In Malawi, pressure is mounting from economists who
are pushing the government to devalue the currency, the kwacha. Some say it's
an appropriate response to the devaluation of major currencies such as the US
dollar and the British Pound sterling. But
President Mutharika refuses.
kwacha recently traded at MK140 against the US dollar. It's been steady at that
rate for the past three years, and local economists say that's bad forthe economy. They say continuing to
peg the kwacha to a major currency, especially the dollar, is a recipe for disaster.
They say it has created a booming parallel, or black market, where there's a
better exchange rate– up to 50 kwacha more per dollar. Some
analysts say the black market rate is the true value of the kwacha and that
de-linking it from the dollar will help reduce Malawi'schronic shortage of foreign reserves. Since last year the country
has been hit by foreign exchange shortages.
president of the Economics Association of Malawi, Thomas Munthali, says the
strong kwacha has been hurting the economy by making Malawi exports more expensive for
said the kwacha should be devalued by about 25 kwacha to about K167to the
dollar. The advice was part of his presentation at a recent workshop on the
budget in the capital, Lilongwe. He said currently the exchange rate is
overvalued by about 19 percent.
World Bank agrees and is calling on the government to devalue the kwacha.
Gilbo is the Malawi World Bank country representative. A local daily newspaper recently quoted him
as supporting the call for devaluation. He
said it could shield the country from major global shocks, especially during the
current global financial meltdown.
said in many countries, the public tends to perceive weak currencies as bad. But
he said a weak Kwacha would actually improve Malawi's competitiveness on the
global market. As
an example, Gilbo cited his native Australia, which he said devalued
its currency in 1997 by almost 50 percent. He said the move has helped the country
withstand the current financial crisis by making its exports cheaper.
But Malawi president Bingu wa
Mutharika says devaluation would help those few who are hoarding US dollars. "The
devaluation of Kwacha will only benefit a few individuals," particularly
non-Africans, he says. "They want to
push [it], because they [will] go to the market and convert the kwacha to US
dollars and keep it. Suppose we devalue, they will quickly off-load their
dollars, make huge sums of money (out of that). These are the ones to benefit."
President Mutharika said he will not support the move. "I
have resisted devaluation and will continue to resist devaluation, because I
need to give the business community and everybody in Malawi a stable foreign
exchange regime. And I am an economist. I understand and follow what is
happening around the world. I am not going to devalue the kwacha to please one
or two people," he says.
the Malawi Confederation of Chambers of Commerce and Industry, which supports
devaluation, is calling on the government to make more dollars available to the
commercial banking system. Economists say this can be done in part by cracking
down on the black market and unlicensed foreign exchange bureaus.
director of the confederation, Chancellor Kaferapanjira, said that should help
the government maintain the value of the kwacha.