In particular, real currency appreciations that have in the past stifled the country s export potential would be eliminated. A competitive exchange rate should also assist manufacturers of domestic consumer goods, provided the unfair competition from untaxed imports is effectively dealt with. I am pleased to note that this matter is also part of the agenda for this meeting. In addition, a market determined exchange rate is a more credible and transparent instrument than some of the suggestions we often hear about that can be used to rationalize the use of scarce foreign exchange. Such an exchange rate system would also enable the Reserve Bank to build up reserves necessary to deal with the effects of droughts, sharp trade shocks and to ensure the supply of essential goods and services.
Effective intervention is premised on there being adequate reserves.
In the context of the situation the economy faced last year, intervention would have completely eroded the meager reserves available thereby leaving the economy very vulnerable to even heavier speculation and a much deeper Kwacha depreciation than we faced. First, most exporters were experiencing problems in obtaining foreign exchange from the market because whatever foreign exchange they brought into the country was completely sold out to importers by the time the exporters required it for their own essential imports. This was clearly a disincentive to exporters. Accordingly, although exporters were required to repatriate their proceeds within 180 days, most of them evaded the surrender requirements and illegally kept their export proceeds offshore. The introduction of FCDA s and the retention of export proceeds were therefore viewed as major steps in encouraging export growth and diversification.