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#1978: Re: #1966: : RE the Gourde's Depreciation, and rice! Poincy comments

From: Jean Poincy <caineve@idt.net>
To have a product, or rice in our case, a country can either produce
enough quantity to feed its population, import portion of it if the
quantity produced is not enough or import 100 % of that product if the
country does not produce it at all. In Ayiti's case enough is not

Regardless the portion of rice imported by Ayiti, if it is not a
donation, Ayiti must buy it on the international market meaning from a
foreign producer of rice, who it is does not matter. To buy on the
international market, a country must be able to use a currency that is
recognized on the international market for credibility purpose and
conversion facility. 

US $ tends to be the currency common denominator since it replaces gold
as reserves. Now the amount of such common denominator that a country
has in its reserves will determine the purchasing power and the strength
of its currency both locally and internationally. 

Now Ayiti that needs to buy its portion of rice or any other product on
the international market has to provide itself with enough US $ to do
so. Its currency is useless because it is not recognized for
international trade. Hence, whatever Ayiti has will be converted in US $
currency to facilitate its purchase of rice, this is where the reserves
in US $ comes into play. 

The less US $ Ayiti has in its reserves the less its currency is
depreciated, meaning it loses its value on the international market. Now
it is necessary to acquire US $ to conduct international trade. Leave
donation aside, it can be done two ways, 1) by borrowing it, this is
where the World Bank and IMF put their nose in the issue. Countries that
belong to these organizations have a certain limit of credit which they
will be able to use as reserve when they need US $ to conduct
international transaction. 2) By selling the country's product on the
international market as the proceeds will be in the US $, the currency
common denominator. 

In the first case certain conditions are imposed to access the credit
line. They always associate these conditions with structural adjustment
and stabilization, no need to touch on these aspects for our purpose.
The devaluation of the country has always been a part of the conditions
imposed by IMF and the World Bank. Meaning that the country has to put
order in its house in order to enjoy the benefits of the credit limit.

That's the whole purpose of the devaluation, which in fact will decrease
the country's purchasing power to reduce import and at the same time
enhance its opportunity to export its products provided that the country
produces goods that are in demand on the international market.

To make it simple, assume that Ayiti produces enough of a product that
is in great demand on the international market, in a short span of time
it can accumulate enough US $ to replenish its reserves while the
decrease in its importations will keep more US $ in its reserves. As it
accumulates more currency through these skims, its currency would gain
its value back gradually and the economy would grow stronger.

The period of the embargo indicates that there was no Ayitian products
being sold on the international market and Ayiti has lost its privilege
to access its line of credit with the World Bank and IMF. Consequently,
the US $ was not coming to replenish Ayiti's reserves. Since we know
that the less US $ the country has in its reserves the more its currency
will be depreciated, it is quite logical that there was a rate of 25 US
to 1 G. 

Why then do we even have to consider the exchange rate if there was an
embargo? Well when there is an embargo not all products are excluded,
fuel for instance may be scarce, can't be found in great quantity, but
enough is allowed to flow in to keep the country survive while under the
embargo. These fuel had to be paid with US $ and if the reserves were
being depleted without a source of replenishment, imagine by our much
the local currency would be depreciated.

Now not being able to find rice has nothing to do with the depreciation.
It has to do more with the level of rice production of the country
relatively to the number of people to feed. If the portion that was
being imported is not adjusted, and local production stays the same
while the population increases, rice will become scarcer. 

We know that a greater demand in one thing when supply does not
correspond leads to a price increase. This same principle governs the
price factor when at one point rice was nowhere to be found and once it
is found, the price is sky high. It all boils down to the relationship
between how many people are in need for rice and how much is being

Solely the authorities through price control can do Price manipulation
by imposing a ceiling, full around with interest rates, or subsidize the
farmer-producers, importers, or buyers. The Ayitian authorities have to
find what is suitable for the current situation. 

Now if we find some malevolent individuals who are hiding the rice to
provoke scarcity that would lead to price increase. That's a different
ball game, which again the Ayitian authorities have to deal with by
stepping in. I hope I was plain enough. 

Ayiti has lived, lives and will live