CHENNAI, January 28: One is treading on a delicate ground while talking about currency depreciation in a dynamic world which is more inter-dependent than ever before, said executive director of International Monetary Fund MR Srinivasan. There should be no great optimism on the export front for developing countries as a highly depreciated currency will kindle inflation and affect prices. Consequently depreciation should not be relied upon to have a permanent impact on exports, for, continuous depreciation will never allow a developing country to close its gap with the developed world, Srinivasan said.``I would therefore, caution exporters to weigh all consequences carefully before making pronouncements on exchange rates,'' Srinivasan said while addressing the first of the two-day business sessions of the 4th Annual World Spice Congress recently. Elaborating further on the issue of high hopes of exporters based on their devalued currency, Srinivasan said that the current year (1998) is expected to be theyear of slowdown on account of the impact of the South East Asian crisis .... almost all the advanced economies are expected to show a slower rate of growth in 1998 excepting Italy and Franc.
Accordingly, the optimistic outlook projected in October 1997 has undergone a change and now the world economy is expected to grow at only 4.1 per cent in 1997 and at 3.5 per cent in 1998 against an earlier projection of 4.3 per cent. For developing countries, this means caution, primarily because the sharp depreciation in currencies of all the South-East Asian economies is expected to give a fillip to their exports. However, the growth in exports would depend on how these countries have been pricing their export commodities - whether in dollars or in terms of local currency converted into dollars at the time of exports.
Citing a recent UNCTAD Report, 1998, Srinivasan said commodity prices, which gained substantially in 1994 and 1995 showed a decline of 4.2 per cent in 1996. In 1996, there was a slight uptrend withbeverages showing a strong recovery. However, commodity prices, particularly in the oil sector were expected to decline by about 1.8 per cent in 1998 and in the case of other commodities by about 2.8 per cent in dollar terms.
Exporters of spices should, therefore, concentrate on raising productivity by promoting research in the production. Indian productivity is low in the case of many spices and there is enough room for improvement even in the short run. Improvement in the quality of spices and efficiency in processing should be the focus area of attention and research.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
