Former Governor Ramesh Basant Roi issues, in an ongoing conversation with “l’express” on the state of the Mauritian economy, his latest warning about the fiscal and situation: “The amendment of the BoM Act incorporating a method of deficit financing that inheres a weaponized policy for draining its balance sheet is inarguably the silliest fiscal policy decision ever made legal in the history of the country.”

What’s your take in the surprise exits of the Governor and his Deputy at the BoM?

I had expected this half-hearted change of heart in the love story I had watched. Ever since 1967, all the Governors, with my own exception, were invited to vacate the office before the expiry of their respective tenure of office. That the Governor and his Deputy have been unceremoniously shown the exit door about two weeks ago before the expiry of their contract is a well-established BoM tradition, maintained respectfully. But despite turbulences, the BoM has until a couple of years back found a way to reset itself like those dolls with lead in the bottom that right themselves whenever toppled.

The Financial Action Task Force (FATF) has put Mauritius on its ‘grey list’. Any comment?

We get what we deserve. Why only the high-handed politicians emerge as the all-too-powerful voice of our regulatory authority every time an issue having to do with the offshore sector and non-bank financial intermediaries has hit the headline? In the last quarter of a century or so, how many times have you seen the Chairman or the CEO of the FSC (or its predecessor, the MOBAA) giving the local media an account of major events, favourable or not, affecting our offshore business sector? I hope the lessons from the Alvaro episode are not forgotten. Power corrupts few; weakness corrupts the many. Is there anyone who believes that the non-bank side of the BAI crisis was efficiently handled, without undue burden of Government Finance?

Enforcement of the laws and of regulatory and supervisory guidelines are impossible with politicians weighing down on the shoulders of the regulators and supervisors. Crisis resolution is impossible with politicians miserably pretending to be expert in the business of regulation and supervision. It is high time to get the politicians out of the way from the regulatory and supervisory arena and bring the FSC under the umbrella of the BoM with the Governor being made accountable to a Select Committee of the National Assembly in order to avoid grotesquely evasive and obfuscating responses to parliamentary questions. This new modus operandi would enhance responsible conduct in the implementation of regulatory policies, transparency and good governance which, in my view, would take political comedy out of the show in the National Assembly. It’s now or never.

In fact, all the laws, including the BoM Act, the Banking Act and the Anti-Money Laundering legislation, governing our financial industry need to be comprehensively recast, without loopholes and gaps, and harmonized in a manner that no issue will ever fall between the chairs. The Minister of Finance who, I guess, must be more than pre-occupied with the state of Government finance, and the Governor of the BoM have a herculean job in hand.

Lately, the Rs18 billion BoM story is back again. Last year, you were very critical of the Government’s decision to dip into the BoM’s Special Reserve Fund for external debt repayment. The BoM Board has approved the decision. Your views, please?

To begin with, allow me to share with you a very personal reflection. We seem to have mutated into a dysfunctional society, unable to conduct a usefully coherent discussion about what’s happening to us. The level of debates on critically important economic issues often degenerates to levels that reflect fanatical partisan feelings and limitless corruption of the mind. Those who display a sense of objectivity are instantly brushed a paint of some political colour. Views, motivated by partisan considerations, suddenly pop up like rabbits and aired to keep the public on a drip-feed of frenzied bigotry. It is sad to see amoral self-promoters, not adequately conversant with certain economic issues, being commodified. Birds born in a cage often think flying is a risky business. Anyone who is familiar with the mechanism of how money creation out of the blue feeds through the system to impact on the domestic price levels and has studied the monetary approach to the balance of payments will certainly find the decision very distressing. Time will tell.Anywhere and everywhere, central bankers would qualify this policy option as an unwarranted ‘nuclear option’ that is manifestly offensive to sound central banking practices. The very institution that issues a currency has a built-in mechanism in its legal framework that induces debauchery of that very currency. How does the credibility of a central bank which constitutes a central pillar of confidence in an economy fit in this picture?

The amendment of the BoM Act incorporating a method of deficit financing that inheres a weaponized policy for draining its balance sheet is inarguably the silliest fiscal policy decision ever made legal in the history of the country. How do we reconcile this type of deficit financing with the spirit of fiscal responsibility? We have a central bank whose legally stated principal policy objective is to restore and maintain price stability over time. One organ of the BoM utters the magic phrase ‘open sesame’ and makes available freely billions of freshly printed rupees, referred to as high-powered money by monetary economists, for unconventional deficit financing. Deficits thus financed are universally known as ‘rocket fuel’ for inflation and macro-economic instability. The other organ of the same BoM, responsible for monetary policy making, meets on a quarterly basis to decide on how best to fight inflation.

A central bank, having two of its most important decision-making organs taking conflicting policy decisions simultaneously, cannot aspire to earn credibility with farcical policy games. Does it not suggest that the decision for the BoM to repay central government external debt has made fiscal policy and monetary policy indistinguishable? Is it not an adulteration of monetary policy with fiscal irresponsibility? In all manners of thinking, the amendment of the BoM Act opens wide the vault of the BoM to promote a culture of gross fiscal indiscipline. It is fiscal irresponsibility made lawful.

The discontents I had expressed months ago stemmed from serious concerns about the medium and long term economic and financial implications of the method of deficit financing proposed in the 2019-20 Budget. Sincerely, it was a ‘divine discontent’ but furiously expressed because making this decision lawful does mean introducing a new variable in the policy game that is widely known to be characteristically radioactive - an unstable atom nucleus that has all the undesirable properties for blowing up macro-economic stability. Those self-seekers who have not been eye-witnesses of the monumental fiscal policy blunders of the mid-1970s and are unaware of the ordeals of stand-by Arrangements with the IMF in later years are, in my view, bloviating ignoramuses whistling past the graveyard.

Why do you refer to this method of deficit financing as fiscal irresponsibility?

In an over-simplified form, the sense of irresponsibility in the present case could be illustrated as follows: let us say the Government borrows Rs1.0 billion from abroad. This money, injected into the economy, ultimately becomes part of the purchasing power of consumers that causes import demand to rise. Just like a householder would repay his monthly debt instalment out of his monthly salary earned by hard work, Government would repay the debt instalment out of its normal recurrent revenue. In so doing, the Government would eventually soak up out of the system the additional amount of money that it had injected by means of the external borrowing. Money injected at one point in time is thus removed at the time of repayment. The system is restored to a balance or near-balance. But the Government avoids soaking up the money injected into the system for reasons that are far from a mystery and decides to amend the BoM Act to make available to itself freshly printed money for the repayment of the debt. Clearly, the money injected earlier is left floating in the system. As is self-evident in the amended version of the BoM Act, this procedure will be repeated in the future. More and more money will be left floating in the system over time the economic and financial implications of which could turn out to be disastrous.

In the present set-up and conditions of the Mauritian economy, the initial injection of money had aggravated the current account deficit because of the resulting additional purchasing power. Leaving the money in the system means letting the current account deficit deteriorate on the one hand and the monetary sector of the economy flushed with excess liquidity on the other. Persistence of external imbalance (huge current account deficit) and internal imbalance (excess of aggregate demand due to excess liquidity in the economy) certainly does not at all promise macro-economic stability. Bearing in mind that one of the three core objectives of fiscal policy is to achieve and sustain macro-economic stability, I made the reference to fiscal irresponsibility. The foregoing is a highly simplified non-technical illustration.

What if the Government’s recourse to the BoM for the debt repayment is only a one-off event?

For every politician, mortality looms at the next general elections. Economic literature in fiscal crises is littered with cases where politicians in democratic countries have avoided taking hard fiscal decisions when easier options are available. Once a legally safe and politically convenient alternative is readily available, it is difficult to imagine a politician favouring painful fiscal measures that would jeopardize chances for his re-election. The free supply of freshly printed money by the BoM to the Government is enshrined in the law of the land. There is no sunset clause in the amended version of the law. The free funds will be exacted ritually from the BoM as of right because the Government’s propensity to spend is clearly unprecedented.

We have to keep in mind the brutal fact about human nature. When money is freely available, the moment for under-spending becomes notoriously elusive. The political attractiveness of this new form of deficit financing is unique and our fiscal policy makers’ recourse to the BoM window for the funds is irrepressible. Have you ever seen fat people at wedding feasts? Like them, fiscal policy decision-makers make bold promises that they would eat less to keep fit once the feasts are over. In my whole career, I have never seen a good time for fasting in Government finance. The idea of the debt repayment by the BoM being a one-off event is surreal. Make no mistake. This fiscal sin will trouble the monetary waters and eventually get transformed into monetary policy sins. The wreath for incompetence will be mournfully laid at the doorstep of the BoM, not at the doorstep of the MoF. The central bank that brewed the toxic Kool-Aid will find itself drinking a lot of it in the end - sort of a poetic justice.

 Fortunately, the amended law specifies that the appropriation of funds in the SRF of the BoM by the Government will be exclusively for debt repayment. Doesn’t this condition in the law limit abusive recourse to the BoM for funds?

Let me focus on a non-technical point and refrain from confusing your readers with the concept of fungibility of money which constitutes a very important point in this connection. What prevents the Government from borrowing more and more from abroad in later years if repayment will not be a fiscal burden but a BoM’s responsibility? Bear in mind one basic point. Every billion of rupees of debt thus repaid by the BoM, would free an equivalent amount of money for additional spending by the Government. Over time, the ill-effects of fiscal irresponsibility would build up and spill over onto the balance of payments position of the country thus driving the economy to the edge of a balance of payments crisis. This is designed madness.

Mauritius on the FATF Grey List: “Crisis resolution is impossible with politicians miserably pretending to be expert in the business of regulation and supervision.”

Is it not possible to counter the negative impact of this decision by means of other policies?

I guess you know what would happen if the policy makers burry their heads in the sand and decide to make a U-turn.

Do you mean we are stuck?

With almost no viable options left in the policy menu, the Finance Minister has the toughest job in town. Thus far, the Government has given liberally but not taken wisely at the same time. Deep down in themselves, people, barely conversant with economics and finance, are aware that fiscal rectitude is the way forward for the country if the Minister decides to stall a balance of payments crisis in the years ahead. The Government would need to bear in mind that for any desired fiscal correction to succeed, the policy path identified by our policy makers has to be, first and foremost, owned by the people. Meaningful fiscal adjustments aimed at re-balancing the Mauritian economy cannot meet their objectives should our society demonstrate unwillingness to embrace them. It requires an exceptional power of persuasion, not of compulsion, by those at the helm of the economic and financial affairs of the country. The art of politics will thus be tried; the art of Government will thus be tested.

In fact, long ago, John Maynard Keynes laid out a road map for political survival amid an economic disaster: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Read this piece studiously. It means what it means.

Why, in your view, is the Government so keen to effect an early repayment of its external debt?

Unquestionably, the level of Government indebtedness is worrying. The very fact that the Government is having recourse to a very unorthodox mechanism for the repayment of its external debt is, ipso facto, a recognition of the debt load being too burdensome. The constraints imposed by the indebtedness curb the Government’s ability to spend, fruitfully or wastefully. A quick and substantial repayment of a large chunk of the external debt by way of freely available funds from the BoM would obviously provide free fiscal space for more spending. And in the context of the criticisms leveled against the Government from opposing political camps about the massive debt load, the repayment would enhance the standing of the Government, in the short run, as an adept in the arts of macro-economic management despite the avalanche of generous handouts. The intention to repay a large chunk of the debt is, of course, a welcome initiative as long as it is executed out of normal revenue collections by the Government. But the policy path chosen by the Government is toxic; it invites economic troubles – and their cousins- down the road.

 The debt to GDP ratio is officially reported to be around 64 percent. Those who have examined public sector borrowings claim that the ratio is actually around 71 per cent. Which one is correct?

I am not inclined to believe that the Government has politically crafted a veneer on its debt level and hence on the debt-to-GDP ratio. The official version of the ratio of 64 per cent is not an unfathomable mystery to those who have a panoramic view of the lie of the land of geo-politics. Arithmetically, all Government borrowings taken collectively do yield a ratio of 71 per cent which is undoubtedly correct. I would nevertheless stand by the officially reported ratio of 64 per cent.

 Are you implicitly suggesting that we have to be complacent with a debt to GDP ratio of 64 per cent?

Not at all. From the standpoint of macro-economic management, I go by the concept of the debt-to-GDP ratio just like a physicist would go by the interpretation of the weight of an object under different levels of atmospheric pressures although that object has a standard weight at sea-level. Very diversified and robust economies heading towards economic buoyancy can bear with what otherwise would be perceived as high debt-to-GDP ratios. You just have to have a look at the debt-to-GDP ratios of some of the advanced countries. They are astronomically high. But their economies are comparably much more resilient and their currencies are ‘reserve’ currencies

 Specifically, what’s your appreciation of this ratio?

The 50 per cent sovereign debt-to-GDP ratio is a metric that serves as a general guideline for countries to observe. In my view, it is not a one-size-fits-all kind of metric. An economy growing steadily under stable internal and external economic conditions and without any foreseeable disturbance must avoid incurring debt exceeding 50 per cent of its GDP. For small vulnerable economies, this is prudence in macro-economic management. The ratio is one of a few that serves as an instant snapshot of a country’s overall economic and financial conditions and of the appropriateness or inappropriateness of the fiscal policies being pursued by the authorities.

No Government should be so obsessed as to lower the debt-to-GDP ratio by unconventional means just for the sake of lowering it. Remember Charles Goodhart’s Law: “When a performance metric becomes a policy target, it ceases to be a reliable performance metric.” This goes to say that even with the repayment of the Rs18 billion by a non-fiscal maneuver, the resulting debt-to-GDP ratio would not give a true picture of the organic state of the economy.

A debt-to-GDP ratio of far above 50 per cent constrains Government finance and saps its ability to steer an economy on a sustainable growth path. In times of crises, the Government finds itself severely handicapped to initiate protective and remedial measures. However, it does not necessarily go to say that, with a debt to GDP ratio of 71 per cent, a performing economy is on a perilous path to doomsday. Way back in the early years of the 1980s, our debt-to-GDP ratio had peaked to around 73 per cent. Yet, we had succeeded in effecting early repayment of quite some of the outstanding debt obligations without the people having had to bring down their living standards. This was only possible because the country had begun to register high growth rates of 5 per cent and over sustained over a number of years. Buoyancy of the economy had brought about a buoyancy of tax revenue that had permitted debt repayment without economic austerity.

If a debt-to-GDP ratio of 73 per cent in the context of a solid and sustainable economic upswing did not pose a threat to the viability of the economy, do we have to be contented with a ratio of even 50 per cent for the same economy with all its growth cylinders having lost traction for several years without any prospect for sustained improvement in the offing? Taking a studied view of the present weaknesses of the economy and the challenges posed by the external environment, I would say that a debt-to-GDP ratio of even 50 per cent could hinder the Government’s attempt to reinvigorate growth. The breadth and depth and the resilience of the economy for a bounce back without delay are materially important elements while taking a considered view about a particular debt-to-GDP ratio. I more than concur with anyone who claims that even a 64 per cent debt to GDP ratio is suffocating the Government finance; it warrants drastic fiscal adjustments.

 We need not worry about the external debt of the Government because it represents a small proportion of the overall public sector debt. And we need not be concerned about internal debt of the Government because it is money owed to ourselves. Do you agree?

In so far as interest payments are a transfer of usually very scarce resources (forex) from Mauritius to the rest of the world in the case of external debt but not in the case of internal debt that involves capital and interest payments to its own citizens, the distinction between external and internal debt is, indeed, valid.

However, these observations, though valid, are red herrings. If you set yourself the question as to why advanced countries (even those whose currencies are reserve currencies) have legal limits on public sector borrowing requirements and seek the right answer, you will surely get to the point as to why we need to be concerned about the size of the Government’s debt and not to derive complacency about the distinction between the size of internal and the size of external debt.

A back-of-the-envelope arithmetic reveals one of the most disturbing developments in Government finance in the past several years: Government internal debt has been growing at an annual average rate much faster than the annual average growth rate of the Government’s revenue base. This is, indeed, an extremely disquieting trend and more so when viewed against the backdrop of a persistent sluggishness in the growth performance of the economy. The policy choice is between a drastic fiscal correction if we are still alive to the consequences of living in a dream world and more debt if we have already sleepwalked into hallucination. Lower growth, less revenue collections, more Government spending and more debt accumulation: Is it not a leading indicator or rather a precursor of what is in the store for us all? Those of us who have read enough about fiscal crises and debt traps must be aware of what is rearing its ugly head.

 In one of your interventions you had hinted about the undesirability of external borrowings. Would you tell us why external borrowings were not desirable?

In the wake of the 2008 financial crisis, interest rates on the US dollar and the euro had dropped to very low levels. They have since been very low. US dollar and euro denominated debt became attractive. The Government found it cheaper to borrow in foreign currencies than in rupees on the local market. A medium term rupee loan for many years in the past carried, on average, an interest rate of 4 per cent at the most while external borrowings in terms of US dollar or the Euro are said to have carried about 2.0 -2.5 per cent per annum. Hence, external borrowings, despite all the risks involved and the credit rating implications, have been preferred. In my view, the preference for external borrowings has been based on flawed calculations.

Let me highlight the flaw with a simplified illustration: Government borrows the equivalent of Rs1.0 billion in foreign currencies at 2.5 per cent per annum at a particular exchange rate. The Rs1.0 billion goes into circulation and finds their way to the balance sheets of banks as and when they are spent by the Government. Excess liquidity, which is a source of policy concerns for the BoM, with banks go up. The BoM sterilizes the excess liquidity at a cost of about 4.0 per cent per annum paid to local banks and other institutional investors in BoM bills and/or treasury bills. On the one hand, the Government pays about 2.5 per cent per annum to the foreign lender and, on the other, the BoM pays 4.0 per cent per annum to local banks. Interest rates paid by both the Government and the BoM add up to 6.5 per cent per annum. The cost of sterilization of excess liquidity by the BoM causes its profit to shrink with the result that less profit or no profit is transferred to the Government at the end of the financial year. It is clearly Government revenue foregone and therefore a cost.

 

<p style="margin-left:.25in;"><strong>&ldquo;To all those who say Metro Express, a public sector enterprise, is a profit-oriented enterprise, I direct them to the Website of the National Transport Corporation established in 1979 for its balance sheet. What does it mean if they do not have a balance sheet at all?&rdquo;</strong></p>

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In the final analysis, relative to the 4 per cent of Government borrowings on the local market, the overall cost of 6.5 per cent makes the recourse to external borrowings by the Government an unintelligent decision. Due to the depreciation of the rupee add a minimum of Rs2 on every Rs100 of external debt to the 6.5 per cent. In short, the Government and the BoM incur annually a clearly avoidable cost of hundreds of millions of rupees. Your readers may work out the loss thus incurred by both the Government (including the 85 per cent of the BoM’s profits foregone) and the BoM if, for example, Rs20 billions of the external debt carries an average interest rate of 2.5 per cent and BoM sterilizes only 50 per cent (for the sake of being conservative) of the initial amount injected into the system. The size of the loss on an annual basis leaps out of the calculations sheet and hits you in the eyes.

There was a time in history when the Ministry of Finance used to dutifully and humbly seek the written opinions and advice of the BoM on similar matters. This brief illustration bespeaks a cavalier attitude since the 1990s, an unbecoming attitude that completely disregards national economic and financial interests, unseen and even unknown among top policy decision makers in the distant past.

 It is being argued that internal debt does not matter. Does it or does it not?

Internal debt is a topic that is often brought to the table for discussions among leading academics. Those who subscribe to the view that we need not be concerned about internal debt of the Government because we “we owe it to ourselves” seem to believe in the idea that theft is a zero sum game at the aggregate level of an economy. One person gains what someone else loses. It sounds like common sense but it definitely ignores several other important issues.

The Nobel Laureate economist, James Buchanan, laid bare the fallacy in the statement that internally held government debt is not a burden for local citizens in his book, Public Principles of Public Debt, published way back in 1958. It is a brilliant economic analysis of Government debt, internal and external. The point he makes can be easily missed as a result of which the myth that we owe the debt to ourselves is not a burden has remained dominant. I do not want to burden lay persons with the complex technicalities associated with the concept of externalities.

In a nutshell, the crux of Buchanan’s argument rest on the fact that internal debt, just like external debt, is a source of negative externalities. With the Government’s expenditure fully or partly paid by future taxpayers who have virtually no say in fiscal-decision today, today’s taxpayers will free-ride on tomorrow’s taxpayers thus leading to excessive consumption today. Under declining economic performance and low level of savings, it is not possible to increase consumption today without having less consumption tomorrow. Scarcity is a fact of life. Political institutions that fail to confront this simple truism threaten the existence of a prosperous and free society.

Supporters of the “we owe it to ourselves” view in the Western world also have in mind that people would not be impoverished by the size of the debt. Taxes raised to pay off the debt do not make the citizens of the indebted country poorer as a nation because the recipients of the taxes collected are also holders of the debt instruments (as was the case in the aftermath of the World War II). In some sense, this is obviously true. But what if, as in the Mauritian case, an overwhelming proportion of the holders of Government debt instruments are not the vast majority of citizens but a handful of institutional investors only?

Who holds the debt instruments is another red herring. Would, for instance, Greece’s situation have been any different if the holders of Greek sovereign debt were individual Greek investors rather than foreigners? Would it then have been reasonable for the government of Greece to default on its debt arguing that it would be harmless because “we owe it to ourselves?” Would our financial industry find it right for the Government of Mauritius to default on its internal debt on the strength of the argument that “we owe it to ourselves”? All told, what if the growth rate of internal debt is running ahead of the growth rate of the tax base? This trend is obviously a bearer of bad tidings. That we do not have to be concerned with the size of the Government’s internal debt is tantamount to living in a state of denial.

I note an obsession in your responses. It’s about growth. Does Government indebtedness hamper growth in a consequential manner?

I am not obsessed about growth and certainly I do not mistake growth for economic progress.

Government indebtedness does not necessarily hamper growth but over-indebtedness does. How borrowed money is spent matters. Is it spent with the objective of enhancing output growth that would eventually enable repayment of the debt or to enhance unproductive consumption that could necessitate repressive fiscal and monetary policy with consequential output lost later? Once expenditures fail to enhance output growth year in and year out and the level of indebtedness begin to limit Government’s fiscal space, we should expect an amplification of output losses. Many in-depth empirical studies have concluded that a high debt to GDP ratio takes a consequential toll on the growth performance of indebted countries. For instance, a World Bank study shows that a debt to GDP ratio of lower than 64 percent depressed economic growth by less than 2 per percentage points. A ratio of over 64 per cent knocks out 2 percentage points from economic growth rates. Some other studies conclude with varying degrees of output losses due to high debt levels. A debt-to-GDP ratio of 50 per cent remains the safest bet for highly vulnerable countries.

Last year you had explained in an article that the Metro Express Project would have no impact in the accounting of our GDP growth rate. You were right. Will the new Government succeed in attaining at least 4 per cent growth rate in 2020?

It is hazardous to throw up a plausible growth forecast for 2020 at this point in time. I would not take the risk and “make astrology respectable” in the gamble. I can only share with your readers what could be the most limiting factor on our growth performance in 2020.

Any empirical study leads us to one and the same conclusion that our income levels (GDP), given the characteristics of our economy, is determined principally by our export performance. This is an indestructible reality of our economic life; it is unquestionable. When I say export, I also mean export of services, including tourism and any other services exported by our offshore sector. As long as the performance of our export sectors relative to imports is better, growth is likely to be more than encouraging. In fact, overall performance of our exports has been declining without any recovery prospect. Import demand, seen in the light of a combination of loose monetary policy stance and expansionary fiscal policy, is likely to remain strong. All the growth cylinders have been firing poorly. A reversal of the trends in a manner that could give a fillip to our growth performance seems to be a very distant possibility.

For too long, misguided policies have been pursued for reasons other than sustainable development. Measures that give immediate but short-lived satisfaction have been a preferred policy option to measures that would give lasting satisfaction over the longer term. Such flawed policy options bring with them a price tag that has spiral dynamics. Perhaps, the first Budget of the new Finance Minister could be the pathfinder.

Does it necessarily go to say that a growth rate of 4 per cent and over is a very distant possibility since we are having a massive current account deficit for many years?

Without loading your readers with confusing technicalities, let me take them back to the beginning of the 2000s. Despite frustrations expressed at the Government house in 1999, I had tightened monetary policy so much so that yields on treasury bills had shot up to as high as 13 per cent. I had fully offset advances availed by the Government from the BoM. The tight policy was maintained for at least three years. In the first few years of the new millennium, there was a return to fiscal discipline. Policy outcome: Mauritius recorded for the first time in its economic history four successive years of substantial current account surpluses. It was macro-economic management, par excellence. That was the time when the accumulation of foreign exchange reserves by the BoM began its uninterrupted upward trend. Over the same period, that is, between 2002 and 2004 or thereabout, the Mauritian economy, on the strength of appropriately coordinated monetary and fiscal policies supported by the prevalence of a rare sense of confidence in the macro-economic management of the country, had registered an average growth rate of 4-5 per cent per annum. Unfortunately, this exceptionally good news about the economy was missed out by the media.

I would refer your readers to the Chapter on External Trade and Balance of Payments in the Annual Report of the BoM for 2005 or 2006. It’s on the BoM website. Would Mauritius be able to achieve a growth and sustain rate of over 4 per cent with persistent pallid export performance and unchecked huge current account deficits? Unlikely.

 What do we need to do in order to revitalize the economy?

What destroys institutions, ruins the economy. Scan all public sector institutions and find out for yourself how many of them are not incurring losses. Find out if all our public sector institutions do have an up to date audited balance sheet. If the balance sheets happen to be weak, do they promise improvements in the near future? To all those who say Metro Express, a public sector enterprise, is a profit-oriented enterprise, I direct them to the Website of the National Transport Corporation established in 1979 for its balance sheet. What does it mean if they do not have a balance sheet at all? Find out for yourself how many of the key public sector institutions, drivers of economic development, are manned by people of recognized competence. Deep down inside yourself, you will surely realize what a failure we are. Only the fastest cheetahs and the most evasive gazelles survive long enough. We have ceased to a triumphant cheetah in the global competition. And we have ceased to be an evasive gazelle, too. Our economy needs the enlivening kiss of new thinking, new methods and new hired hands of the early 1970s.

I recollect having read about an eleven-year old Canadian boy way back in the latter half of the 1960s. The boy suffered from advanced aging. All the visible and invisible characteristics of a 100-year old man showed up in his person. It happened to be a case of an accelerated biological changes of a normal life-time packed in only an 11-year old boy. The boy was an old man of 100 years or thereabout when he had died. In a world that has been undergoing high- speed progress in digital technology, our export sectors together with our economic and social systems have been suffering from this ailment. Old age has crept in too fast; we cannot expect such an economy to grow vigorously unless fundamental reforms are carried out. Often, one cannot think outside the box from inside the box.

We are not endowed with mineral resources. We are entirely dependent on our human capital. If human capital is the only national resource that we can afford to create and utilize for the promotion of the economic well-being of our society, the surest way to destroy our society is to let our schools, colleges and the Universities go haywire and shield the economic system against talents. We need thinking people with a deep sense of commitment and pragmatism in our economic development efforts. Way back in the early 1960s, the Secretary General of the United Nations, U Thant, had made a striking observation that I still vividly remember. The sound of this observation has rung in my mind again and again and again over the decades. It goes as follows: “The central stupendous truth about developed economies today is that they can have – in anything but the shortest run – the kind and scale of resources they decided to have ... It is no longer resources that limit decisions. It is the decision that makes the resources. This is the fundamental revolutionary change – perhaps the most revolutionary man has ever known.” (Italics are mine)

This inspiring text had driven me to faithfully produce Paper on Offshore Banking as far back as in 1980 following a request made by the then Prime Minister, Sir Seewoosagur Ramgoolam to the then Governor of the Bank of the Bank of Mauritius, Goorparsad Bunwaree. It is a precious document that I had produced and still hold on to. We could not go ahead with the project as we were on stand-by Arrangements with the IMF. As soon as the stand-by arrangements were over in August 1986, the idea of offshore banking was thrown on the table. In August 1989, Offshore Banking took off without the support of consultants, experts or whatever. What our offshore sector has been over the last 30 years is product of a bold ‘decision’ that international financial organizations, top foreign bankers, including even the BoM of the mid-1980s and top political leaders in the region who had felt that Mauritius could emerge as a potential rival in the offshore business had aired disappointing remarks. Looking back reminiscently at the economic efflorescence and the flaring-ups of big bourgeois in our offshore sector, I often frame a picture perfect in my mind of the text wherein U Thant had uttered: “it is the decision that makes the resources.”

The right questions to set to ourselves in a very dispassionate manner are: Have our Governments been an impartial umpire, manned by benevolent servants of society that can be trusted to have the knowledge, the wisdom and the abilities to set right all the bad things? Have we sacrificed enough resources and directed them towards the creation of useful talents? Imagine Botswana, a diamond-dependent country. Imagine also, what would happen to this country if its politicians had a technique of ruining its diamond? How best have we prepared our youth to meet the challenges of global competence? Why not let our students participate in the OECD PISA tests? Would it not allow us to get an idea of the performance of our educational system relative to other countries and make improvements, if need be? Like some of the successful Asian countries, have we been able to arrest the flight of local talents? Do we have adequate required talents right now? After all, do we truly recognize and respect local talents in Mauritius?

What do you mean?

What I mean is self-evident – very much so, indeed. The idea that a new world war has broken out, one that is being fought not with weapons but with talents, does not seem to have fully sunk in us. Any country that fails to take this challenge seriously is destined to be crushed in the global competition. We cannot afford to waste the useful talents of anyone in the country. No country will escape unscathed should it fail to reckon the pivotal role of talents in ensuring its economic survival in the globalized world. We are two decades through in the 21st century, not in the middle of the 20th century.

Way back in 1987, one of the shortcomings pointed out to me by the CEOs of top multi- national banks and by several local opponents of the establishment of an offshore sector in Mauritius was the inadequate supply of lawyers and accountants. Despite the inadequacy of talents in the legal and accounting professions, we did go ahead with full commitment to make it a success. Within a few years after the establishment of the offshore sector the supply of legal and accounting talents adjusted to the demands of the sector. That was exactly 30 years and six months ago. In the digital age, you, as a media person, may have had the experience of working on fast-breaking stories that change their meaning even before a single word was put on paper. The globalized world today is a fast-breaking story. There are so many moving parts interacting in unpredictable ways. The globalized world keeps throwing ‘curve balls’. It is no longer a viable option to first pursue the development of a particular ‘niche’ of activities and develop talents afterwards as we did with offshore activities. Just like investment in infrastructure was a pre-condition for growth in the 1970s, investment in high-level talent creation is a pre-condition for sustained economic expansion in the 21st century. This is the starting point. The rest will follow with, of course, the Government giving a nudge. Our educators need to constantly press the point to the younger generation that illiteracy does no longer refer to those who can neither read nor write; illiteracy in the digital age refers to those who cannot or are unwilling to learn, unlearn and relearn.

 How do you see ourselves evolving as a society in the fast mutating globalized world?

The millennials may not possibly have observed but the older generation must have observed how people are increasingly disoriented and not capable of dealing rationally with their environments. Many items that we use daily have become disposable. Even parents and spouses are readily disposable. The throw-away culture millennials have been brought in has altered the tone of societal values. Permanence is a thing of the past. “Impatient capital”, the desire for quick return as revealed in the more than 60 per cent drop in the average length of time stocks have been held in the last 20 years or so, is reflective of a drastic change in people’s perceptions and attitudes. The malaise, irrationality and mass disorientation on a large scale in contemporary life are everyday features.

Greed has left none of the qualities of character that bind members of our society to one another. One political economist has put it tersely: “A market society in which all buyers and sellers, workers and managers, householders and corporations cheated, lied, stole, used violence or trickery would not work.” The “stable past” is seriously challenged. The failure to construct a coherent national consensus about what has been happening to us since the turn of the century is distinctly clear and palpably felt at all levels of our society. We have been and still are grotesquely unprepared to combat the avalanche of changes that have invaded our society for the last 20 years or so.

That a functional and just society is one wherein most people live with restraint, norms of honesty, trust and truthfulness is a fact loaded with tremendous significance. Absent these critically important elements from our society, economic policies, however intelligently constructed by well-meaning policy makers, will not produce the desired responses. But ours is rigged.

 What motivates you to say that?

You remind me of Ayn Rand, one of Alan Greenspan’s favourite thinkers, who authored, amongst many, a book on Capitalism: The Unknown Ideal”, wherein she said, “when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming self-sacrifice – you may know that your society is doomed.”

23. Who do we blame for the rig?

Walt Kelly’s Pogo once said, “We have met the enemy and he is us.”