(Pennsylvania USA) - I will be remiss if I do not recall our fond memories at La Salle University where Peter Biar Ajak and I went for our undergraduate studies! At this institution, our young minds were molded; a lot of future dreams were discussed; and boys became men. At La Salle, we laughed, worked and learned together. Like Mr. Ajak said, countless number of hours was spent on Economics problem sets. As we worked through those problems, we discussed how our classroom knowledge could be transformed into real world experience to solve some of the problems that are facing our continent; but more specifically, how our experiences could be used to help our local population. It is in the spirit of those discussions that Mr. Ajak and I are on this forum, providing insights to inform policy and decision-making process in our country. I take it as a privilege to be able to discuss issues of national concern through a medium that has a broad base outreach around the world.
To our readers, this is a response to part 2 of Mr. Ajak’s argument in defense of our recent devaluation policy. Even though the policy is currently tabled at the parliament, pending a full reversal, our ongoing debate aims to enrich the national debate on this important issue; and at the same time, provide a clear understanding to the average Joes of South Sudan of what is likely to happen if the policy is implemented or reversed.
Off right the bat, any economist who is well-versed in monetary policy will not dispute the theory behind currency devaluation. Devaluation as a policy is an industry instrument that can reign in long-term economic growth, if well managed and the right economic conditions prevail in the country in which the devaluation is to take place; there is no point of contest there. However, it is important to remember that this devaluation was done to curtail the arbitrage gap and hence eliminate dollar’s black marketeering rather than aimed at boosting our economic growth; although, the latter is a desired advantage if achieved as well. Where Mr. Ajak and I differ on this policy is the wisdom of our Central Bank’s devaluation timing, the mechanism by which it is instituted, and as to whether the right economic conditions prevail to pull it off. So, in a sense, he is partly right when he said that there is much agreement on our part on the principle of devaluation. However, there is much disagreement in terms of whether that was the right tool, given our current economic conditions. I want to stress that the point of our difference on this policy is significant. It’s the difference between what will likely happen due to devaluation based on theory vs. real economic conditions in South Sudan. Now, I need to qualify that statement to avoid the risk of being called an absolutist and also admit that I am not relying on much solid data rather than what is scarcely available and what makes the news in South Sudan.
Going off of the official statistics, many would agree that in a country where nearly 51% percent of its population lives in poverty, there is less capacity to produce essential goods for local consumption, leave alone capacity to produce goods and services for exports. Even worst, if one follows South Sudan closely, you hear of insecurity, floods and lack of capacity on a much ostentatious scale, as reasons behind lack of food production and other exportable goods and services; hence, the reason we import virtually everything. These conditions do not go away when devaluation is implemented. And as long as the aforementioned factors weigh heavily on our population, devaluation at this time could exacerbate the current economic anguish of many South Sudanese through inflation. Take for example, after the devaluation was announced, reports had it that fuel’s price jumped by a 50%, the dollar was trading at 6 SSP and many other commodities had significantly increased in price. That short-run shock in the market is what worries me when our current economic conditions are taken into account.
At the epicenter of Mr. Ajak’s argument for devaluation is the notion that devaluation will provides, “positive incentives towards production.” I take this with a grain of salt or a little caveat. The reasons are many; but I will keep the basic three that I have maintained in my previous article. Devaluation is unlikely to lead to more production in South Sudan in particular because of insecurity, uncontrollable floods and lack of capacity throughout South Sudan. These are the realities we are facing and something should have been done way before jumping the guns on devaluation. The fact that there are other extenuating factors involved on the lack of production in South Sudan other than lack of positive economic incentives, reduces the hope that our exports will see a boost due to devaluation. When I speak of timing, it entails looking at the fundamentals of our economy, and then using the state of those fundamentals to qualify policies, such as devaluation. Consequently, it follows that if insecurity, floods, and lack of capacity continues, then the only thing that will grow is our poverty levels. In other words, to quote my friend, Lwal Baguoot, “our ordinary people rely heavily on imports not because they are generally lazy or in love with foreign goods and products, but out of necessity to survive or where else and to whom can they turn to when the very government officials entrusted with developing the nation's economy are engaging in self-enrichment enterprises?"
While Mr. Ajak admits the need for other adjustment to offset the pain of would be devaluation, we are yet to hear from the Central Bank and the government on what specific measures they were going to put in place to steer our economy to the desired state, had devaluation been implemented. Part of what we hope to accomplish with this debate is to offer some suggestion of what those measures ought to be. In my previous article, I suggested that devaluation, if implemented, should come with specific measures to cushion the impact of the high inflation on the lowest income people, such as tax deductions on local producers who produce essential food items, lower duties on imported food stuffs and other social means to ease the pain. Mr. Ajak seems to agree and there is no need to further beat that point up.
In this response, I want to convince Mr. Ajak that production was probably not the aim or the end result in sight for the Central Bank’s policy of devaluation, it was much rather about arbitrage. So, is it possible that other instruments could have worked better, in curbing the crisis of arbitrage? Were these instruments closely and vigorously vetted? If so, why didn’t the Bank produce those papers to serve as a mechanism to defend itself in case skeptics like me and the National Parliament Assembly suffices? These questions will continue to linger in the minds of many. To be honest, I think those other instruments could work well to curtail the arbitrage problem while not worsening conditions for the already impoverished population. If these other instruments are deemed effective, Central Bank should try them while we await the right economic conditions to devalue our pound, if at all, it became necessary. I will get into the details of that argument in a bit.
For now, let me go over what Mr. Ajak provided as processes the Central Bank went through to arrive at the devaluation policy. Based on what Mr. Ajak described, I would be justified to assume that the SPLM party does not delineate its platform and that of national institutions, a problem that should cause reservations among South Sudanese intellectuals, both inside and outside the country, regardless of their respective political affiliations. Philosophically, I believe when a political party is in power, and if it conducts national business, it is assumed that it advances a national agenda and not that of the party. The fact that those forums were described as SPLM this and SPLM that, only goes to fuel skepticism from many, and goes to support my argument that there was no much scrutiny provided against the formulation of the policies that resulted from those forums, as attendees were probably only SPLM members and their invitees.
Furthermore, at those forums described by Mr. Ajak, it can reasonably be assumed that the policies formulated from those settings lacked inputs from other political parties, such as SPLM-DC, SSDF, and many others, as they were shut out by using the mediums as SPLM’s forums, when in real sense, they were national forums. How then can one not question the data that is used to back a policy derived in that manner? Equally important, how can one not question a data that has not been referenced in defense of the policy it is supposed to back? I guess, what I am saying is that if the government is reluctant on sharing information that informed its policy decisions, it leaves much to be desired. Also, the Central Bank does not have to be secretive about its dealings with public, especially after it has announced the intended policy. While the Central Bank is supposed to work closely with the administration, it is theoretically an independent institution from the executive branch and must delineate its policies from that of a political party. That much separation is technical in a fragile country like South Sudan, but one that we all should aspire for going forward.
Now, back to those other financial instruments which were referenced earlier, I will digress a little here and incorporate what Ms. Aduei Riak and my formidable opponent, Mr. Deng Dekuek, stated on our previous articles. They both raised a very interesting and logically sound solution to our arbitrage predicament. They argued that since our pound is not convertible in Kenyan or Ugandan Shilling, and given that these countries are our leading trading partners, we could do something between our Central Bank and Central Banks of these countries. I gave it some thought, and even though we cannot force those respective countries to embrace the pound, we could provide a rationale of why that could lead to optimal trading conditions between us and them. The logic follows that since our traders go to buy their inventory in Kenya or Uganda, if our pound is easily convertible with their shillings, our traders will not need a pound to a dollar conversion as much, and this might ease the high demand of dollars, which is the principal culprit involved in the gap between the two rates in South Sudan.
Second, in the first article, I also talked about instituting tight licensing and regulations of the forex bureaus; good taxation policy to discourage an unwanted behavior; and finally, if warranted, exercise volume and time limits on the forex activities. Mr. Ajak interestingly articulated that they could not work because of “the same problem that virtually all governments face with administrative controls when incentives encourage participation – whether it is dollars, drugs, or other illicit trade in which there is a clear demand.” He then continued that, “People respond to incentives and will take the risks to engage in those activities if the rewards are substantial.” I take it that Mr. Ajak will have no problem with me using the same logic that, if negative incentives are higher enough, a rational being will respond and shy away from those activities. What do I mean by a higher negative incentive, one might ask?
Well, take for example, a minister who double-deals in the arbitrage trading and serves as a policy maker at the same time, could be punished by job termination. Also, a commercial bank that hoards the dollars and take them to black market, instead of channeling and allocating the said dollars to its clients, could face license revocation. If the Central Bank sets up a branch made up of examiners who are not corrupt to investigate and enforce those strict financial regulations and rules, one would reasonably assume that there is no reason as to why those measures could not work to curb the arbitrage problem. Admittedly, the measures would not completely eliminate black marketeering, but the problem will be significantly reduced.
In conclusion, I just wanted to highlight the high point of this debate. Few days ago, as I was reading Mr. Ajak’s response to my article, I saw a comment from Hon. Paul Bor Gatwech of Upper Nile, in which he responded under Mr. Ajak’s article that, this is the sort of advice they are looking for at the national level (I paraphrased). To be honest, I cared less about the fact that he chose the opposite view as much as I cared about his quest for knowledge to inform his voting; this much we must all demand from our lawmakers if we aspire for a better country. So, in writing these articles, I am not out to garner mere support for my arguments; it is much bigger than that. The privileged few, who are educated among us, have an obligation to contribute to the discourse and shaping of our young country. Your responses in social media to our articles and many other writings show that many of you already contribute toward the welfare of South Sudan every day. I am glad to be part of it in this small way. Equally important, I value all the insights provided by my friends and colleagues on my first article, whether they opposed or agreed with my view points. We don’t have to agree on everything, but at least we can discuss national issues amicably, for that is what an open mind does. Aristotle succinctly summed this point up when he said, “It is the mark of an educated mind to be able to entertain a thought without accepting it.” So, in the end, it is not about who is in my camp or his camp – but rather why one supports a particular policy!