Safer Paths Out of our Wartime Economy (Part 7): Markets Stumbling on the Brink
By Mayen D.M.A Ayarbior, Juba, South Sudan
December 18, 2015 (SSB) — The main argument for adopting a floating exchange rate is that market forces are better at determining the optimum price of a commodity. This is half the truth because the other half is that government interventions are part of the market forces. In essence, it (intervention) is the main force and pivot around which internal markets rotate and foundation on which prices are based.
Market outputs, commodity availability, and price levels (inflations-deflation) within nation states are consequences of government macro and micro economic policies. They (markets) do not arrive at price and commodity equilibriums in isolation of government driven local production inducements such as customs, taxation, tariffs and many other relevant economic policies. Hence, in essence, economic terms such as free markets and floating exchange rates do not practically connote what they purport to be.
If we hold the explanation above true, then it would be safe to assume that floating exchange rate is a misnomer. Considering that a country’s currency is its most strategic resource, the ‘floating’ referenced in the phrase does not occur at the open market place where the forces of demand and supply freely operate. It (floating) occurs within the Central Bank and Ministry of Finance in form of prudently and honestly considering all market factors relating to the value of a country’s currency, such as balance of trade, production, inflationary gaps, etc. before ‘deciding’ the optimum rates.
It would be a serious misconception to perceive that exchange rate floating independently operates in the open market place just like any other commodity. For a country like South Sudan where internal markets (roads and value addition industries) have not yet been created, it is expected that market distortions could always intervene to upset market equilibrium. The fall of the USD rate from 18ssp to 9sps in one day, when the President signed the peace agreement, is an example of such distorted market rates.
Raising the incomes (salaries) of some government employees designated as “low income” groups has been advocated by government as one effective means of offsetting the negative effect of high inflation. Considering that such groups may constitute only government employees, it is still unclear how the vast majority of citizens (95%) who are not government employees are expected to adjust to the new hike in the markets.
Assurances have been made by senior government officials that the initial expected suffering of the people will be transient and short-lived. Periodic injections of U.S.D into the economy through the now mushrooming commercial banks in the country will push the demand curve towards more availability and cheaper goods (in the long run). The hope is that, inter alia, the consistency of such hard currency injections and improvement of the purchasing power of government employees shall lead to market stabilization in the long run.
It is argued that, considering that the country’s oil has dried up of dollars, the only way the government could rescue the economic predicament courtesy of the current war was to capitulate to international pressure for currency devaluation. It has been the main conditionality (almost blackmailing) for the international financial institutions and individual countries to send in the necessary money for peace implementation.
The effect of this new economic outlook did not take time to transpire. In response to the new currency regime, the monopolistic oil firm of South Sudan, NILEPET, has today December 18, 2015 declared its new fuel prices at 22 SSP per liter. Considering that NILEPET is officially the only importer of fuel from which commercial petrol stations get their supplies, it is expected that the new rate at such stations shall fluctuate around 25-30 SSP per liter. We all know the cascading effect of fuel prices on everything else in an economy.
The double effect of the official increase in the dollar and fuel prices on citizens have started showing as of yesterday (December 17) in the price of bread which stood at 2ssp per one small piece which gluttons can swallow in a flash. Similar exorbitant rates are quickly being applied to all other essential commodities, foodstuff on which human beings live.
Unless the promised government interventions make the said short-run really short, the rice in fuel prices may be the ‘upper cut’ which is sending the most loyal citizens crumbling onto the mob. Let us all endure the coming short-term suffering, ‘little’ starvation, and stand by our government to take us to the promised land of milk and honey through implementation of the peace agreement and its attendant IMF-World Bank and Troika handouts.
This is not a sarcastic appeal but a genuine call for endurance (if at all possible), since the alternative to waiting and trusting in the opinions and assurances of the country’s economic giants could be grimmer. This is the true meaning of making hard choices and moving back from the brink. Oh God bless South Sudan! must continue to be the motto.
Mayen Ayarbior, BA Econ Poli. Science (Kampala Int’l Univ.), MA Int’l Security (JKSIS- Univ. of Denver), LLB (Univ. of London). Author of: House of War (Civil War and State Failure in Africa) 2013. mayen.ayarbior@gmail.com.
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