Thursday, October 8, 2015

How Jammeh's greed continues to destroy the Gambian economy

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The Flexible Exchange Rate System was one of the lasting legacies of the 1986 Economic Recovery Program, commonly referred to by its acronym, The ERP.  It is generally agreed also that it had served the Gambia well throughout the years.

With the exception of a few instances when there was disruption in the system, including during and immediately after the transition, the flexible exchange rate has been relatively intact.

What has changed since?  Well, when Jammeh seized power, he had no clue as to how the system works, thus he was unable to figure out how to manipulate the system to his individual benefit.  Officials at the Central Bank nor at the Finance Ministry wanted to let Jammeh in on the secret.  The function of the Central Bank of The Gambia (CBG) was unclear to him and for this reason he left the CBG relatively alone until relatively recently when the interference in the forex market became frequent.

In October 2012, Jammeh reacted to the precipitous decline in the value of the dalasi by issuing an Executive Order (EO) that reduces the rate from D 34 per one dollar to D 28.  The ensuing uproar from the IMF and local operators resulted in the prompt withdrawal of the EO but not before he blamed "hoarders and speculators" of foreign exchange.  The restrictions, however short-lived, shook the confidence of the forex market from which it had not recovered, and before Jammeh decided again to interfere in the market in July 2014 only to lift the restrictions once more.  The fits and starts did not end there.

In March this year, Jammeh was at it again and once more the IMF issued a warning and recommended that the restrictions be lifted immediately.  Jammeh ignored Fund warnings, and now warnings from the Gambia Chamber of Commerce, that his interference is harming the economy, and in the process, ordinary citizens.  The IMF Directors have said to Jammeh, as recently as last month, that his regime needs to "restore policy credibility, rebuild policy buffers, re-engage development partners and achieve the Gambia's poverty alleviation goals." In spite of it all, Jammeh is still dragging his feet because of greed.

It is public knowledge that he has business interest in the forex market, a position he'd like to exploit as long as he can, at the expense of the economy and ordinary Gambians, before reverting to the flexible exchange rate system.  The Fund has also indicated that by fixing the rates, the dalasi is over-valued by 20% as a result of the fixed rates unilaterally by Jammeh which has "already damaged the near-term prospects and increased vulnerabilities" in the economy.

The decision to peg the dalasi should be rescinded  "immediately" according to the recommendation of the Fund, and the Gambia Chamber of Commerce has promised to "continue to intensify its engagement with the government through the ministries of Finance and Trade", presumably to prevail on Jammeh to revert to the flexible exchange rate system.  Oh, the cost of dictatorship !  A single individual holding an entire country, including the International Monetary Fund, hostage at the detriment of the Gambian economy.