Judging the Overall Quality of A Country's Policies

A shortcut is to chart the value of its currency over a couple of decades. And if we compare the latter to the level of exports -- let's say for Mauritius and Singapore -- we get an indication of the strength of the local entrepreneurial fibre. Of course we can use our good old policy matrix. Or have a look at the land use. Or the type of bets that are made and at what cost. Traffic congestion is also a pretty good indicator (Istanbul has the world's worst traffic). And how can we forget fiscal policy?

So I guess we can gauge the DNA of a country pretty fast, eh?

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. 

Still Think Ramgoolam is Not Made For Politics?

Or you might be in the mood for that dumb fairy tale that his dad had said he should never dab into politics. The way he's been controlling the local political chessboard for the past 10 or so years should be ample proof that he simply has no match for now. It's not that he's invincible. Rather his opponents are painfully too weak.

Granted the PM has matured quite a bit: he's been understanding the importance of monetary policy for a while now; foreign policy has become more skillful (the opposition simply cannot deliver this kind of performance) and the toxic bean-counting duet has been neutered. Yet, he still doesn't have a legacy that will not be sneezed at. After three terms.

That could change in a few weeks when he presents his first -- and much awaited -- budget.

2012: The Year in Review

January: PM thinks we should benchmark against Trinidad & Tobago, a country which had an income level per capita similar to ours when he first became PM but which now has one twice ours. Messi grabs third consecutive Ballon d'Or. France loses AAA rating. Jaufeerally pleads for end of growth worship. Photo-giant Kodak files for bankruptcy. Journalist helps democracy work better. Sithanen's electoral reform proposal makes a travesty of our democracy. Disinterested alternative presented.

February: University students unconvinced by Sithanen's proposal. 75% of poll don't want their Ministers unelected. CWA applies harsher cuts, after downpour. Whitney Houston found dead in hotel room. A380 has cracks in wings. Chuttoo organises debate on political financing. Riots break out in Reunion over cost of living. Somalian pirates to be tried in Mauritius.

March: iPad 3 unveiled. Foreign military parades on March 12. MPC undergoes makeover. Country crying for 3 leaders. Things get ugly atop republic. Chagos petition appear doomed. SAJ drags Reduit into partisan politics.

Read the review for Q2, Q3, Q4.

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.

MPC Needs A Little Tweaking

Given that Governor Bheenick -- who is appointed by the PM -- was outvoted by external members who are all appointed by XLD. We could reduce the external appointees by one and give a casting vote to Bheenick as suggested by former Governor Maraye. I think a majority of external members should have resided in Mauritius for at least the precceding 10 years and understand how the economy works. That's very different from people who have simply read economics and finance and whose human capital has been depreciating since then. We also need to exclude people with a worldview consistent with keeping only 1% of the population happy. We could also get people who have had a no-nonsense career. So here are my picks.

Harish Bundhoo -- Former Head of Central Statistical Office
Soobaraj Sok Appadu -- Former Head of the Met Services
Rohit Ramnawaz -- Managing Director of African Links Ltd
Aline Wong -- Managing Director of L'Inattendu

Who else should go on this list?

Fiscal Policy Should Catch Up With Monetary Policy

Well, you've seen where the irresponsible flat tax has led us to: next year debt service is expected to exceed our education budget by a whopping 40% after surpassing it for three straight years. Nothing for policy makers to be proud of. Really. And debt servicing has increased so much because the economy did not grow as fast as it should for the crappy policies that put 1% of the people first to be sustainable.

Of course the Mansoor/Sithanen Toohrooh will get bigger and bigger unless two dumb things are done: one is to slow down essential expenditure and the other one is to privatise public assets through a gimmick called strategic partnerships. Something which Jack Bizlall has already understood and he is gearing up for a fight with an interesting platform. To bring back some sanity to fiscal policy. I suspect we could see the same momentum we witnessed with the Chagossian petition.

On its side monetary policy has been relatively very good for the past five years. Because it has been working in the interests of all Mauritians -- not just the richest ones. Which makes it sustainable. Our rupee has well-behaved too cushioning as far as it can the irresponsible fiscal and other bean-counting experiments of two university buddies.

Does the Minister of Finance understand what's going on? I am starting to have some serious doubts.

MPC Undergoes Makeover

This follows the recent review of Sir Alan Budd and -- shall we point out? -- our modest suggestion. So from now on the Governor along with three officers of the bank he has picked plus five people selected by the Minister of Finance  -- after, and that's important, consultation with the Governor -- will constitute the MPC. The five people chosen by the Minister must have recognised and relevant experience.

It is interesting to note that three of the five members nominated by XLD are foreigners and that includes a woman.

Sugar Syndicate Unhappy World Not Frozen

See, its Chief Executive is not happy that the rupee did not stay at the levels of a few years ago. Maybe it's because that's near to the weakest our currency has been. Who wants to accommodate a sector which has been dead for long and which accounts for about 1% of our economy? And which is now importing sugar from world-beater Brazil?

PM Now Understands Importance of Monetary Policy

That was not the case back in 2005 when he did not immediately appoint Bheenick as Governor of the Central Bank. And I don't think he understood how important monetary policy is for the country and for the career of politicians when he nominated Manou back in 2007 on Valentine's Day. Granted he considered a few options but in the final analysis Bheenick was minted Governor mostly because he didn't want to give in to Sithanen. That's quite understandable given that both Vishnu Lutchmeenaraidoo and Manou Bheenick were denied a ticket which considerably reduced a mesmerised Ramgoolam's options as far as the crafting of economic policies go.

He appears to have learned his lesson because during the last electoral campaign he announced that Bheenick would be returning at the Bank of Mauritius. That's, by the way, the closest you can get to having an elected Governor.

Repo Rate Raised By 50 BPS To Prevent Second-round Effects

As widely expected, well, save the JEC. BOM's primary objective being price stability it had little choice to raise the repo rate to 5.25% as inflation had been on the rise after Pravind Jugnauth's budget. Besides monetary policy operates with a lag and inflation is like...radioactivity.

Win Rs60,000 By Explaining Where The Repo Rate Should Be

I just saw that the Central Bank was organising a monetary policy challenge. You need to team up with three people and submit your analysis no later than August 16.

That's an interesting initiative from the bank's Financial Literacy Committee to raise the level of debate surrounding monetary policy. In fact it's the fourth edition of that challenge. I don't understand how I missed that. Anyway here's last year's winners.

I wonder if Mr. Berenger will participate. He could indeed team up with let's say Ganoo, Cuttaree and Bhagwan.

MPC Leaves Repo Rate Unchanged

Although it acknowledged that growth for 2010 has been revised downward to 4.1% it is worried about inflation picking up and rising to 4% over the next few quarters.

That makes a lot of sense because price stability should have priority over growth especially when the latter is of the depreciated rupee kind. We can also compare the performance of the last two governments and Sithanen's record vs. that of Singapore for support of an inflation target.

Inflation Targeting Turns 20

It started in New Zealand, the land of the kiwi -- the bird, not the fruit which is originally from South China -- back in 1989. That was to be followed by Chile a year later and by Canada in 1991.

The reason you want to target inflation is because it is the worst enemy of the poor. Besides there is no real trade-off between economic growth and inflation. And that's so easy to prove. For example the growth rate over the past 9.25 years has been 4.3% but the average inflation rate since July 2005 under Sithanen's toxic medicine has been about 54% higher than what it has been under Federation 2. Industrial relations also tend to improve when trade-unions see that you're serious about fighting poverty.

The UK's Treasury has also evaluated the benefits of inflation-targeting while you can read Canada's interesting experience with inflation control by clicking on the image below.

British MPC Turns 10

Actually, that happened in May 2007. And to mark the event the Treasury of Her Majesty inquired and published the interesting report you can download by clicking on the image below. Here's some of the stuff they found.

Since the inception of inflation targeting, inflation in the UK has been low and stable and economic growth has been very stable. It also confirmed that there is not really a trade-off between inflation and growth or if you prefer that inflation is not only the worst enemy of the poor but also an enemy of growth. Which makes it all the more difficult to understand why Sithanen has been producing such a robust amount of it.

Repo Rate Drops by 100 Basis Points Even Though Inflation is Still High

And inflation is still high because back in the second half of 2006 Rama Sithanen and Ramesh Basant Roi issued a fatwa on our rupee after Sithanen removed subsidies on rice and flour in an environment of agriflation and ferocious bean-counting, rapidly rising oil prices and record FDI pouring into Mauritius.

Although inflation came down to 8.3% at the end of last month it's still more than twice the level that would be consistent with the notion of price stability. For instance in the UK it's 2%, at the ECB it is less than 2% (thanks to the Bundesbank) and in Canada it is between 1% and 3%.

Our rate of inflation would have been even lower if Manou Bheenick hadn't been working in difficult conditions: he inherited double-digit inflation and entrenched inflationary expectations from his predecessor and a Minister of Finance who appoints far too many people at the Bank of Mauritius even though he doesn't believe in an independent Central Bank.

For sure appointing Bheenick at the Bank of Mauritius has improved the odds of Ramgoolam staying on as PM after 2010 by containing Sithanen's pathological addiction to robust inflation. These odds can be further improved if the Bank of Mauritius Act is modified so that its Board and Monetary Policy Committee members are nominated in consultation with the Prime Minister and/or if the ultimate Bretton Woods puppet is sacked unceremoniously. The Government Audit Report is the latest of a long string of blunders that could be used as justification.

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.