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Drop in Dollar's Value Hurts Commodity Exports from Poor African Nations - 2004-01-13


The continuing decline of the U.S. dollar on world markets is causing concern in West Africa, where the main regional exports are priced in dollars. Governments in the region are looking for ways to ease the drop in income.

Eight mainly French-speaking countries in West Africa use the CFA franc, which is pegged to the euro. CFA is an abbreviation for the Financial Community of Africa (Communaute Financiere d'Afrique), which includes some of the world's poorest countries: Niger, Burkina Faso, and Mali.

To the dismay of their economic policy makers, the European currency has gained 40 percent against the dollar during the past 18 months, meaning the CFA franc has also been given an enormous boost.

This is worrisome as many countries in the region depend on the export of products that are priced in dollars on world markets, cotton, cocoa, oil and coffee. This means the value of export revenues is going down in local currency terms.

The situation has brought about suggestions by some economists that the CFA franc should be devaluated, as it was 10 years ago when its value against the French franc was cut in half.

But on Saturday, at a summit of countries sharing the CFA franc in Niger, finance ministers rejected the idea of a new devaluation.

Instead, they recommended shoring up each country's public finances, promoting cross-border investment and ensuring easier circulation of goods within their bloc.

Regional analyst and Togolese journalist Amadou Kodjo was relieved, saying the previous devaluation showed that such moves only benefit multi-national companies trading in raw materials. He said devaluations hurt ordinary people, whose buying power goes down.

Former French Prime Minister Edouard Balladur oversaw the previous CFA franc devaluation. He told French radio this week it was needed then, but not now. Instead, said Mr. Balladur, West African economies need to diversify their exports and lower their production costs, which he says are very high.

But a businessman who attended the summit, Amadou Moussa, is in favor of devaluation. He says the rise of the CFA franc has made trading with other African countries very difficult. "As a businessman, you want CFA to make a devaluation," je said.

Mr. Moussa said the high value of the CFA franc makes it difficult to export products from CFA countries to other countries in Africa. He says the problem is particularly bad for trade with the region's largest market, Nigeria, which has its own currency, the naira. Each naira is now worth less than half of one CFA franc, making life difficult for CFA region exporters and traders like Mr. Moussa.

But the lower U.S. dollar and stronger CFA franc also affects people who are not importers or exporters.

Gasoline is less expensive in most countries. But the many families who depend on money transfers from relatives working in the United States have seen their incomes drop.

Those transfers have lost 40 percent of their value in the past 18 months.