Sunday, July 12, 2009

Dutch Disease Turns 50

Here's what happened in 1959. When Holland exported the gas it had discovered in its waters, that increased the value of its currency and made other industries less competitive. In the process thousands of jobs were lost. The term was coined by The Economist in 1977 to remind us that what was supposed to be a blessing turned out to be a curse.

Now, getting record amounts of Foreign Direct Investment (FDI) like we did starting 2006 should have had a similar effect. Our currency should have appreciated and made us all feel richer. And we could have allowed it to appreciate painlessly so that the non-greedy section of our manufacturing sector had had time to adjust.

But as you will recall, that's not exactly what happened. We had Sithanen on TV informing us that a fatwa had to be issued on our rupee in the second half of 2006 on the basis that it had not depreciated for a few years! And that was done in a year of agriflation and after the finance minister had removed subsidies on rice and flour and introduced an inequality-creating flat-tax.

And just to dissipate any remaining doubts that we might have had that this was coming straight from Kafka, a 'Person of the year' award was even attributed to Dr. Sithanen in the same year.

7 comments:

Bruno said...

Pertinent post again ... I think such comments will please the MMM and surtout the MSM :P but yeah I did not realise that other sectors may become less competitive when one sector booms.

Anonymous said...

Eh Bruno, another pertinent point is that the fake Doctor called this phenomenon: " reforme miracle". This knack of turning a blessing into a curse has been described as the new disease : sithanics ! Did that other dingy tank 50 years ago, Sanju?

Bruno said...

"Fake Doctor" ... I am not a fervent support of PTr but he earned a PhD ... and someone with a PhD deserves the title of Dr.

Sanjay Jagatsingh said...

Right. But that doesn't mean he always has to wear it on his sleeves.

akagugo said...

"Dutch disease" now expected to hit African oil giants if nothing is done, while South Africa already fears the effects of forecasts of a sustained depreciation.
Alors, si nou ti invite Ramesh B-R, Rama S, Ali (touldé: M ek P) ek François (DeG) analyse ça enn ti koutt, ki santé zott pou santé-la?

Sanjay Jagatsingh said...

How much "FDI" did we receive since 2006? And what kind of direction has our currency taken over this period? What does it say about the quality of that FDI?

Sanjay Jagatsingh said...

Connect this post with this one and appreciate how dumb our currency policy has been.