1
Draft Statement by Dr. Caleb Fundanga, Governor of Bank of Zambia, in the Opening of a Joint COMESA-IMF Seminar on Exchange Rates, Regimes and Computation, Policy and Operational Considerations for Developing Countries, Lusaka, Zambia, March 27-28, 2007.
Mr. Chairman
The Secretary General of COMESA
Mr. Itam Samuel, Senior advisor in African Department of IMF
Distinguished Staff of IMF
Distinguished Delegates
Ladies and Gentlemen
I am happy to be with you this morning, to open a Joint COMESA-IMF Seminar on Exchange Rate Regimes and Computation, Policy and Operational Considerations for Developing Countries. On behalf of the Bank of Zambia and on my own behalf, I most heartily welcome you all to Lusakafor this Seminar. I hope that you will enjoy your stay and our modest hospitality.
Mr. Chairman,
Ladies and Gentlemen,
Zambia is very honoured to host this important Seminar. We are especially happy to be associated with the aspiration of this seminar, which is aimed at building the capacity of COMESA member countries in the analytical approaches to the determination of equilibrium exchange rates. As you are all aware, the exchange rate is the single most important price in the economy. It has the further quality of linking the general level of prices in the economy with prices in other countries. It is for this reason that many economists see the exchange rate as one of the chief ways in which governments can promote adaptation of the structures of production and demand in favour of tradable goods and services.
Mr. Chairman,
Ladies and Gentlemen,
The determination of an equilibrium exchange rate is a highly complex exercise. For one thing, it is contingent upon world economic conditions. The equilibrium rate can only be specified given world prices, world interest rates, and trends in world capital movements. It is also contingent upon a wide range of government policies, that is fiscal and monetary policies which need to be made consistent with exchange rate policies.
Mr. Chairman,
Distinguished delegates
I would like to emphasise that achieving equilibrium exchange rates is crucial for the consolidation of the COMESA FTA and the creation of the Customs Union, the soundness of the financial system and for the eventual establishment of a monetary union in COMESA, which is indeed very important in a world economy which is moving towards globalisation with common currencies. It is, therefore, necessary that all efforts are devoted to creating the conditions to achieve equilibrium exchange rates in all our member countries.
Mr. Chairman,
Ladies and gentlemen,
As you are well aware, the COMESA interest in monetary integration toward monetary union is motivated by its micro and macro-economic benefits that arise from such integration. One such benefit is efficiency gains. More stable exchange rates and lower economic uncertainty stimulate the integration of goods and capital market. Moreover, lower uncertainty on the riskiness of investment induce dynamic effects, and hence contribute to increased intra-regional trade and faster economic growth. Additional benefits are likely to be generated in terms of increased macro-economic stability. Macro-economic stability should in fact create a more conducive environment for long-term development, financial integration and private sector growth. All these will not only give a boost for the single market, but will also prove to be a vehicle for economic and political integration. A single market and a single currency are not only compatible but reinforce each other. In the European Union, the Euro has proved to be a special factor in cementing European integration.
Benefits, however, do not come as free lunch. In the process of integration, countries will progressively give up the possibility to set monetary policy autonomously and lose freedom to issue currency to finance a budget deficit. The balance between costs and benefits of monetary integration will be affected by macro-economic policy stance, shocks and macro-economic outcomes. Increasing convergence on each of these is crucial to reap the benefits. It is to be noted that the lack of convergence does not necessarily imply that monetary integration is not feasible or even undesirable. It means, however, that specific attention in the integration process must be devoted to creating the conditions and institutions to achieve convergence. In this regard, there should be political commitment and capacity building to enforce agreed upon convergence criteria so that they can effectively induce countries to pursue the necessary economic reforms.
Mr. Chairman,
Distinguished Delegates,
This seminar has very important issues to discuss and tasks to accomplish to come up with concrete recommendations that will enable us to achieve equilibrium exchange rates in our economies.
Finally, I would like to thank the COMESA Secretariat for organising the Seminar. My thanks also go to IMF for agreeing to jointly organise the seminar with COMESA. I would also like to thank you, participants, and resource persons from IMF for your positive response to come and participate in this Seminar.
With these few remarks, it is now my pleasure to declare this Seminar officially open.