Devaluation won’t help, says Barker

By CLARISSA MOI
DEVALUING the PNG currency will not boost or restore the economy unless it occurs concurrently with other substantive measures to improve investment conditions and encourage domestic foreign investment, an economist says.
Executive director Institute of National Affairs Paul Barker said it was what countries such as Indonesia were doing with their economic measures to drag their pandemic-impacted economies out of recession.
The PNG Business Council suggested this week that monetary policy makers should consider trading the Kina at the market value and devalue it to make exports more price-competitive.
It said it would help businesses during the Covid-19 pandemic period.
But Barker said competitive, welcoming and consistent investment conditions, reduced risks and overall costs of doing business, from poor domestic infrastructure and services, were essential for non-extractive economic diversification.
“Even more than for extractives, which are generally less sensitive to local costs and exchange rates,” he said.
“Extractive industries can undermine diversified economic activity, unless concerted efforts are made to stabilise heavily fluctuating export earnings and revenue, and sanitise some of the proceeds through tools such as a Sovereign Wealth or Future Fund.
“There are invariably winners and loser from a stronger or low-valued currency.
“The inevitable losers from a lower kina would be those on fixed incomes, especially those in low income brackets and others who are unable to lift their prices to cushion the effect.
“Those servicing foreign debt, including the Government, would also face increased repayment and debt servicing costs.
“Those exporting products denominated in US dollars, invariably earn more in kina terms of their goods, which helps, so long as they’re also largely buying locally produced goods.”