Posted on 04/15/2009 12:32:20 AM PDT by bruinbirdman
Fiji’s central bank devalued the Fiji dollar by 20 per cent on Wednesday one day after the military-led government occupied the central bank and kicked out Governor Savenaca Narube who had warned that the economy was in danger and would contract by 0.3 percent this year.
He was replaced by Sada Reddy who has imposed strict foreign exchange controls on the volatile South Pacific nation to prevent the flight of capital as foreign reserves fall to dangerously low levels.
The new controls follow last week’s dramatic junking of the constitution and the judiciary after the Fiji Court of Appeal ruled last Thursday that the regime headed by chief and self-appointed Prime Minister Voreqe Bainimarama, was illegal.
The central bank fixed the currency at $0.5697 this morning before the devaluation and subsequently lowered the official rate to $0.4558.
Fiji’s central bank said in a statement it had devalued the currency to help the shrinking economy and to generate jobs. It said the Fijian currency had appreciated by 20 per cent since 2007/8 which was unsustainable.
“By correcting the value of the Fiji dollar it is expected that our exporters will benefit. It will also provide a much needed boost to tourism,” the central bank said.
The Reserve Bank of Fiji which claimed the currency devaluation would see inflation rise immediately but subside within 12 months, forced banks to lower interest rate margins to 4 per cent to encourage corporate borrowers.
It also stipulated the weighted average lending rates of banks and other lending institutions to be kept at December’s level of 7.8 per cent.
“The control on banks interest rates will assist the business sector to have a more stable interest rate environment and depositors will earn respectable interest rates,” the bank said.
Also, Fiji’s commercial banks have been told to set up ”specialised micro-finance service centres” by the beginning of 2010.
One economist close to the situation said the devaluation is a reasonable response to the economic and political shock sustained by Fiji which like most Pacific nations has a managed exchange rate. The Fijian dollar’s value is managed against a basket of the currencies of the nation’s trading partners.
But he said squeezing bank margins will put local banks under considerable pressure because of the lack of liquidity in the Fijian financial system.
“The economy is in shock, export money has stopped, deposits have slowed and the banks have less money to lend. So they are increasing the deposit rate to attract more loans but need to raise lending rates to ensure that they achieve an acceptable margin,” he said.
According to the Lowy Institute’s Jenny Hayward-Jones, Fiji’s foreign reserves have fallen to $737.5mn or 2.7 months of import cover from around 5 months before the military coup of 2006. Foreign-exchange reserves totaled $958.7 million at the start of 2008, “Fiji has been facing quite a bit of pressure on its foreign reserves due to the large deficits in its balance of payments and it is also running a large trade deficit.”
“The loss of confidence following the coup, the impact of the global crisis on the demand for exports will hit Fiji hard this year,” she said. Bad floods early this year have also affected economic production and most sectors are in rapid decline,” she said.
Dang! Cancel that vacation to Fiji.
Fiji has just fallen off the wagon
With the army in charge, it should be safer. And you can get 20% more Fiji bucks for a greenback.
yitbos
so much easier to do it silently by spending trillions that don’t exist....
hey! Obama & Co is devaluing our dollar!!
Fixed it for you. The bottles are made in Evansville, IN like everything else made of plastic. The water is New Jersey tap water, filtered through Reverse Osmosis.
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