From: barnhart@gagme.chi.il.us (Mr Aaron Barnhart)
Subject: IPS: FINANCE: African franc under pressure to devalue
Originator: barnhart@gagme
Organization: Evanston, Illinois
Date: Sat, 3 Oct 1992 21:42:03 GMT

Copyright Inter Press Service 1992, all rights reserved.  Permission to re-
print within 7 days of original date only with permission from 'newsdesk'.

Title: FINANCE: African franc under pressure to devalue


an inter press service feature

by barbara borst

paris, sep 25 (ips) -- france and the 14 african states whose
currency is pegged to the french franc recently recommitted to
parity, but that did not reduce concern about the future of the
african money.

the african financial community (cfa) franc, worth one-fiftieth
of a french franc, has not been devalued since 1948. and,
economists in the united states, at the world bank, and in some
african states, estimate that it is overvalued by as much as 50
percent.

this, they say, has a negative impact on the competitiveness of
exports and the attractiveness to investors.

west and central african countries in the cfa franc zone are also
forced to conform to france's efforts to keep its currency in line
with the european community (ec) average, which is dominated by
the german mark, as ec member states attempt to establish monetary
union.

france has been under pressure to devalue its currency this week
as italy and britain have just done, but the french and german
central banks have staunchly defended it.

''we know that in the present monetary turmoil the franc is
coming under attack from all sides and the french economic
authorities are under pressure to repudiate the franc zone,'' said
one african diplomat in paris.

''though the franc zone does not represent a very big commitment
for france, the financial uncertainty is tempting the government
to reduce the number of economic fronts on which it must
operate,'' the diplomat added. ''this concerns us and so does what
will happen to the maastricht treaty.''

''the maastricht contains nothing specific regarding the franc
zone,'' a spokesperson for the french finance ministry pointed
out, ''so neither its general lines nor the single european
currency are an obstacle to france's determination to maintain
this system of cooperation.''

the cfa franc zone, established in 1939, includes benin, burkina
faso, cameroon, central african republic, chad, comores, congo,
equatorial guinea, gabon, cote d'ivoire, mali, niger, senegal and
togo. they are divided into the west and central african franc
zones.(more/ips)

finance: african franc under pressure to devalue(2)

finance: african (2)

at last week's meeting of french and franc zone finance
ministers, french finance minister michel sapin affirmed
''france's permanent support'' for the african franc.

according to a senegalese diplomat in paris, ''if the french
franc is devalued, the franc zone would inevitably be dragged
along with it and this could be the beginning of a major crisis.''

but jean-claude berthelemy, an economist specialising in
development says the situation is very clear. ''the world bank and
the international monetary fund (imf) say it is very overvalued. i
believe they are right.''

the proof, he said, is that salaries in the cote d'ivoire for
example, are two or three times those in the other african states.
exports from the franc zone are not able to compete on world
markets because their prices are too high and franc zone countries
find their domestic markets invaded by less expensive products
from neighbouring states.

the subject of devaluation was nearly taboo in official circles
until herman cohen, u.s. assistant secretary of state for african
affairs, said last april that its overvaluing hurt african
economies.

senegal's minister of state abdoulaye wade, an economist, is an
outspoken advocate of devaluation. in an interview with the
magazine 'jeune afrique', wade said devaluation can succeed in its
desired economic benefits if rigorous economic policies are
applied.

''devaluation presupposes an understanding among all the members
of the west african monetary union. that means negotiating a new
parity of the cfa franc with france, while keeping the advantages
of membership in the franc zone,'' he told the news weekly.

''i'm in favour of devaluation because i believe the cfa franc
has always been a profit exportation zone: a zone in which those
who earn money in the morning, export in the evening.''

rumours of a devaluation of the cfa franc were so strong last
august that an emergency ''mini-summit'' was called for senegal,
cote d'ivoire, gabon, burkina faso and france which officially
ratified the maintenance of monetary parity to block the wave of
speculation.

last week, however, a similar rumour, though not as strong,
started spreading but was said to be under control, and had not
unleashed the same level of currency speculation.

though, they say, it helps to obtain hard currency and be more
competitive on international markets, it acts against structural
adjustment programmes by increasing public expenditures and
inflation.(more/ips)

finance: african franc under pressure to devalue(3-e)

finance: african (3)

the senegalese diplomat said ''the severe crisis on the cote
d'ivoire which had caused the recent devaluation rumours,
originated in the sharp decline of coffee and cocoa prices''.

various news reports say that the cote d'ivoire, with 45 percent
of the funds in the west african zone, seeks devaluation to make
its cocoa competitive on the world market and revive its
struggling economy.

but devaluation advocates are far from agreeing on what should be
done, let alone convincing the majority that devaluation is
needed.

''if we were competitive, we would benefit from devaluation,''
said a diplomat from the franc zone who asked not to be named.
''but what are we going to export?''

devaluation would also increase costs for energy-importing
states, he notes.

''the first option is to devalue now,'' berthelemy said. ''it
would be painful politically and it would be dangerous for one
country to devalue. that would break the homogeneous character of
the zone.''

the second option is to redefine the cfa franc when the ec
establishes a single currency but that could mean waiting until
the end of the decade. other solutions are less agreeable,
berthelemy said, such as dismantling the franc zone or cutting
salaries drastically.

when the cote d'ivoire tried to slash salaries a few years ago,
'' the situation became an economic and political catastrophe'',
he said.

the creation of a single european currency would not
automatically end the cfa-french franc parity because the african
money is guaranteed by france's treasury, not its central bank.

but african leaders and economists question how tolerant france's
ec partners would be if the cfa franc continued to tag along.

patrice dufour of the world bank says african states have already
made a ''courageous effort'' to adjust to monetary and fiscal
rigour of france's efforts to keep pace with germany.

although in europe, economic interdependence long predates
monetary union, in the franc zone there is monetary union but
relatively little cross-border trade. the region has been strained
from the start by disparities among its member economies.

the union is thus more fragile, something african leaders protect
because it would be difficult to rebuild, if broken, and because
regional integration is widely acclaimed as a possible solution to
africa's economic woes. (end/ips/ip-re/pa/bb/cdm/92)

Newsgroups: soc.culture.african