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Upholding confidence in the Cedi, a
100 day promise?
E. Ablorh-Odjidja, Ghanadot
The Minister of Finance and Economic Planning, Dr. Kwabena
Duffuor, was wrong when he blamed the Bank of Ghana for the
depreciation of the Cedi against major currencies of the world.
But such is life when an administration has to make good
promises it made during the campaign that brought it to power.
That the Finance Minister chose the Bank of Ghana for blame,
rather than to explain cogently what his administration has
achieved during the first 100 days, was a classic case of
passing the buck.
No one forced President Mills to make campaign promises
redeemable in 100 days. By doing so, and as a matter of
consequence, he transformed what would have been an ordinary day
into an important one, awaited for by all politicians and
members of the public.
Of course, the reason for the promises made had political intent
and merit. President Mills obviously wanted to use the occasion
to score a point or two for his administration. Success would
have highlighted his administrative competence and his integrity
as a leader. And those advantages rendered in the first 100 days
could then set the tone for the rest of his term.
Clearly, the decision was his, but the result so far is mixed.
The 100th day benchmark came and went. Rather than bringing in
the wished for advantages, it helped to point out how fast the
days went, and how ephemeral human decisions were, but certainly
not how prompt the campaign promises for “change” made could be
achieved. Suddenly, it was politics as usual.
With regard to the economy that brought Dr. Duffuor to our
attention, it was he who in January 2009, as a minister
designate, flatly denied the rumor that Ghana was broke and that
the fundamentals of the economy were sound thereby going against
what some NDC officials were saying.
Knowing what bad mouthing a country’s economy could do to her
credit, some of us thought that we were witnessing the
installation of a very sane and qualified person at the helm of
finance and economic planning for the nation.
On the all important 100th day, however, the man who had said
that the economy had sound fundamentals was now saying that the
Cedi, a critical fundamental, was weak, thanks to poor planning
by the Bank of Ghana and by proxy the NPP administration.
Dr. Duffuor said “The liberalisation of the capital market to
allow foreigners acquire significant shares of government’s
3-year and 5-year securities,” had rendered the Cedi weak.
Dr. Duffuor concluded that the bad economy and “all these were
inherited by the National Democratic Congress (NDC) Government,
and therefore one cannot attribute the cedi depreciation to a
government that has been in power for only 100 days.”
The problem with his declaration was that the NPP also took over
from an NDC government in 2001, under circumstances far worse
than now.
In December 2008, the Bank of Ghana issued a press briefing
which said “From the beginning of the year to mid-last week,
December 3, 2008, the cedi depreciated against the US dollar by
22.17 percent, the highest rate of depreciation since it
recorded a depreciation of 49.90 percent in December 2000.”
For our purpose, the marks for comparison were December 2000 and
December 2008; 49.90 versus 22.17 percent when the NDC regained
power in 2008. By the size of the differential alone, it can be
concluded that the NPP had done well; holding the Cedi up in
spite of the battering from the world’s stronger currencies.
Back in 2001 when the NPP took over from the NPP, the exchange
rate of the Cedi to the dollar was in the region of 900 to one.
This meant a simple transaction, in a cash and carry economy
like Ghana, demanded bales of money for exchange. The new Cedi
was the result in 2007 and brought the exchange rate down to
0.93 to the dollar.
The new Cedi was not a devaluation. The Bank of Ghana spent hard
earned currencies to shore up its value in 2007. Call that
Ghana's brand of stimulus package in 2007, a year before the
concept became popular in the West. In short, what would Dr.
Duffuor have done?
The Bank of Ghana claimed that it “adopted inflation targeting
as its monetary policy framework. Among the many benefits that
can be derived from an inflation targeting regime is the ability
similar to those of other inflation targeting countries.”
In January 2009 when he appeared as a potential candidate for
the post of Finance Minister, Dr. Duffuor showed an
understanding of Ghana’s economic circumstance. Instinctively,
he knew that bad mouthing the economy could end up derailing it
entirely because the credit markets of the world were watching
Ghana for signs of economic stress.
Dr. Duffour has yet to recommend an approach that could be used
the next time to shore the Cedi up should the depreciation
continue. The Cedi, one of the least powerful of world
currencies, is under extreme pressure. Upholding confidence in
the Cedi should have been one of the 100 day promises.
E.
Ablorh-Odjidja, Publisher
www.ghanadot.com, Washington, DC,
April 19,
2009
Permission to publish: Please feel free to publish or
reproduce, with credits, unedited. If posted at a website,
email a copy of the web page to
publisher@ghanadot.com . Or don't publish at all.
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