Devaluation yields mixed results.

Author:Misser, Francois

The devaluation of the CFA franc has dealt a severe blow to Cameroon, as elsewhere in the Franc Zone.

No riots took place after the event, perhaps because the country is self-sufficient in food and is probably less exposed than others to the rise of prices of imported food items.

Perhaps the nation's teachers, who had been on strike for months when the devaluation came without winning any concessions, had lost their punch by the time the currency move came.

Anyway, almost immediately after the devaluation, the prices of imported goods such as wheat flour, equipment and medicines rose dramatically, by between 60% and 150%.

As a consequence, the private sector is extremely concerned. Since health expenditure had represented some 20% of the ordinary urban family budget before the devaluation, not much is left over now for other expenditures, they fear.

Prices soar

But the real surprise came with the immediate rise of prices for locally produced staple foods such as cassava, plantain and maize on markets in Douala and Yaounde.

The sort of rises that had taken place in less than a fortnight after the devaluation cannot be justified by the rise of transport costs generated by the petrol-price hike, since the latter had increased only by 30% as of the following month.

However, two other elements played a role in the price rises, according to the vox populi. On one hand, some Bamileke traders were accused by other ethnic groups in Yaounde of having stockpiled food items for speculative purposes. On the other hand, peasants in several parts of the country raised their prices in order to maintain their purchasing power and were even encouraged to do so by some opposition parties.

But after a few weeks, and after the closure of some shops by the police, staple prices stabilised at a relatively "reasonable" average rise of 10% to 30%.

Some other unexpected consequences of the devaluation appeared. All of a sudden, from the day after the devaluation, it became difficult or nearly impossible to change French francs at the new official rate of FF1=CFA100.

The fundamental reason was the banking system's chronic lack of liquidity, which has been aggravated by the devaluation, since of course the need for cash has increased substantially. The Banque des Etats de l'Afrique Central (BEAC) - the multilateral central bank which Cameroon shares with six of its neighbours in the region - had been preparing for a 30% increase in the money supply. On top of that, the demand for cash CFA francs also increased, because those people or companies which had managed to convert large sums of CFA-franc banknotes into French francs well before the devaluation - despite the fact that free convertibility had been suspended since 2 August 1993 - all rushed to change the French notes back into CFA after the January...

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