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.
The 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.
The 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 foreign customers.
Munthali 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.
The World Bank agrees and is calling on the government to devalue the kwacha.
Tim 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.
Gilbo 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."
So 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.
But 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.
Executive director of the confederation, Chancellor Kaferapanjira, said that should help the government maintain the value of the kwacha.