
And courtesy of the BIG FISH, the decision has been reversed, with immediate effect and with possible repercussions on the governor and possibly on Aggrey Sabuni, our Finance & Economic Guru. What were they thinking/smoking?
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