Wednesday, April 28, 2010

How Lucky Was Lutchmeenaraidoo

Quite if you look at the above graphic which depicts two important variables that could send the world economy into a recession: US interest rates. When Vishnu took over as Minister of Finance in March 1983 the Fed funds rate had swiftly fallen by almost 600 basis points from the level it was when SSR and buddies faced political mayhem. That's a slide of more than 50% from its June 1981 peak of 17.78%. And they stayed relatively low throughout his Ministerial stint.

The fellow who took over in September 1991 was also quite lucky because he got some of the lowest rates in  25 years.


Anonymous said...

Vishnu did nothing than continue in 1983 with the Report submitted by the Michel Desveaux's mission from WB in 1981. Ths structural Adjustment Programme was started in June 1982 with Berenger as Finance Minister. Later another report entitled "Managing Success" this time by IMF was applied as from 1987. When politicians claimed that they resisted to WB and IMF, that makes one laugh !!!

Sanjay Jagatsingh said...

I know of at least one episode when politicians here have resisted to the Bretton-Woods loan sharks. I will come back to this later.

And there are many episodes at the international level where countries have turned their back on the Washington sisters.

We need to give Vishnu much more credit than this for having taken a more holistic picture as far as economic policy went. We just need to compare with the kind of economic management that our country went through during the past 5 years.

And I don't remember the World Bank opening an office in Mauritius between 1983 and 1990.

Anonymous said...

@Anonymous: I wasn't even born at the time. Can you please tell us what the reports found out was not working properly in Mauritius and what they recommended?

akagugo said...

"The fellow who took over in September 1991 was also quite lucky because he got some of the lowest rates in 35 years"

OK, apart from the roughly cyclic
peaks, your graphic shows a general decrease since somewhere in early 1980, and that the (Fed Funds - 10yr) parameter varied along the years as follows:

And your graph stops at Sep'95. What happened in these trends afterwards? What was there that our dear Rama (and Sushil too?) failed to take advantage of?

Sanjay Jagatsingh said...

@akagugo: these differences should interest any fixed-income manager (or fans of The Economist's Shapely Curves). Mind you the fed funds rate increased by more than 1300 basis points between 1977 and late 1981 which is quite different from the downward trend it took after 1982. The volatility (shock) is also not the same.

Data after 1995 is not included because the graphic is already loaded but more importantly I wanted to zoom in on a period that doesn't get discussed at all or it usually done in a very partisan way.

The graphic also gives us an idea of the varying external conditions that were prevailing over the 35-year period.

Anonymous said...

You're perfectly right. I also know of a former Minister of Education who resisted the type of schools recommended by BW and decided to build schools adapted to the Mauritian context amd needs at that time. Times have changed ever since. Nowadays there are more and more people entering politics much more for their own selfish motives than for othet noble reasons.
Yes there were no WB office here in 1983 but the first joint mission (WB-IMF) headed by Michel Devaux (a former Economist-Statistician from INSEE) visited Mauritius in Nov-Dec 1981 and submitted their report some time before the MMM took over. I personally got the first report at the WB in Paris when I was still a student. The second mission from WB came in 1988 in fact and their report was entitles: "MAURITIUS: Managing success". Don't ask me where I got this second report.

Sanjay Jagatsingh said...

@Anonymous: I don't think we ever really needed WB/IMF's advice. We only needed their money for a little while because the 1970s were chaotic.

I wonder if Devaux recommended that we sell La Pirougue and Touessrok?
I read the 1988 report from the net in the early 1990s.

In any case Berenger and Sithanen are of the go-by-the-book type (Sithanen is in a class of his own).

Anonymous said...

Someone mentioned that he/she was not even born at the time. Here is the ref. but the doc ib not available online on the WB site.

"Mauritius - Economic memorandum : recent developments and prospects"

This report reviews recent economic developments and adjustment efforts undertaken by the Government since the end of 1979. Severe financial difficulties resulted from a combination of excess demand for sugar, Mauritius' dominant economic product; decelerating growth in industry and tourism; a decline in the rate of domestic and foreign private investment; rising debt service obligations; and rising import prices, especially for energy. A program of structural adjustment was developed to increase production in industry as well as agriculture and to develop tourism and alternative energy sources. Although the 1980-81 performance was disappointing, the outlook for 1982 points to an economic recovery that should continue. To assure this trend, the Government should strengthen its effort to compress aggregate demand and imports, to improve its foreign exchange reserve position, and to move with determination to implement action programs in the productive and foreign exchange earning sectors of the economy.