Economics major students warn against South Sudan dependence on dollar

July 26, 2010 (KHARTOUM) — Southern Sudanese students studying economics at higher learning institutions in collaboration with local economists from semi-autonomous government of South Sudan (GoSS) have joined academics and finance scholars to warn against heavy reliance on US dollar in local transactions, saying the trend was exposing the region to great economic risks.

At an open discussion forum at Juba University campus situated east of Khartoum at Kodoro, on Monday, economics students have asked GoSS to swiftly intervene “before the situation got out of hand” and plunged the economy into an irreversible crisis.

“I don’t understand why the government is allowing dollarization of the economy,” wonders, Lual Deng Kuol, a student of economics and social studies, noting that excessive use of the dollar was exerting unnecessary pressure on the local currency.

Random interviews conducted by Sudan Tribune with various officials from GoSS also revealed that many Southern Sudanese are now pegging prices in US dollars and demanding payment accordingly. People are asked to pay for air-tickets, school fees, hotel accommodation, automobiles, import duty and rent in US dollars.

Those unwilling or unable to pay in US dollars are forced to use local currency, based on the seller’s exchange rate of his choice.

Deng Mawien Dut in Juba told Sudan Tribune that he dislikes the system that encourages the use of dollar in local bars to buy local drinks.

“When I came from USA I thought Sudanese pounds was the only currency in open market but I came to realize that hard currencies, especially dollar is being sold openly instead of banks. I have no way out because that is the trend; I had to join,” he said urging the government to enforce the region’s financial regulations that criminalize dollarization of the economy.

He said dollar-based pricing not only results in steep depreciation of the local currency and fans inflation but also reflects loss of confidence in the country’s legal tender.

“We have seen this happened in many African countries like Zimbabwe and Zambia where local currencies have lost value drastically due to allowance of foreign currencies to circulate freely without control,” he added.

Kiir Wol Baak, a renowned figure in region’s business community, blamed the regional government and the Central Bank in particular for failure to enforce financial regulations.

“The problem is that there is no control by the government and people will keep demanding dollars, unnecessarily, this is not good at all for our weak economy,” he said.

Many people surveyed by Sudan Tribune questioned the region’s economic direction, worthiness of its currency and the seriousness of the leadership to contain the rapidly spreading dollarization.

Experts define dollarization as an extreme situation of an economic instability in which a foreign currency, often the US dollar replaces a country’s currency in performing basic functions of money. With each seller of a product or service demanding the dollar or the shilling at an exchange rate of one’s own choice, it translates into every deals and trading in money, which legally is the reserve of commercial banks and bureau of change.

Kiir cautioned that if this trend of everybody yearning for the dollar is left to prevail, it’s likely to end up with adverse consequences for the regional economy. He urged those “obsessed” with the dollar to strive for exports of goods and services.

The pound has in recent days depreciated sharply, reaching a record rate of 280 per US dollar in Juba and in the states. The ordinary citizens are the hard hit victims of the weak pound because most of the basic essentials are imported with their prices subjected to the value of the dollar against the Sudanese pounds.

The pound is beneficial to few exporters and employees paid in US dollars, particularly those working for international organizations.

Local analysts warn that dollarization in the region might prove difficult to curb because people who should have spearheaded the war against the excessive use of dollar in the economy, high ranking government officials are the direct beneficiaries of the pound depreciation through travel allowances in foreign trips.

An official with a South Sudan based hotel doubted whether the common man has anywhere to complain for being charged in foreign currency because the government itself pays in dollars.

“We do a lot of business with the government…we always invoice them in dollars and they pay,” he said.

In 2008, former Finance Minister Kuol Athian Mawien declared as illegal the growing trend of pricing goods and services for Southerners in US dollars, threatening stern measures against those found to perpetuate the malpractice.

He ordered that all commercial transactions in the region be pegged in the local currency, the directive which however has widely been ignored.

Sudan’s central bank has taken extreme measures that restrict the sale of U.S. dollar without proof of direct need in a bid to halt the slide of the pound.
(ST)