Monday, October 27, 2008

Singapore to Grow by 3% in 2008

Although it is technically into a recession because its GDP has contracted over the last two quarters. However it is misleading, if not intellectually dishonest, to compare the growth rate for any single year across countries just like you wouldn't "cross a river whose average depth is four feet" to borrow from the author of Fooled By Randomness

No, take a longer view instead. Which is what I did in the graph above which plots the cumulative growth rates of Singapore and Mauritius from a starting value of 100 since about the time Ramgoolam and Sithanen got into politics. By the end of 2007 Singapore had reached 298 or about 30% more than the 229 for Mauritius. Of course, everybody knows that the two island states were definitely not at the same level of prosperity and development back in 1990 which makes the performance of Singapore all the more extraordinary.  

Saturday, October 25, 2008

Reintroduction of Daylight Saving Time Confirms Mauritius Hasn't Got Its Priorities Right

Especially after you consider the government's dumb response when oil prices almost tripled from USD 50 to USD 147 a barrel over the last three years has been to make the purchase of bigger cars easier. Not making a sufficiently comfortable and reliable public transportation system available so that commuters would leave their cars at home is additional proof that we are suffering from a serious breakdown in leadership and management here.

It would also have been better for Ramgoolam to make good on his year-old chess-thumping promise of reviewing the abusive IPP contracts. Speaking about priorities, here is one more: we need to build another reservoir as quickly as possible or we run the risk of a repeat of 1999 when a serious drought halved our economic output. The latter risk, you would have noticed, is an entirely domestic issue: I guess you can call it an internal shock.

Celebrity Meltdown

No matter how hard reality bites the theology of laissez-faire, its blind disciples will cling to it. But when Alan Greenspan, one of its high priests, is gripped with agnosticism, it means that a paradigm shift is definitely in the air. Why has the former Federal Reserve chairman acquired divine status in the first place? Why do we cannonise fellow human beings so promptly today?

Taken in its most ruthless representation, the technology-driven era seems to offer few alternatives: embrace it or ignore it at your own risk and peril. Excess breeds excess. There seems to be no room for the middle path. To meet new spending patterns of consumers for whom time seems to fly, markets started promoting prêt-à-porter. Then came prêt-à-manger. And now, enter prêt-à-penser. Celebrity models, chefs and experts rule our world. The general trend for the last decades has been an obsession with pet theories. Worse, deprived of adequate contextual research, most parts of the developing world have simply internalised what are in fact aberrations. As like-minded people tend to flock together, they end up confusing repetition with self-evident truth.

William Easterly's White Man's Burden and Ha-Joon Chang's Bad Samaritans should provide the elusive hindsight to those who feel fooled and let down. For an even better taste of vintage "lateral thinking" and "thinking outside the box", Nassim Taleb's Black Swan might well be the ultimate pick. There is indeed a heavy price to pay when we let wizardry and punditry cloud our reasoning.

Tuesday, October 21, 2008

The Financial Rescue Program is Not Inflationary

Our optimism regarding the current financial crisis received a boost with the recognition that a more comprehensive and global approach was needed to restore confidence to global financial markets. Interbank lending rates are receding, a very positive development.

Some observers, however, have expressed concern that the bailout program will rekindle inflation as Central Banks “print money” and sovereign governments run large budget deficits. We do not share that worry. Global population and labor force growth have both been decelerating for more than 30 years, a development that is fundamentally disinflationary. As we wrote recently (Inflation is Not a Problem, August 2008), the recent uptick in inflation was the result of an extended synchronized world business cycle. It was already near an end prior to the crisis. The global environment is fundamentally disinflationary.

Inflation is in remission as was confirmed by the latest reading on the CPI for both the US and the Eurozone. The sharp decline in commodity prices, especially oil, will result in negative readings for the headline series. Neither core inflation nor wages were ever a problem.

The decline in inflation will also substantially increase the ability of Central Banks to further slash interest rates which will both help the current financial crisis as well as the spreading global slowdown in economic activity.

Sunday, October 19, 2008

All Kinds of Growth Rates Can Throw You Out of Office

The above table shows the annual growth rate on each of the 4 times that we've changed governments since our independence. The first two times, the voters gave the challengers an opportunity to corrupt absolutely and both events happened after about 14 years with the same Prime Minister in a year of almost identical growth rates. The electorate seemed to have been quite unhappy with their governments since then: it has systematically been giving them the boot.

Thursday, October 16, 2008

Apres Joe-le-Taxi, Here's Joe-the-Plumber

Click below to watch the 3rd and last 2008 Presidential Debate. Well-researched perspectives about the US as you would expect. We can certainly use those to ask corresponding questions about Mauritius.

This is Not Like the Great Depression

Although our optimism that there is light at the end of the tunnel for the current global financial crisis continues to be tested, there is one expressed parallel that is not evident. A major precursor for the Great Depression of the 1930s was the Immigration Reform and Control Act of 1925 which shut the door. Growth in the US population which had averaged nearly 3 per cent per year fell quickly to much less than 1 per cent. Housing starts, which totaled 900,000 in 1926, fell to 300,000 by 1929, the year of the stock market crash. The restriction on the international movements of people paved the way for restrictions on international trade via Smoot-Hawley. The Fed raised interest rates and reduced liquidity to the financial system.

None of the above exists today – a very positive fact. There is grousing about current account deficits in the US and surpluses in Asia but no one is even hinting at imposing restrictions on the movements of people and/or goods as occurred 80 some odd years ago. Be that as it may, it would be a major mistake to have America go on a diet and Asia to binge given the major imbalances in their demographic positions. Asia needs even larger surpluses to help them prepare for their very rapid aging.

Wednesday, October 15, 2008

Ex-Governor's Memory Playing Tricks on Him

This is the impression I got on skimming through an interview of Basant Roi that was published in a newsletter earlier this week. In it the guy who was in charge of the Bank of Mauritius for a little over eight years stated that the independence of our central bank had now been thrown out of the window.

Kind of funny to come from the person who was Governor precisely when the independence of the institution he had been entrusted with was murdered during the MCB-NPF saga before being hanged in the second half of 2006 when the rupee was allowed to freefall despite the record FDI.

And the hansard contains interesting replies that will kind of support the view that when it comes to degrading our institutions Berenger has no match. Except maybe Sithanen.

Today of course is a great day to read a few pages of The Great Crash for at least an extra reason: John Kenneth Galbraith would have turned 100.

Hong Kong Baffles Market Fundamentalists

In a key policy address following the global financial crisis, Hong Kong Chief Executive Donald Tsang states that "the government's role is increasingly important and needs to be redefined ... We should be ready to take decisive action to help stabilize the economy and rebuild people's confidence to ride out the difficulties."

Quite logically, the Hong Kong Monetary Authority (HKMA), the territory's central bank, and the Securities and Futures Commission (SFC) would look for ways to strengthen the city's financial regulatory regime. Among other measures, guess what, Hong kong, one of the champions of global capitalism, is about to establish an advisory Minimum Wage Commission.

Hong Kong has not evolved on the same planned track as Singapore, but they both share the same ideology-free approach to make their vulnerable open economies as lean and nimble as possible.

Tuesday, October 14, 2008

Thanks George, But I Think We'll Pass

I am referring to what looked like an assurance given by the economist and MEXA boss this afternoon on a private radio about the apparent prudence with which the National Pension Fund (NPF) invests workers' money. He was up against Ashok Subron who knows infinitely more about how the economy of Mauritius works than Sithanen and his university buddy, Mansoor, lumped together.

Indeed, standard corporate governance practice suggest that the people of this country be provided with all the information and given the opportunity to make that determination by themselves. That should be relatively easy for the Financial Secretary, who chairs the investment committee of the NPF, to do: the cost of disseminating information is close to zero nowadays. 

Besides, there's a moral obligation for the government to rapidly become more transparent in this and some other areas given that the MCB-NPF scandal is still fresh in everyone's mind. There are also so many great models for pension fund governance. Click here and get ready to say Wow!

Sunday, October 12, 2008

World Not in a Hurry to Borrow from IMF

Or to take any of its phony macroeconomic advice. And that's in spite of IMF Chief's announcement that the loan-shark is "ready to lend quickly... based on streamlined conditionality" three days ago. Indeed, countries have been sidelining the Washington-based institution for some years now and everybody, save Rama Sithanen, knows that its loan portfolio has collapsed from SDR* 70 billion to SDR 20 billion in 3 short years with a single country, Turkey, now representing about 1/4 of that dwindling portfolio.

It also made the first loss in its history last year and that is expected to widen to about USD 250 million next year if its own numbers are to be believed. The IMF has also desperately been trying to appear as a development agency. This has failed too. Blame it on the availability of tons of money and better ideas elsewhere.

*you need about USD 1.50 for each SDR.

Tuesday, October 7, 2008

Wake-Up Call to Corrupt Leaders Issued

This is how Transparency International has characterised the Stolen Asset Recovery (StAR) initiative launched by the UN Office on Drugs and Crime and the World Bank (WB) two days before Samad's post on corruption. The aim of this program is to help developing nations recover funds looted by their leaders and usually stashed away in an account in the west. Estimates of the annual fraud range as high as USD40 billion and that's before factoring in the attendant degradation of public institutions. The 56-page joint report which makes good reading includes three case studies: Nigeria, the Phillipines and Peru.

This initiative comes 12 years after the famous Cancer of Corruption speech of Jim Wolfensohn at the annual meetings of the WB. And isn't it wonderful that we have someone attending the 2008 edition of these meetings in the week-end in Washington? Here is one great opportunity to look at Zoellick straight in the eyes and to announce that Mauritius intends to be the poster child for StAR.

Monday, October 6, 2008

Etienne Doesn't Make the Grades

But Rashid Beebeejaun, who apparently did, reassured everybody when he said that Sinatambou is a bright guy. I found all of that kind of weird because I can't remember what Beebeejaun should be remembered for since he returned to power in 2005. As a matter of fact, I have an extremely hard time recalling what he achieved as a Minister between 1996 and 2000.

If my math is as good as yours that's a full eight years in the cabinet (1/5 of the time since the Union Jack was lowered if you prefer fractions). Granted he did not literally transform his ministerial responsibilities into a job search as one globe-trotting MSM-MMM Minister did. But then again, the latter performance hardly qualifies as a benchmark.

In a similar vein you get the impression by looking at how they work and what they say that Nita Deerpalsing and Cader Sayed-Hossen need at least 800 years each to finally achieve some tangible democratisation of the economy. And of course there is Navinchandra: 8 years as Prime Minister and all that he's achieved in the top job of the land fit comfortably on a stamp.

Saturday, October 4, 2008

Sugar, Already a Small Sector When the Bean-Counter Joined Politics had Shrunk by More than 70% by 2007

When Sithanen was sworn in as Finance Minister in 1991 that sector, as shown above, represented only 9.99% of our economy. Last year it accounted for a mere 2.90%. Unsurprisingly, about 57% of this shrinkage happened in 1999, a year of severe drought. Sugar should keep on shrinking in an erratic fashion thanks to higher growth rates elsewhere in the economy and to increasingly unpredictable weather patterns.

Naturally, your explanation as to why Dr. Sithanen deemed fit to bestow a multi-billion rupee gift to that sunset industry while not finding Rs 100 million for the SC/HSC subsidy is most welcome.

After Massively Creating Poverty, Minister Now Aiming to Kill the Economy

For an open and small economy like Mauritius if there is one concept that we should focus all of our energies on it has to be our competitiveness. Not something Sithanen has on his mind though.

After having made an indecent gift of Rs5 billion to a industry that has been dead for ages, he now seems to want to shut down Mauritius Inc. by not capping how much money government makes on rising fuel prices through VAT.

That's on top of uncompetitive electricity prices that reflect the vested interests of a few rent-seekers and public investments that have declined for three straight years in real terms. Which means that we should expect more misery and trouble until he is shown the exit.