Thursday, January 14, 2016

Jammeh has relented under pressure by lifting foreign exchange restrictions

By regularly interfering in the foreign exchange market against the advise of the International Monetary Fund, Yaya Jammeh as abruptly reverse course.  

The reversal was announced over government-controlled national television with the Gambia dictator assuring the donors, indirectly, that "he is committed to the free market".  

Jammeh is assuring us now that he is committed to the free market system after causing havoc in the foreign exchange market that has resulted in the over-valuation of the dalasi by over 20%.  This is according to the International Monetary Fund.  

An overvalued dalasi means relatively cheaper imports and more expensive exports. We should expect this year's groundnut exports [even with an expected depreciation] to earn us less foreign exchange than if Jammeh had stayed away from what is, by law, the mandate of the Central Bank of the Gambia.  The fact that our foreign exchange reserves are less than two months worth of import cover may have added to the pressure Mr. Jammeh had been experiencing lately.  

Although the decision is coming when damage to the economy has already been done - a damage that could have been avoided to a large degree - it is, as the saying goes, better late than never.   But Jammeh must be warned that interference in the functions of the Central Bank cannot and will not be tolerated without severe penalties.  

Assuming that he stays off the economy, the floating exchange rate system that had served us well, up to this point, will be allowed to perform the function for which  it was designed if we are to avoid the market distortions that Jammeh had inflicted on the economy.