"Fiji’s central bank devalues dollar by 20%
By Elizabeth Fry in Sydney
Published: April 15 2009 05:01 | Last updated: April 15 2009 13:06
Fiji’s political upheaval has spread to the financial sector, with a freshly installed central bank governor on Wednesday devaluing the south Pacific nation’s currency, imposing exchange controls and clamping down on bank interest rates.
His moves follow last Friday’s manoeuvre by Ratu Josefa Iloilo, president, to repeal the constitution, sack the judiciary and delay elections for up to five years after an appeals court ruled that the interim government in place since a 2006 military coup was illegal.
Savenaca Narube, the governor until Tuesday of the Reserve Bank of Fiji, had repeatedly warned that the economy was in trouble and that foreign reserves were at dangerously low levels. Last week, citing downturns in tourism and in sugar production because of flooding, he forecast the economy would contract this year by 0.3 per cent, rather than grow by 2.4 per cent as previously predicted, and said 2008 growth had only been 0.2 per cent, rather than the estimated 1.2 per cent.
Sada Reddy, who was promoted from deputy governor, yesterday devalued the Fiji dollar by 20 per cent against its US counterpart. The reserve bank said the move would bring the currency “in line with major trading partner countries such as Australia and New Zealand.”
“It is expected that our exporters will benefit and will provide much needed boost to tourism,” the bank said.
The new exchange controls were not detailed. Banks though were told to bring average lending rates back down to December 31 levels within three months and to reduce the spread between lending and deposit rates to no more than 4 percentage points by year end. “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 central bank said.
Gilbert Veisamasama Jr, a former central bank staffer now working as a financial adviser, said Australia & New Zealand Banking and Westpac, both based in Australia, have been under criticism for some time over high interest rate spreads. ”A stable interest rate environment is critical as people are losing jobs and there is no social security in Fiji,” he said.
The Australian banks avoided comment on the new measures citing concern for employees. An Australian economist who tracks Fiji said the margin squeeze will put local banks under considerable pressure because of the lack of liquidity in the Fijian financial system.
Fiji’s foreign reserves were down to $329m in March from $618m at the end of 2007, according to Standard & Poor’s, which yesterday cut its credit rating on the country. “In our view, these reserves may fall further because of the intensifying political pressures and the recent floods, which have harmed Fiji’s key earners of foreign exchange: tourism and sugar,” the agency said.
Jenny Hayward-Jones of the Lowy Institute said the reserves equate to only 2.7 months of import cover. ”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.
Copyright The Financial Times Limited 2009"