Devalued Franc to Help African Economies
SOME 80 million people in 14 French-speaking African nations were jolted by the sudden devaluation last week of the Central African Franc (CFA) to one-half its value against the French franc.
``The first reaction was that merchants closed their shops,'' a senior United States official says. And three countries - Benin, Ivory Coast, and Burkina Faso - have instituted price controls to block a doubling in prices.
Importers and the urban elite will be hard hit by the devaluation. But farmers and other domestic producers stand to gain as their foreign competition is priced out of the market, and their exports such as cotton, cocoa, coffee, and timber become more affordable abroad, says Pierre Dhonte, senior adviser to the African Department of the International Monetary Fund (IMF).
Since 1986, the CFA - which is backed by France and used in most of its former colonies in Africa - has been widely seen as overvalued. This ``radically undercut growth prospects,'' Mr. Dhonte says. ``By the end of the 1980s, the inadequacy of the exchange rate was apparent,'' but the countries made a ``political choice, weighing the prospect for earlier recovery against the possibility of social disruption.''
The State Department said devaluation would be ``one of the key measures that can help restore competitiveness to the nations which use it.''
The IMF and the World Bank are planning to help the 14 countries adjust through grants, and ``the fund will support programs to ensure payment of salaries'' to civil servants, Dhonte says.
``The US looks to the IMF and World Bank to help out because we don't have funds,'' the senior US official says. All the countries are expected to apply for structural adjustment funds from the Fund and Bank. But the official says devaluation will not revive the moribund economies of the region without such reforms as cutting the bloated civil service, selling or closing money-losing parastatal enterprises, and investing in education.
Two CFA's have been issued: one by the Central Bank of the West African States, which includes Senegal, Benin, Burkina Faso, Ivory Coast, Mali, Niger, and Togo; and another by the Central Bank of the Central African States, which includes Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, and the Comoros.