r basant roi : monetary policy objectives in mauritius and its operational framework since 1994 address by mr rameswurlall basant roi, gcsk, governor of the bank of mauritius, at the bank of mauritius ’ annual dinner with major economic stakeholders, flic - en - flac, 3 december 2004. * * * honourable chief justice distinguished guests ladies and gentlemen good evening i am pleased to welcome you all to the bank of mauritius annual dinner. in my last six addresses i dealt mostly with regulatory and supervisory issues that the business community and the public at large need to be aware of. the addresses are purported to enhance transparency in the bank ’ s policy decision - making. the theme for my address this evening is : a perspective of our monetary policy objective and the evolution of its operational framework since 1994 when our exchange control act was suspended. let me start with a remark - a remark that is generally valid. often, commentators make observations that are so framed, either unwittingly or intentionally, as to lend the impression that monetary policy, on its own, should be capable of achieving all economic objectives at the same time and all the time. this is indeed an unrealistic demand on monetary policy. monetary policy, though a very important arm of macro - economic policy, is only one of several elements in the economic panorama. we need to have a realistic appreciation of what monetary policy or any other policy in any other field can be reasonably expected to deliver. it ’ s a fact of life that we cannot have all that we want at the same time, all the time and under all circumstances. whether it ’ s monetary policy, fiscal policy or social policy, choices are made between conflicting or potentially conflicting objectives in the short term. between the choices made in the short term and the choices available in the long run there is what economists call the long run opportunity cost. policy choices made today do often constrain the range of choices available in the longer run. those of us outside the economics profession and even those in the economics profession frequently tend to overlook the long run opportunity cost when it suits them. whenever expectations of a particular sector are not met, there emerges pressing demand to intervene and set right sectoral problems while dismissing the long run adverse implications of the intervention for the economy as a whole. in any dynamic society with ever changing priorities, the relative importance of any single objective varies over time. a switch from one policy to another as demanded by particular economic sectors out of unreal

balance of the planet and the reciprocal compatibility, or trade - offs, between economic, social and ecological objectives. climate change is no longer a scientific curiosity, it is a fundamental theme of today ’ s public debate. a series of important international agreements ( the kyoto treaty of 1997 and the paris climate agreement of 2016 ) have made it clear that two aspects are of special importance : 1 ) tackling the challenge of climate change at a global level, with the cooperation of all the parties involved ; and 2 ) devising incentives for the invention and use of new technologies to drastically curtail emissions of carbon dioxide and other greenhouse gases. globalization, technological progress, demographic transition and climate change present us with formidable challenges. but economic integration, scientific progress and improvements in education and health conditions provide great opportunities for forging a more prosperous, more equitable and more sustainable world economy. however, it must be clearly understood that attaining a “ cooperative ” globalization entails governing the world economy, as it would be illusory to rely solely upon unfettered market forces. as the global financial crisis has clearly demonstrated, effective regulation, adequately funded international financial institutions and strong cooperation among nations are necessary to mitigate risk, grant stability and correct market excesses. unfortunately, we live in unprecedented bad times for international relations. a retrenchment of policies towards narrowly defined national interests and short - termism in the definition of policy objectives, partly dictated by the continuous monitoring of popular approval and facilitated by the new digital technologies, are the most significant risks today. the us decision to back out of the paris climate agreement and the recent failure to sign a shared communique at the g7 summit in charlevoix are clear signs of the dangers to the liberal world order and global cooperation. the trade dispute is revelatory of the difficulties we encounter on the road to cooperation. as is well known, the basic economic teaching on trade policy is that free trade is by far the best option as it grants full exploitation of comparative advantages to all parties involved. indeed, the current trade system based on multilateral agreements underpinned economic development for decades. obviously we should not ignore the potential complications arising from different levels of industrialization across nations and the risk of specializing in products that might lock in a country at a pre - industrial stage, as may have been the case for much of north - south trade during the colonial period. but we must consider that, in trade deals, the interests of producers and consumers are seldom