our economy. we are now scared to remove them as exogenous shocks – fuel price increase increases, unfavourable terms of trade, global financial crises and so forth – have never given malawi a breathing space. our neighbours in zambia were wiser : they abolished exchange controls in the 1980 ’ s. at that time both malawi kwacha and zambian kwacha were about 2 to us $ 1. today malawi ’ s is approaching k300 and zambia ’ s about k5, 000. until recently, zambians were completely free to choose between holding, quoting or transacting in us dollars. the job of defending the zambian kwacha ’ s role as legal tender fell on the fiscal authorities and not the central bank or man in the street. indeed, the bank of zambia became more of a central bank as the conduct of monetary policy became much easier and credible. recent changes are raising questions not about the efficacy of removal of exchange controls but government ’ s resolve to sustain fiscal prudence. mr president, ladies and gentlemen i refer to the zambia only to underscore the fact that the kwacha has been floated within a constrained framework – it is still strongly supported by exchange controls on capital transactions – that is movements of funds across the border for investment, savings or good old speculation is prohibited. you are even prohibited from holding onto dollars without permission. it is currently illegal to quote or make payments in hard currency. in the circumstances, therefore, there is a limit to which the kwacha can depreciate. while it is difficult to estimate that limit, it is definitely the amount of money to purchase hard currency that matters most. this is where the reserve bank of malawi comes in – to balance the supply of money to economic activity and in so doing contain inflation and exchange rate stability. that work is made extremely difficult when the government of the day is forced to print money. that is why the government has committed itself to zero domestic borrowing in order to ensure early attainment of macroeconomic stability and thereby help malawians to have a chance to improve their lives. growth and job creation requires a stable environment ; we are not yet there, and please do not rock the boat. mr president, ladies and gentlemen analysing the on - going labour disputes and to suggest a solution is obviously beyond my pay - grade. i am, however, comforted in the knowledge that all concerned citizens understand the risks ahead of us and the need to stab

harder to break. of course few people would believe that – after all things in malawi have never become that bad, except to remember that we remain among the poorest of nations after nearly 50 years of independence. mr president, ladies and gentlemen i very much hope that in our life time we will all manage to build an economy in which all citizens will have the opportunity to fully participate in the generation of income and enjoyment of fruits of their labour. public discourse will be about how to sustain development and the welfare of all citizens. we will have dispensed with windy and inconclusive debates on the negative impacts of devaluations and high interest rates on the man in the street. labour relations will be more constructive than destructive – employers and employees will be discussing how to improve productivity so that their company can beat the competition and all staff can get bonuses. the economic environment that i am describing is quite possible with a floating exchange rate, and a government that is totally committed to fiscal prudence. the kwacha exchange rate will have – for all practical purposes – adjusted fully to economic fundamentals and fluctuations will reflect inflation differentials with our major trading partners and the impact of exogenous shocks. in such a scenario i believe the level of foreign exchange reserves could exceed six months of imports. in today ’ s terms, that is almost equivalent to 100 % foreign exchange cover for the total money supply. mr president, ladies and gentlemen way before that, there will be no need for exchange controls that have hitherto crippled the ability of the citizens to protect the purchasing power of their savings and thus their ability to increase investments in productivity capacity. for instance, if you got your pension commutation on april 30, your plans to build a house or invest in a small business are now a pipe dream because the 49 % devaluation plus the 15 % depreciation since then have cut the purchasing power of your pension by over 60 %. perhaps you should be satisfied with an investment in a bicycle. bis central bankers ’ speeches however, for those malawians that have access to hard currency all the time, their story is totally different. by holding onto some dollars which they sold after the devaluation, they have become relatively richer. in others words, for most of us, exchange controls inhibit active risk management and foster social inequalities. instead of being a temporary measure to manage the oil price shock in late 1970 ’ s, exchange controls have become a permanent feature of