Deputy Says Governor Treats Central Bank As Own Property

Gérard Sanspeur resigned as Second Deputy Governor following advice of PM tendered during a conversation on Friday. He then held a press conference to explain that things are pretty bad at the Bank of Mauritius because Sithanen believes that that institution is his kingdom, actively covering stuff up and taking decisions where he has serious and undeclared conflicts of interest. Sanspeur also declared that Tevin Sithanen, the Governor's son, meddles profusely into the internal affairs of the BoM and wants to have a say in hiring, firing, attribution of banking licences and tenders. During the presser the ex-SDG has dangled six pages of what he says are damning one-way WhatsApp messages from Sithanen Jr.

Sanspeur will be making statements to the police soon and has promised more revelations. He also mentioned that he has a copy of a recording with respect to the Menlo Park saga that if made public would leave the Governor with no other alternative than to resign within a few hours.

Self-deluded 71-year-old Sithanen, probably the biggest political liability ever in the history of Mauritius, has been Finance Minister on two occasions under two different PMs. The first one ended in 1995 with the opposition winning all the seats in Mauritius and the second in 2010 by becoming the first and only outgoing FM to be denied a general election ticket. It's not the first time he's having trouble with the Bank of Maurtius Act, trade unionists and sources tell us that the controversial and increasingly contested idea of postponing the age eligibility for old age pension by five years was his.

Learn an insane amount of important and interesting stuff on the Indian Ocean island by downloading my 2024 guide.

Two Governors and A Rupee

Simple Tools To Evaluate Political Projects (4)

Let's bring back the income distribution data from the previous post.

Income share in % 1986/7 1991/2 1996/7 2001/2 2006/7 2012
Bottom 20%              5.6      6.4      5.9      6.2     6.1      5.4
Top 20%                  44.2    43.5    46.2    44.8    45.6    47.5
Ratio                         7.9       6.8      7.8      7.2      7.5      8.8

After Bheenick and Bunwaree had reversed some of the damage of policies of Sithanen, Berenger and Pravind Jugnauth reduce slightly the share of the bottom 20% while they increase that for the top 20% by 0.8%. Finally after the first five years of the Sithanen flat tax the weakest 20% households see their share fall to at least a 25-year low while the top 20% hit a record level of 47.5% after they get an increase of 1.9%. There is little surprise then in seeing the share ratio reach a record 8.8X.

So each time Sithanen has been Finance Minister inequality has increased. After his first stint the top 20% saw their share rise by 2.7% of GDP and his flat tax has handed this group another 1.9% in 2012 while the bottom quintile have seen their share fall by 0.5% and 0.7% after his stints or toxic policies were implemented. Lutchmeenaraidoo, Bheenick and Bunwaree on their side have reduced inequality when they were Finance Minister. At this point in time it is useful to have another look at the different cakes that were baked.

We can see that not only the biggest cake was produced by Vishnu in the five years ending in 1992 but the sharing was also the best for the bottom 20% as they grabbed a 6.4% share. Compare this to the smallest share of the bottom 20% and one of the smallest cake produced in the first five and half years of the Sithanen flat tax. There are other interesting conclusions you can draw from combining these two data sets. Have fun. We'll return with a few more tools.

Simple Tools To Evaluate Political Projects (3)

So we've seen the types of cakes that have been cooked over five-year periods for the last 35 years. In this post we look at the second part of our framework to analyse political projects: how the cake is shared. Statmu provides us with a wealth of data to do this. The simplest information is the share of the cake going to the bottom and top 20% households. For example this what happened since 1986/7 (the sexy charts will be for later).

Income share in % 1986/7 1991/2 1996/7 2001/2 2006/7 2012
Bottom 20%              5.6      6.4      5.9      6.2     6.1      5.4
Top 20%                  44.2    43.5    46.2    44.8    45.6    47.5
Ratio                         7.9       6.8      7.8      7.2      7.5      8.8

Clearly this puts the lie to the assertion used by TINAwallahs that there is little we can do about inequality and that it is a phenomenon which is entirely tied to globalisation. As the data shows although it has been increasing -- let's focus on the ratio for now -- since 2001/2 there are also two interesting periods where it actually fell. One is in 1991/2 which coincided with the passing of the baton of Finance Minister between Lutchmeenaraidoo and Sithanen. So the former actually decreased inequality by putting an extra 0.8% of GDP in the hands of the bottom 20% and this was mostly financed by reducing the share of the top 20%. Enter Sithanen and he reverses most of the gains of the bottom 20% while giving the top 20% an extra eye-popping 2.7% -- that's more than three times what the bottom 20% got in the preceding 5 years. This ensured that the top 20% got their biggest share since 1986/7.

And then five years later Bheenick and Bunwaree clawed back three-fifths of the loss the bottom 20% experienced and reduced the share of the top 20% by 1.4% or half of what they gained during the first stint of Dr. TINAnen. We obviously have more to say on this interesting dataset. We'll do this in our next posts.

How A Referendum Would Deepen Our Democracy

There are some issues that are really fundamental to our well-being and these are better addressed in a referendum. Especially when they are not discussed in manifestoes and electoral campaigns. Here are four.

1. Tax policy can break an economy and send a country to the dogs. Which is what the Sithanen flat tax has done. And that too without asking us for our permission. 

2. Currency policy. Only morons believe that competitive depreciation is Tiger stuff. Plus it matters a whole lot who call the shots at the BoM. For example in 2010 we were told that Manou was coming back. We didn't know depreciation-obsessed Basant Roi would after 2014.

3. Party lists are the equivalent of an English Premier League without red cards. We don't want them.

4. Privatisation of any part of our public utilities or other national assets. A government that wants to sell the CWA or saddle it with a management contract because it doesn't like its hotline is a good-for-nothing government.

SAJ's Comments on Electoral Reform Refreshing

Rightly calling PR a komeraz. Who wouldn't? After seeing what happened to election results in Rodrigues. It's the same feeling one got when going through the dumb and dangerous Sithanen electoral galimatia: a heap of rubbish that doesn't take more than a couple of minutes to demolish. A bit like his 2005 promise that a flat tax would generate average robust growth rates of 8% forever after: 2015 will be the 5th consecutive year growth rates will be less than half of that.

Besides PR is so unLabour: Phillippe Rozemont was expelled from the Labour Party when he voted in favour of it. And roughly six decades later Navin Ramgoolam lost power and his seat after he flirted with PR. When an overwhelming number of Mauritians -- using an attractive feature of our wonderful FPTP system but one that Sithanen wants to get rid of with party lists -- said no to an electoral proposal that is vote wise and outcome foolish. There is no need to use a bazooka to get rid of a very mild headache.

Refreshing indeed. Reminded me of what another of our PMs said back in May 2010: "Ki zot tile? Pran zot dan godi dir ayo papa Euro! Euro! donn zot bibron? Pa Pwena! Devaliasyon zame tienn solisyon. Nu bizin vinn pli konpetitif".

2014: The Year in Review (Q4)

October: Parliament dissolved in trivial manner. Don't bet on Sithanen to eliminate poverty. June happy Pistorius gonna pay something. Mauritian democracy competitive again. Tackling unemployment: how do the zinkus stack up?

November: Indira's assassination: 30 years already. Suddenly, Labour/MMM to create 60k jobs. Something for you to sniff.

December: What voters want. 63% of poll says Ramgoolam not winning majority. Reform wasn't good for poor. Mauritius says no to wicked plan. Claudette's visit turns 35. Manou's dismissal is inelegant and silly.

Read the review for Q1, Q2 and Q3.

Read The Manou Bheenick Affidavit Here

How Inflation Routinely Kills People

The first way is by making many people poor enough that their life expectancy falls because of degraded living conditions. Besides poor people have a lot less access to the kind of medical options that richer people have. For example because he had a Gulfstream V Steve Jobs was able to seek a liver over a much bigger distance -- wherever his plane could take him in 6 hours -- than someone without a jet.

Inflation is also a key driver of inequality. Especially that we now know that the inflation of the poor is about 3% higher than the headline number. Inequality will bring people to the streets -- like in the Arab Spring and elsewhere -- and clashes may cause loss of lives.

Of course if inflation is very high things can get very ugly. And that too on a horrendous scale. Like in 1930s Germany where hyperinflation helped put a little guy with a moustache in power. And the world eventually went to war: between 50 and 85 million people died in WWII.

No wonder then that Central Banks have been setting inflation targets for more than 25 years now -- roughly the period of time Lutchmeenaraidoo was not Finance Minister. With the blessings of their governments. As inflation is a major reason why politicians lose power. In fact we owe it to Governor Basant Roi for one of the best descriptions of inflation so far -- he likened it to radioactivity. Which makes it all the more interesting to check his inflation record. And compare it to Manou Bheenick's.

Vishnu is Lucky, Again

To be Finance Minister these days. After almost a quarter of a century. Because that's after almost 10 years of the worst economic management -- Paglanomics -- our country has seen and started by Rama Sithanen with the help of Bretton Woods Ali. And of course with the blessing of Andrew Scott and one pseudo-socialist, Navin Ramgoolam. So improving things should not be that difficult. For example increasing pensions has helped compensate the lack of reasonable progress that the weakest groups of our fellow countrypersons have registered with the toxic bean-counters. And there are many more low-hanging fruits to pick.

But monetary policy was definitely not one of them. So it was quite surprising that Manou Bheenick was asked to leave. And replaced by depreciation-obsessed Basant Roi. Who unsurprisingly since returning to the BoM less than 80 days ago has presided over a double-digit depreciation -- 12% as of today -- of our national currency against the USD. After our central bank had issued a communique on January 30 informing the nation that there would be no MPC meeting in February because Lutchmeenraidoo's budget was due March 16. Or 45 days later.

Hopefully the Minister of Finance who keeps on insisting that he will deliver a 'second miracle' understands how to assess the quality of economic policies. Computing our real GDP growth in USD for the current quarter might be quite enlightening.

Bheenick Dismissal is Inelegant and Silly

Our learned Central Bank Governor was sacked on Friday probably on the basis of an irrelevant section of our excellent constitution. This is kind of inelegant towards a citizen of this country who has been a great Governor. You might want to check how the inflation rate -- the biggest enemy of the poor -- behaved during his tenure. Have a look at the external value of our rupee too. A smoother transition -- like the last three times we changed Governors -- would have been more appropriate for the kind of country we believe Mauritius to be.

And the nearly eight years Manou has been at the head of the BoM has made life a bit easier for at least two groups of people. The first one is an overwhelming majority of Mauritians who experienced the tangible benefits of a common sense approach to managing monetary conditions. The second one bloggers like me who had one less thing to rant against.

He will be a tough -- but not impossible -- act to follow. Because there are many people -- across all party lines -- who have gotten used to the anti-inflation capital he helped build. Despite having to deal with Finance Ministers from very small parties who seemed to be confused about monetary policy -- and many other things. At best. And a Financial Secretary who appeared to have a natural predisposition to establish contact with little green creatures that wear an antennae.

And silly because his successor hasn't been nominated yet. 

Reforms See Poor Make Tiny Progress

Indeed the 10% poorest households saw their real disposable income increase by only 6.2% for the five years ending in 2012. This compares very unfavourably to the huge progress recorded after the first mandate of Navin Ramgoolam as PM -- Bheenick and Bunwaree (BB) were his Finance Ministers. At that time the weakest households of our country saw their purchasing power increase by a very healthy 48.6% -- that's 7.8X the 2012 increase -- over the levels of the preceding half-decade. 

The reforms have been very good for the 10% wealthiest though: their disposable income has surged by almost 30%. Of course the increased inequality has helped Mauritius clock some of the worst growth rates in more than 35 years: 2014 will be the fourth consecutive year with one under 4%. Which is half what was promised to us in 2005. And the basis for the 15% flat tax.

Happy voting!

Resources For The December 10 Elections

Who will you vote for? Well it will have to be three of these candidates.

Where will you vote? Enter your NIC# and the Electoral Commissioner's office will tell you where that will be. That's specially useful if it's the first time you're voting.

Who's the better cake-cutter? That is who divides the national cake more reasonably. I've looked at the HBS data for the past 25 years and it all boils down to who is the Finance Minister. Lutchmeenaraidoo -- at least in the data analysed -- has been good. So have Bunwaree and Bheenick. Sithanen has been a reverse Robin Hood -- takes from the poor to give to rich -- each time he's been MoF. So he's to be avoided at all costs.

Who bakes the bigger cake? Have looked at this data recently and what I've found is that Lutchmeenaraidoo baked a bigger one than the FMs who came after him; the Sithanen reforms generated the smallest cake and that Bheenick and Bunwaree hatched a cake which was slightly bigger than what Sithanen cooked in his first mandate. More on this soon.

Of course we don't want a second republic, party lists, more MPs and double candidacies.

Why Sithanen Won't Eliminate Poverty

Simply because he's so good at creating it. See, at the end of Ramgoolam's first mandate -- Bheenick and Bunwaree were his Finance Ministers -- there were only 500 more poor people than five years earlier. But at the end of Ramgoolam's second -- I guess you recall who was Finance Minister -- there were an additional 22,000 Mauritians that had been thrown into poverty. That's a staggering 44 times more. Or if you prefer almost 2.5 times the 8,902 votes Sithanen got at the end of his first stint as FM back in the 1995 general elections when his party was routed with a 60-0.

There are only two reasons to create so much poverty. One is you love doing that. The other is you don't have the slightest clue what you are doing. In either case I don't think we want someone with that kind of a skills mismatch to be our next Finance Minister.

Bheenick Should Make Vision 2020 Public

He referred to it nine times at his annual dinner with the economic operators last week. The Governor talked about it again a couple of days ago. And if I remember correctly it is not the first time he's mentioning it as the boss of our Central Bank. Nice.

It would be even nicer if he would do the needful to have a pdf of the document on the BOM's website. Out of intellectual courtesy. Vision 2020 could be the first document to go under "Others" in "Research and Publications". So that a maximum number of citizens can have a look at it.

Shouldn't We Create a Fiscal Policy Committee?

Given how pervasive any changes to tax laws are. I mean we've seen what the flat tax of two university buddies have done to our economy and to the lives of our people. We've also seen how the same toxic bean-counting architects of probably the darkest pages of our economic history -- right up there with slavery -- have ended the part they played in it: the PM didn't exactly give them a standing o.

So, we could set up a committee with two persons on it: the Minister of Finance and the Governor of the Central Bank. Each one would have one vote. In case of a tie the PM can cast a vote. What better opportunity to allow avowed Socialists to show their real stripes?

We could but we shouldn't. We already have way too many institutions doing overlapping work. What we need though is the institutional capacity to analyze proposed policies in a totally independent and most rigorous way: the PPO.

More Proof Crisis is Homemade

Recall that the bean-counters were quick to say that their 'reforms' had produced green shoots followed by an early harvest in 2007 and a bumper crop in 2008. That is easily disproved. They also said something else: that growth rates would have been a lot better had the Great Recession -- which began in 2008 and lasted 18 months -- not happened. And that as soon as conditions will get sunnier in the world things would improve for us because we're one of the world's most open economies. 

But as the above graphic shows, we didn't really rebound when times got better. Unlike the object of our economic fantasies: Singapore. We also know for a fact that a lot of the record poverty that was created has been produced well before 2008. And before Bheenick got appointed as Governor.

We also know what's holding us back.

Hard-earned Anti-inflation Credibility At Risk

According to Governor Bheenick as inflation is expected to rise to around 6% by next year. And that's before the ridiculous 3.5% annual depreciation assumed in the recently presented budget. The soundbite also contains interesting insights into how the BOM tried to neutralise the increase in volatility in the forex markets caused by the irresponsible intervention of the National Resilience Fund -- which previously appeared as the Business Growth Fund.

Talk about a resilience fund, eh? It attacks our currency which makes 99% of us poorer. The pompous name is to try to fool us into believing that the extreme trickle-economics implemented since 2005 has worked. It has not.

We know that just by looking at the tax rates and growth rates over the last seven years.

Kahneman Not The First

Non-economist to win the Economics Nobel. Everybody knows that John Nash who won the prize eight years before Kahneman is a mathematician. Who doesn't remember the award-winning movie A Beautiful Mind anyway?

Nash is not the first either. This honour could very well go to Kantorovich who snatched the prize in 1975 or to Hayek who took the Nobel home a year earlier. Which confirms that you don't necessarily have to study economics to understand how the economy works. And that having a non-economist as first-deputy governor is a pretty lame excuse for not having launched the Monetary Policy Committee. When you should have.

Speaking about Economics Nobels, here are five broad categories in which the first thirty-eight ones can be grouped into. That's useful information. Just in case you might be in the mood to get one.

What Manou and Rama Agree On

That would be the crucial importance of savings for our economy. Read us. Makes kind of sense right? That's what left over after we make our purchases. The Governor's views are currently on display in the media for consumption so no need to repeat them here. What you may have forgotten are how close they are to those that Sithanen held when he became Finance Minister for the second time back in 2005. Here's what he said:

CSO is forecasting a very low savings rate of 19.5 per cent for 2005. Here again, we must be utterly concerned. Firstly, because as a nation we are consuming at a faster rate than we are producing. Secondly, because the savings rate is below the investment rate. This will exert demand pressures on prices and will have an adverse impact on the current account of the balance of payments [emphasis mine].

Which gives us a beautiful benchmark to evaluate the so-called reforms he initiated. I guess.