Meet TAMBO

Patriotism is the last refuge of the scoundrel.

Samuel Johnson, 1775

It stands for There-Are-Much-Better-Options. It’s the response of The Jag! on behalf of the beautiful people of Mauritius to the incompetent bunch that swear only by TINA.[1]

TINA – Position #1: There is no money to fix the severe traffic problems that we face. Debt levels are already way too high. Blah blah blah.

TAMBO – Response #1: It is really not a problem if national debt levels went up a little bit as long we’re using the money to solve real problems. For instance cutting ½ an hour on travelling time every working day for tens of thousands of Mauritians that take the Curepipe-Port-Louis corridor is one area where our tax rupees should go to in priority. Hey, if you have an excellent Public Transportation System that runs till late every day a great number of people will start leaving their cars at home. Spending money in this manner will not only make us more competitive but it will make every square inch of our island more valuable. Another way of looking at it is to realise that standards of living can be raised by reducing the multiple levels of frustration that we face as citizens of our island-state. Of course, we would have to be worried if debt levels were going up and the money were wasted or mysteriously disappearing or if debt levels were going down but new levels of frustration were cropping up. If you are solving problems that really matter both debt levels and frustration levels will eventually go down.

TINA – Position #2: The only priority is deficit and debt reduction. So in his 2006 budget the Minister of Finance decided among other half-baked policies that the school-feeding program was a waste of money, the subsidy on rice and flour would be eliminated, interest income would soon be taxed, personal income tax exemptions would be abolished and the HSC/SC subsidy would be reviewed.

TAMBO – Response #2: The basic practice of government or anything else for that matter requires that we understand the important links of the system we are trying to improve. That is which dots we should connect and how we should connect them. Ignoring the basic principle that understanding how things work is to have control over them, Sithanen managed to seriously upset the whole country for a mere 0.2% difference in the deficit of his first budget. We all remember how Berenger had to apologize for Sam Lauthan’s blunder with respect to means-testing our elder folks. Well, what Sithanen has done is at least 10 times worse and the political cost of such incompetence will be borne by everybody’s favourite uncle, Navin Ramgoolam, who unlike his Finance Minister needs more than 24 hours to shift parties.

TINA – Position #3: Sugar Industry is our mother industry [paragraph 73, Budget speech 2007-2008]

TAMBO – Response #3: If that’s the case then I guess we shouldn’t be surprised if Rama Sithanen came across a Dodo on La Chaussee Street and greet her with a heart-breaking ‘chachi’. It was totally indecent for the bean-counter to have suggested that we should handout Rs 5 billion to that sunset industry especially after making us poorer by depreciating the rupee and viciously going after our hard-earned savings. That was after he announced another economic nonsense on TV from Brussels that the money we would get from EU would be used to subsidise loans to that sector. Sithanen owes us an explanation as to how he moved from subsidised loans to outright gifts. We could definitely use that money much more productively. Our salvation lies in shortening our product and industry life cycles, not in making them last forever. And that’s a good prism through which to look at the Tianli project.

TINA – Position #4: The country never faced such economic upheaval before. Triple External bla bla bla.

TAMBO – Response #4: When you don’t know how to solve problems you just blurt out crap or you go seek help from the Bretton Wood idiots (The IMF and the WB). Sithanen not only does both, he also imagines new problems now and then when he is not creating some really serious structural ones. Meade and Naipaul rightly did not think much of our future when they said what they said after seeing what they saw: rapidly-expanding population, mono-crop economy, the tyranny of distance and a century and a half of divide and rule complimentary of the British on the coat-tail of about a hundred years of French rule which saw the execution of a particularly cruel version of Colbert’s little human resource manual, Le Code Noir. All of this along with the first two oil-shocks surely did not predispose us to the sunniest of tomorrows. But thanks to the vision, dedication and the very hard work of a few mavericks we managed to hold our heads above water and a strong foundation for our country was laid. Regrettably, the latter was left to rot after 1982. It is also interesting to note that the implementation of free education turned 30 last January. At that time, and fortunately for us, doing was not the same as deciding and of course when a Minister resigned, he resigned.

TINA – Position #5: The Minister of Finance does not have a forecast for inflation. That was after the rate of inflation (both the CPI and Core inflation) doubled in a 12 month period mostly on account of budget-related measures and the practice of Faratanomics. There is nothing we can do about rising prices.

TAMBO – Response #5: In the country where both Sithanen and Mansoor studied economics, the law requires the Governor of the Bank of England to write an open letter to the Finance Minister if the target rate of inflation of 2% is missed by more than 1% on either side. That happened last April for the first time in 10 years since the UK’s Monetary Policy Committee was set up in 1997. That letter is a must read to understand why there is no place for Sithanen in the cabinet and that’s before you realise that he is contravening Article 5.2a of the Bank of Mauritius Act 2004. The British rate of inflation has since then been brought back to within target.
TINA – Position #6: The reform is working (a.k.a early harvest). We have to maintain the course. Blah blah blah.

TAMBO – Response #6: At double-digit inflation with double-digit and rising unemployment along with a depreciated currency, entrenched inflationary expectations, a really upset population and not the least sense of direction I don’t think we could call that reform. Nope. What Sithanen has been doing for the past 2¼ years is nothing but screwing up our country big time. Clearly this is a case of things gone worse right from the start before really and rapidly getting out of hand.

TINA – Position #7: Our rupee is overvalued and has not adjusted for the past few years. Rupee is then devalued.

TAMBO – Response #7: Not knowing what to do, our Finance Minister simply followed a flawed IMF report that found our currency overvalued and made everybody, save a few speculators, poorer. This is all the more controversial given that the IMF has come under attack with respect to its core function: exchange rate advice. Indeed its own Independent Evaluation Office (check the May 17) has found the type of advice it has been dishing out wanting at best. And matters have gotten more complicated for the IMF: nobody wants to borrow money from it and nobody wants its poisonous medicine. Furthermore, given all the FDI Sithanen said we have received, that would make Mauritius probably the only country to have experienced what needs to be coined as the Reverse Dutch Disease: the more FDI you receive, the more your currency depreciate.

TINA – Position #8: We’re gonna revolutionize the tax system. Exemptions are going to disappear. Youpi!

TAMBO – Response #8: A lot of people (that includes people who will vote in riding no. 18 in 2010) feel that they have been cheated by the crappy policies of Rama Sithanen. Indeed, when people take loans, insurance policies and craft their investment policies they plan over the long term using their frontal lobe machinery. A responsible government doesn’t make these decisions become irrelevant in one bean-counting budget-speech especially if that’s what another flawed IMF report recommended. Maybe that’s what he meant by early harvest: the population have been harvested of their assets. And the doubling of the rate of inflation and depreciation of the rupee also creates a distortion known as shoe-leather costs: you waste your time into unproductive activities because the environment has become unpredictable. Isn’t that what is precisely happening in our country today? Paul Krugman’s September 10 piece in the New York Times entitled Where is my trickle? makes good reading for those who have mistaken Mauritius for Mount Meru.

A little aside on expectations
Lucas. Not George. Robert E. There was picture of him smiling and holding a bottle of Dom Perignon in the newspapers some 12 years ago. He had every reason to celebrate. He had just been informed by the Royal Swedish Academy of Sciences that he had been awarded the Nobel Prize in Economics mostly for ground-breaking work that he did in his early thirties. So important was this work that some new artillery in econometrics had to be crafted to implement it. And his 1976 critique of models that did not allow expectations and hence behaviour of economic agents to change was so brilliant that it ended up simply being known as the Lucas Critique.

Updating
Essentially, Lucas explained that people process information efficiently (the equivalent in financial markets would of course be Gene Fama’s Efficient Market Hypothesis). That is they update their prior knowledge with new information. They revise their expectations in such a way that they end up having rational expectations – a term coined by John Muth in a paper published in Econometrica when Ali Mansoor was about 5 years old. This is a crucially important concept for policy makers when trying to assess how agents are going to react either following the announcement and/or implementation of a new measure or as the environment evolves. What’s going here is a much more sophisticated version than what B.F. Skinner discovered rats were capable of when subjected to an external stimulus. This is something that is continuously ignored by Sithanen.

TINA – Position #9: Setting the stage for robust growth.

TAMBO – Response #9: Economic growth is obtained by multiplying the growth rate of a sector by its size and then adding everything up. Sugar is a smaller sector than the financial industry and has experienced a natural death while the financial sector has been growing at a brisk pace and can grow at even faster rates. But it is not surprising that so far Rama Sithanen has had little plans for that growth sector except maybe playing some really cheap politics with our national debt numbers. Furthermore it is a well established fact in Economics that taxing interest income will slow down the growth rate (known as the Lucas wedge). Does it look like we are going to get robust growth? And that’s supposed to happen without enhancing our infrastructure? Wow!

TINA – Position #10: We’ve been victim of our own success. We need cheap loans from the Bretton Woods Institutions and the AFD has been brought back in after they’ve been shown our begging-bowls.

TAMBO – Response #10: Mauritius is not desperate for cash to finance its development. There is absolutely no reason for us to borrow money with strings attached be it from the World Bank or the China Development Bank. The Government can borrow money from our local capital markets like it does regularly or it may borrow from international markets at a rate that reflects our credit-worthiness which in turn depends on the way we manage our country. What we urgently need to do is to allocate money to solve one major problem after the other. What we don’t need is money that cannot be used to solve real problems or getting our heads buried in the sand and waiting for these problems to somewhat go away. Also, why pay interest to foreign institutions when that interest could be used to support the deepening of our capital markets which will create more high-paying jobs here? There’s another proof that Sithanen is creating severe structural problems for our country.

A concluding note
I am betting the Prime Minister will cancel the NRPT one way or another in the days to come in order to defuse one of elements of the perfect political storm that his Finance Minister has been brewing. This would have been just another big waste of our collective energy to clean up after the bean-counter.

TAMBO is here to stay
How big is this TAMBO thing going to be? Huge! Africa’s busiest airport has already been named after it!


Comments: density@intnet.mu.

[1] TINA stands for There Is No Alternative.


No. 8 September 2007
© Sanjay Jagatsingh, 2007