Thursday, November 6, 2008

Saving Seychelles

To put the economy on a strong, sustainable growth path for the medium term, it will be essential to broaden and deepen reform efforts aimed at restoring macroeconomic balance and improving competitiveness. Firm fiscal consolidation, a transparent debt strategy, exchange regime liberalization, and more structural reforms are needed to reduce high public debt to a sustainable level, restrain demand pressure, and support private sector growth. These policies, in combination, will reduce the vulnerability of the economy and contribute to long-run improvements in the living standards of all Seychellois. Success will depend in large part on providing momentum and credibility to the reform efforts and, in this regard, rigorous implementation of the 2008 budget will be essential.

"Seychelles is in the midst of an acute balance of payments and public debt crisis, which jeopardizes its living standards and economic development. The authorities have requested Fund assistance in support of a comprehensive reform strategy.

"The authorities' reform program is wide-ranging and bold, and I welcome the steps announced earlier today by President Michel and the related legislative changes adopted by Parliament. These include fundamental liberalization of the country's exchange regime that will enable a floating of the rupee, significant and sustained fiscal tightening, and reform of monetary policies to promote liquidity management based on indirect instruments. At the same time, important steps were also taken to strengthen a targeted social safety net. These reforms merit the strong support of the international community.

The country's president
doesn't sound very confident;

Government has decided to float the rupee as from 1st November. This means that the value of the rupee will be determined by the market in relation to other major currencies and on demand. All commodities and all services will be paid for in rupees. We are confident that there is enough foreign currency entering our economy to be able to undertake this exercise in a sustainable manner. We have also been working with institutions to ensure that we have sufficient reserves in the Central Bank to make a float possible. In addition, we have had discussions with individuals and companies that have large amounts of money in the banking system to urge them not to exchange all their money in one go but to do it gradually.

We are removing all legal controls that still exist on the purchase and sale of foreign currency in our country. It will open a number of new business opportunities, including possibilities for more exchange bureaus.

I believe that all Seychellois have confidence in the capacity of our country to attract foreign exchange. We can all see the evidence of foreign exchange circulating in our economy on a daily basis. The new system once implemented will however allow a more equitable distribution of currency throughout the economy. Through the confidence that we show and through our hard work, it is ourselves, the Seychellois people, that will give our currency its value.

Every discussion I have had on this subject - be it with the IMF or with our own private sector - has reflected this confidence that our rupee will be stable. After the floatation, more currency will be entering the banking system. But that does not mean that we should run to the banks; the rate of exchnage depends on demand. Patience will be rewarded with a more favourable rate.

To implement these reforms the Central Bank needs a new direction. I have decided to appoint a young Seychellois currently holding a key post at the IMF to take up this repsonsibility. He will be in post as of Monday.

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