More lies, from Chang Leng puts President Michel in quandary

Francis Chang Leng and james Michel, pluniging Seychelles inot economic abyss and chaos with their ill-conceived  monetary policy.

Francis Chang Leng, Governor of Central and President james Michel, plunging Seychelles into economic abyss and chaos?

The Governor of the Central Bank chose Friday, the day this newspaper goes on sale, to appear on the State broadcasting media to announce that he had abandon his policy of manipulating the exchange rates of the rupee against the three major currencies which formed the so-called trade weighted basket. The choice of day for the announcement was significant, since it is Friday that Le Nouveau Seychelles Weekly hits the newsstand, hence a whole week would go by before informed comment would appear. In the meantime Chang Leng and other government officials were busy spinning the positive from  the announcement. But just what did Chang Leng announce?

His explanation on television left many people bewildered. The same goes for  the official statement which was published in the government daily newspaper, Seychelles Nation  and the Central Bank website.  The first paragraph of the published statement in English let the cat out of the bag. “The Central Bank of Seychelles has announced a change in the exchange rate with the Seychelles Rupee trading at a target of 8.00 to the US Dollar as of October 5th 2007, in a move to bring greater stability and competitiveness to the national economy.” This was the big lie. This statement was reminiscent of China during Mao’s reign when everyone fell over each other to interpret a statement made by the Communist Party.

 Here are the facts. Since October 2006, the Central Bank has been slowly devaluing the Seychelles currency. This devaluation has been progressive almost on a daily basis. The effect has been catastrophic for the economy. After one year, the exercise has resulted only in increasing the cost of living, therefore hardships on everyone especially the low income, while commercial banks continue to be unable to provide foreign currency on demand. Meanwhile, the parallel market in currency exchange continued to persist with the premium between the official rate and the black market rate remaining more or less as they were before the devaluation.

For President Michel and the leadership of the SPPF there seemed to be no end in sight, as the cost of goods rose exponentially with the combined effects of the black market rates, price control, over invoicing and GST. Even SMB, it appears was in on the game, selling an imported UHT milk at SR23 a litre, three times the price of the one it produces locally. The tunnel remained completely dark for President Michel who saw not even a flicker of light. This was the nightmare scenario he had been assured by Chang Leng would not happen. Even the US$230,000,000 generated by peddling junk bonds on the international capital market could not make any difference in alleviating the situation. Not only have the supply essential materials such as cement, steel, timber and baby food remain haphazard at best, their prices have shot up considerably. To pile more misery, Michel in a desperate attempt to limit the mushrooming budget deficit increased taxes on fuel. The support base of the SPPF started to get jittery, openly condemning the leadership of the party. In short, after one year all the policy has generated is a lot of pain with virtually no gain at all. Under pressure Michel ordered his “yes” men to abandon the policy of devaluation. His famous “devaluation is not an option” speech has come back to hunt him much sooner than he had expected.

As usual, the time honoured excuse is put to good use. As it was for the U-turn on the return to multiparty system and the abandoning of the NYS policy, the justification for the u-turn or abandonment of the devaluation policy is to claim that it had achieved its objectives, except that Francis Chang Leng is less refined in his presentation and justification. He tried to give the impression that all along the exchange rate for the US dollar he was targeting was SR8, when there was no target when it all started a year ago. The target seems to have been identified only after it has been hit by reality. 

Nothing could be more unstable for an economy than an exchange rate that keeps changing forever with no end in sight while being manipulated by the very monetary authority tasked with keeping it stable. Yet it did not prevent Chang Leng from claiming in his statement that all this instability over one whole year was done in order to “bring greater stability” to the national economy.

Not to be undone, the Minister of Finance, Danny Faure went to the National Assembly this week to announce that SPPF would impose a minimum wage on the private sector employment while it would grant a wage increase to the public sector, a move that serves only to negate the competitiveness benefits of devaluation by increasing the cost of inputs. As regards “competitiveness”, devaluation only provides benefits in relative terms. Real competitiveness is achieved by producing goods and services at a lower costs than your competitors – in other words productivity gains.

It seems that by strictly adhering to Chang-Leng’s flawed economic advice, President James Michel has managed to single-handedly plunge Seychelles into economic abyss and chaos.

Whether his presidency would survive the catastrophe remains to be seen.  The jury is still out on the issue as to whether President James Alix Michel is competent to lead the country at its most trying times or did Albert Rene make the biggest political blunder when selected him as his heir and made him President in 2004.  Only time will tell.

October 12, 2007
Copyright 2007: Seychelles Weekly, Victoria, Mahe, Seychelles