South Sudan accession to EAC: The safer paths out of our wartime economy–Part 2
By Mayen D.M.A Ayarbior, Juba, South Sudan
September 1, 2015 (SSB) — In the previous article we have argued that the IMF, World Bank, and Troika’s “order” to South Sudan for the country to devalue its already valueless pound could be the final stroke that will destroy our economy. Once currency devaluation is undertaken in compliance, then the chain that is dragging inflation from running away shall inevitably be broken and the country will leave Zimbabwe way behind it in terms of inflationary gaps. That seems to be the final recipe (grand conspiracy?) for luring the starving and angry populace of S. Sudan to the streets shouting “Kiir must go!” and state collapse becomes a reality as chaos (greater chaos) reigns, other forces intervene, and militias become independent actors preying on the vulnerable.
History, in its political economy recounting, teaches us that rarely have developing countries closed their gaping budget deficit by applying currency devaluation, especially when they were entangled in war time crises. In our circumstance, it is practically the state selling its dollars in the black market to get more pounds as a means of paying for its internal responsibilities. Given the fact that this is the case, printing more pounds (America calls it quantitative easing) could be the only temporary, logical, and safer solution until an essentially structural one is soon found.
Since after World War 2, as the Keynesian theory became the foundation of fiscal and monitory policies, all economic blueprints in the world prescribed expansionary and contractionary monetary policies for closing inflationary and deflationary gaps. Expansionary simply means, inter alia, a process of pumping more money into the economy when depression (slowdown) is detected, while contractionary means retaining more money at the central bank when inflation (rise in price levels in the market) is detected. Devaluation, on the other hand, which could also be temporarily solved by expansionary policy, is necessitated by a completely different phenomenon related to international trade (adjusting a country’s negative or positive balance of trade), not because of a budget deficit, which is exclusively internal.
I was informed (if not unnecessarily challenged) by some learned compatriot who read my previous article against devaluation to find a “sustainable” solution, instead of “just talking against an available one”. They argued (out of knowledge) that our friends are not willing to bail out the country through loans, since they have no guarantees for getting their money back as we are still fighting and the price of oil has dropped. While there is no space and time to research and prescribe that solution, it shouldn’t be rocket science for our high-placed economists to see that our wartime economic crisis is both contextual and structural. The solution must thus be contextual and structural too!
A very brief outline of ‘the’ solution is as follows: In terms of the contextual insight, the current wartime realities must be treated as temporary, while some exploitable economic opportunities are in the country’s acceptance into the East African Community (EAC). EAC is a community including some of the fastest growing economies in the continent like Kenya and Rwanda, which are capable of providing goods and services to the new market of S. Sudan until it stands on its own feet. Accession to EAC will solve the major problem of availability of goods, while we find solutions to the problem of prices, if we continue to be skeptical about an established fact that market forces and competition will always find a price equilibrium (see my 4-part article on EAC).
In terms of the structural element, this is where the role of the international financial institutions (IMF, World Bank) and Troika are relevant. Back in the days (60s to 90s), before the economic rise of China, India, Russia and emergence of the now growing African Development Bank (AfDB), the west had used carrots and sticks when dealing with African countries. For example, they asked poor countries to remove subsidies on agricultural production, fuel and schools as “conditionalities” for financing big percentages of these helpless African countries’ budgets. They have since tried hard to change that approach, but it seems not with S. Sudan.
They have also asked (ordered) African countries to devalue their currencies as a structural means to improve their balance of trade. While that was relevant, since it related to international trade, it also entrenched an old colonial design of such trade where the prices of essential industrial raw materials found in Africa are hundred times cheaper than the manufactured final goods sold by industrial countries. However, to offset the huge negative effect absolute devaluation would have had on their economies’ competitive advantage, patriotic sub-Saharan African’s decided to shoehorn absolute devaluation into nominal devaluation through adding three zeros to their currency denominations. Hence, the main currency denomination in Kenya, Uganda, Tanzania, Nigeria, etc. has since been “one thousand,” as opposed to Arab North Africa where “one pound” remains the main denomination, including in Sudan (Khartoum).
If South Sudan fails to get deficit finance from China, Russia, AfDB and rich Gulf States, and as a result capitulates to such weird prescription as coming from the west, then a financial and currency structural transformation which was supposed to be done in 2011 should now be undertaken in 2015/2016.
Knowing that it was going to join EAC, South Sudan’s choice of the ‘one pound’ denomination was opposite to that direction to EAC. Whatever rational the country’s economists and political revolutionaries have had, adopting a one pound currency denomination, rather than one thousand as in EAC, was wrong. To get back on the right track and offset a possible economic collapse, and knowing that SSP is on its dying bed, SSS (South Sudanese Shillings) at a devalued rate per one dollar is “the” only structural solution out of this economic crisis. For citizens to cope with this structural financial transformation of the country’s economy, salary levels shall be adjusted in similar percentages, and the market will find its own price equilibrium as we reduce tariffs and open up our borders for manufactured goods.
By doing so, not only will the country have accepted currency devaluation, going up from 2.96 unit per $1 to whatever level (e.g. 4, 5, or 6 units per $1) as prescribed by its longtime friends in the Troika, but it will have also undertaken a very positive (sustainable) structural adjustment of its financial sector in alignment to what is the norm in EAC.
Now, can the IMF, World Bank, and Troika help us print our new currency as they can do that in weeks? We might not need a new design but just add three zeros to the current SSP and change the name to SSS. I am sure some complicated conspirators will try to convince our authorities (if at all they get time to read this article) that it is not as simple as that, debasing all the logical and patriotic arguments herein outlined.
China, Russia, India, Brazil or even South Africa could help us (paid for later) print out the new SSP, if our good old friends insist on their fatal economic prescription. The world has changed and all is not lost.
Mayen Ayarbior, BA Econ Poli. Science (Kampala Int’l Univ.), MA Int’l Security (JKSIS- Univ. of Denver), LLB (Univ. of London). mayen.ayarbior@gmail.com.
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