#4216: On making Ayiti economically fit: Poincy replies to Durban (fwd)

[Robert Corbett <bcorbett@netcom.com>]

From: Jean Poincy <caineve@idt.net>

Folks, please forgive me, I am about to be "a bit Poincyeske" as Gary
Pierre-Pierre would say. Durban's correct observation without specifics
on his part himself forces me to do so. By hammering me for not giving
specific or wanting to squeeze the juice out of me, I hope he is not
asking me to conceive a development plan for Ayiti. It is true that the
many activities stemming from "a cotton seed" make the integration of
the many derived distinct industries very complex, but it is quite
possible. The very fact that each industry would involve a different
process throughout the "cotton seed" life cycle is an indicator of
intensive economic activities. As a result, such activities would create
or enlarge the purchasing power base of the people.

The complexity of an economic development is due to the fact that it
can't be done in a vacuum. Economic development is like a centripetal
force pulling in any related sector directly or indirectly to the
enterprise. Discounting that will create devastating pitfalls for any
initiative. For authorities ought to look at what sectors that will be
affected and seek for the best way to integrate them, all possible
externalities considered. Yes! Durban, economic development is no simple
matter, but the intricate aspect of it does not go beyond one's
imagination.

As far as difficulties of implementation overlooked by scholars goes, it
is a matter of detail at a conceptual stage. It is no sin to defer it to
technicians whose purpose is to reduce the concepts to reality. We can
debate as much as we can, conceive the best development plan and present
to the officials, but if they don't use their authority and ability to
execute it, every written document on the matter can end up being a dust
collector somewhere. Now let's get on our subject matter.

ON CONTROLLING IMPORT FLOW

If tariff on imports, a widely accepted tool to manipulate international
trade, is a delicate key to touch on in a free trade environment, some
other ways must be devised to reduce or eliminate certain imports (here
I agree with Hudicourt). The ban on certain imports is the most radical
and swift action to effectively do so, but it carries with it trade wars
or economic ostracism. Where some might think of it as a dangerous path
to take, I think it's the ideal considering the state of Ayiti's economy
today.

As a partisan of free trade, I don't embrace such a tactic as a fair
trade practice due to its dangerous nature for an economy. However, my
practical hunch leads me to advocate it to buy time while protecting a
nascent textile industry. Such actions would be on a temporary basis
until the infant industry gets on its feet. Once the desired postured is
attained, it would be necessary to revert the position to rejoin the
free trade family and feverishly promote free trade to allow Ayiti's
products to compete and outdo those of other countries. We can call it
back stabbing, unethical or whatever we wish, but we can't deny it as
part of the game. Many nations have used similar strategies that waged
trade wars that worked in their benefits. If it is part of the game, and
many nations have used it why not Ayiti?

Accepting the temporary isolation is an economic strategy that would
allow a country to develop independently its way of working and develop
its technologies. It carries with it harmful consequences for a short
while. Some trade practices that lead to trade wars have been long in
practice as countries used them to buy time. The authorities know that
they can always reenter any economic association in existence once they
comply with the conditions. At that point they are ready to compete with
foreign products both internally and externally.

It takes a strong government to put forth such practices, an uplifted
national spirit to back up the government's actions, and strength on the
part of the people to withstand temporary economic hardship. I don't see
why the people wouldn't since they are in economic hardship already
while nothing is being done.

ON THE TEXTILE INDUSTRY

Allowing the selected imports to flow in is the preceding step to what I
have outlined above. In other words, the country would still play the
game of free trade with mild tariff imports manipulation to allow itself
to receive the kind of equipment needed. How long this mouse and cat
game would last, I have no idea, but it does not matter if practical
approaches to the whole affaire is underway.

The need for machinery is not that for a large-scale industry intended
for mass production, like the example given by Durban. It does not make
sense to have it when the local demand is not enough to absorb the
quantity produced. At this point, the plant would produce under its
capacity to meet the low demand at a very high cost of operation. I was
thinking in the line of intermediary equipment that will enable a
country to fabricate its own appropriate tools. In other words,
equipment to import is the "machine making machine" or "machine making
tools". All would be geared toward the local market, the central engine
of economic development.

The textile plant mentioned by Durban can't be considered as an aspect
of developing the textile industry. I don't know if Durban would accept
to acquire it for only $1, but myself I would not even want it for free.
Accepting it would make me a fool for the following reasons:

1: the plant was introduced to join the "assembly industry club" and was
not geared to satisfy the local demand on the local market.
2: the product was not even a local demand, a common characteristic of
the assembly industry.
3: the plant was at a finishing stage of the "cotton seed" life cycle,
as the most crucial preceding stages of large-scale cotton plantation
were discounted.
4: the plant was to do one thing: making towels for which the equipment
was specifically designed. I just don't see the many industries (of the
textile industry) involved in such a process. Backward and forward
linkages among various sectors were totally absent.

My suggestion to import equipment as stated above has to do with
machinery that allows one to make machinery that would ease laborers'
tasks in the production process. For our ideal textile industry, I can
go further to agree to start weaving manually until workers begin to
develop their own technologies and own way of production. It would take
time, but it would assure strong and sustainable economic development.
Yes, if Ayiti takes the $1 machinery offered to Durban, a poor quality
shirt would cost $50 and would never find a taker on the world market.

I understand that others would say: why bother when the technologies are
there already. Yes, it could be done easily; however, it would not
respond to the local need for which the industry is set for. Moreover,
the fact that the people who are using them did not conceive these
technologies makes its maintenance and reparation difficult. For any
breakdown means the death of the equiment. Whereas, when the same people
conducting the activities make the tools themselves they are using a
product of their imagination. Hence, they would know how to fix it and
would not have to wait days, months and years to get parts. That would
help the people develop their own appropriate technologies and escape
the problem of the textile plant that Durban is referring to.

A promising economic development based on the textile industry in the
case of Ayiti would necessitate regional planning to allocate the
various activities, land consolidation to form large plantation either
under private or public ownership, and securing the land tenure
structure put in effect. Because the trend now is for land
redistribution, I wonder how the government would go about the land
consolidation process.

The importance of regionalism in this instance is its capacity to boost
the economy of each region specializing in its respective activity. The
resulting regional spirit would subsequently develop into a national one
as extensive trades among towns and cities would be taken place.
Although related activities could be conducted in the same town for cost
efficiency purposes, it would not benefit the other towns or regions.

Making regionalism a crucial lever in the process would stimulate the
development of the post and transportation systems. The speed at which
correspondences or goods would reach their destination is of no
relevance at this stage due to the fact that it is nil now. Moreover,
textile derived products are not as perishable as foodstuff. Staying in
our textile industry and keep everything else constant, Ayiti should be
able to build roads with the bare minimum to facilitate transportation
by whichever appropriate means available.

Having modern cars would be a step back in the process as it requires
the roads to be constructed a specific way which is not of importance at
this stage. Right now in some remote areas in Ayiti horses, mules and
the like are the main transportation means. At the initial stage, they
are to be kept with a combination of wheels as it used to be in
pre-steam engine period. Roads would be build accordingly. How expensive
can that be and how much capital would Ayiti need? Modern cars would be
needed to facilitate transportation between long distance towns or
cities. I wonder what Shirley Jean thinks considering her very expensive
layout to build modern infrastructure for the sake of Ayiti's economic
development. "Small is beautiful".  

Labor is available, it would be very easy to acquire the combining
elements to build "locomotives" powered by animals. All that would be
needed to make the roads is someone with basic topographical skills.
Rocks of which the roads would be paved are to be found in nature.
Wheels to facilitate carts motion either by animals or human are to be
made of woods and be found in nature. Again where is the need for the
capitals to do this? How expensive can that be, besides hiring laborers
(who can even volunteer)? How much education or investment in human
capital does Ayiti wants to perform these basics means of sound economic
development. 

ON MONETARY POLICY
	
Having outlined all of the above, it is fair to say that the milieu for
creating or broadening the purchasing power base of the people is on the
making. This implies that the country is able to produce. Only in light
of production that one can talk of an effective purchasing power.
Borrowing is a rodent of one's purchasing power if not used
productively. This is the case in Ayiti. Not that money borrowed by
individuals to conduct businesses is not productive investment, but the
structure of it is purely survival. The individual entrepreneur never
gets the chance to reinvest effectively their earnings as they are eaten
up on a daily basis for daily necessities. This kind of economic
activities are called "Demele" in Ayiti, meaning that people are selling
this or that, eat daily from proceeds, get up the next day empty handed
and wait for the next sale to start the first daily meal. Leave aside
this aspect of the issue.

I mentioned earlier that an increase in production from a nascent
industry automatically broadens people's purchasing power base. Once
reaching this stage and the circulation of money and the need to invest
start to become intense, the government can't sit by and not making use
of the monetary policy tool that Durban made mention of. Plainly
speaking, the purpose of monetary policy is to keep the economy running
smoothly for a long period while preventing recession at best via the
regulation of people's buying power, so production and inflation can be
kept in check. The main tool used is the price (interest rate) of legal
tender (money in all its official forms) to guide the circulation of
money. Only the government has the authority to fool around with it.

The purchasing power is what triggers the necessity to use monetary
policy. Where it is a zero level, using monetary policy can be very
inappropriate; because there is nothing to control. One might rightly
think that inflation could be the target of monetary policy. It would be
so when inflation is the result of high level of continuing spending.
However, when inflation is the result of a lack of production, products
scarcity or excessive consumer products rather than high level of
spending, direct price manipulation is the effective tool of choice of
government for some commodity items. Government subvention and price
ceiling are the variances. The latter has been the main one used by
Ayitian authorities in the past. Attempting to use monetary policy to
control inflation resulted from lack of production can be quite
inappropriate and would never work effectively.

In Ayti's case now, the more use of monetary policy would further erode
the terrain to induce production; hence the purchasing power of the
people would never know an increase. If before using monetary policy
there is no production one can think of and no individual income in
creation, people can't buy their daily necessities what is the use of
monetary policy according to its function underlined above? In Ayiti the
people's buying power is basically nil. One can accurately speak of a
meaningful monetary policy.

When actions are taken to control inflation, borrowing is made very
costly. The irony is that small entrepreneurs in Ayiti are in great need
to borrow to help boost national production, but have roadblocks. Money
becomes too expensive because of inflation control, (again the wrong
kind of inflation). The result being that any monetary policy geared to
bring down the kind of inflation Ayiti has today is causing great damage
to the economy. Entrepreneurs in dire need for seed would not have
access to funds. Necessarily, they turn to their family, friends or
other individuals for seed money to further explode the informal sector
which monetary policy does not affect at all. Since monetary policy only
affects the formal sector which is at near zero level production wise
and the informal sector where economic activities are heavy is
untouched, there  no need for the government to exert itself in devising
such policies to control the economy.

Considering these contradictory aspects, Durban suggestion to use
monetary policy to control the exchange rate, although no specific is
provided, is a very inappropriate approach to deal with the inflation
resulted from a lack of production. Manipulating the exchange rate is
merely a trade policy tool to mainly favor exportation and discourage
importation. Currency devaluation is the most effective tool. Fully
integrating it in the monetary policy that is to be focused on the local
market mainly is not the path to go. Where, it would have merit is if it
made borrowing money for imports or for unproductive spending very
difficult. At any rate, I would welcome any specific from Durban
manipulation of exchange rate through monetary policy in Ayiti's case.

That reminds me of one item posted by Blanchet a few months ago in
regards to the government diligence to replenish its reserve in dollars
so import activities can be conducted. If that's what monetary policy is
all about, I tip my hat. Well, much to Durban's disappointment, the
government has to legislate the use of foreign currency on the land.
Countries that are aware of its value make illegal the use of foreign
currency. Exchanging currency for currency on the land is a YES, using
foreign currency to buy a bottle of coke is a NO; using foreign
currencies for international transactions is a YES, but using foreign
currency to buy a tooth brush on the local market, is a big NO.

The trend now, you don't find in Ayiti such a regular use of the US $ on
the market due to its high value relatively to the gourde. What I
expected to hear is that the fact that the gourde is allowed to
fluctuate, the non-usage of the US $ becomes automatic and no one would
be willing to use his/her $ on a tooth brush when they know the $ is
hard to come by. Why continuing to go by an agreement that gives a fixed
rate of 5gdes/$1 when in fact variations upward is allowed? Keeping the
fixed rate as a base would prevent the variation of  $1 to go below
5gdes, if Ayiti's economy starts booming. That's quite a disadvantage
point here.

In that case, if the Ayitian currency gains value and is at par with $1,
imagine the lost for the country's economy due to an obsolete
legislation. Yes! the government has to restrict the use of foreign
currency on the local market. I wonder what Durban considers as an
inconvenience not to use foreign currency in private transactions and
what the benefits are by doing so. Only, the government has the
authority to legislate the non-usage of foreign currency for private
transactions. I would agree that the market would make it automatic if
fluctuations were occurring both upward and downward. However, the one
sided case of Ayiti, due to the fixed exchange base rate 5gdes/$1, makes
it impossible for the market to prevent such a use in private
transactions automatically.


Ayiti has lived, lives and will live
Mozeb