Mr. Charles Bila Kaboré was Vice-Governor of the BCEAO from 1975 to 1983 and then Technical Advisor to the Presidency of Faso from 1983 to 1984.

It appreciates the measures already taken, examines the strengths of Burkina Faso in this context of devaluation. He also gives his views on whether African countries should mint their own currency or not.

When we were still at the Central Bank, the problem of the devaluation of the CFA franc had already arisen. I left the Central Bank in 1983. But already, around the 80s, the question of devaluation was already arising.

So I am not so surprised that this devaluation took place on 12 January 1994 in Dakar. The problem had been studied at the level of the Central Bank. But at the time, we felt that technically, nothing provoked a devaluation.

At the time, the economic and financial situation of our States had not deteriorated much. On the guarantee side, the situation was also good because in our operating accounts, we had a creditor position.

The devaluation was therefore noticeable. The rumor was running. But at first, we wanted to avoid it by trying with the Bretton Woods institutions to resort, for the economic and financial recovery of States, to so-called internal adjustments.

It was thought that with internal adjustments, positive results could be achieved that would avoid devaluation.

It is because the internal structural adjustment programmes based essentially on the wage bill, the management of the money issue, the price changes have not succeeded that the devaluation has been carried out.

Devaluation is not a matter of currency management

Devaluation is not so much a matter of currency management. This is because economies have deteriorated. There have been budget deficits, which have become increasingly large, accompanied by cash flow difficulties.

On the other hand, there have been increasingly deficit balances of payments. The combination of these situations made devaluation inevitable.

As for money, it has always been, at the level of the issuing institution, managed very carefully so that the monetary issue corresponds well to the reality of the economies of each State.

But given that external resources were no longer sufficiently in return to finance our economies, and also given that with the rumour about devaluation, there were many leaks to the outside world, our States found themselves in very difficult economic and financial situations.

The Central Bank has already taken measures relating to the discount rate. The discount rate has been raised; it mainly concerns the banks. (The discount rate is the rate at which the issuing institution lends to primary banks).

Indeed, when the discount rate of the issuing institutions is raised, the banks, automatically, raise the lending rates. Therefore, of course, it weighs on investment. This means that investments can be slowed down.

This is because the Member States on the one hand, and the France on the other hand did not want the devaluation of the CFA franc.

So, because of the increases in production prices and after the meetings of the ministers of the franc zone, it was always affirmed, either on the French side or on the African side, that there will be no devaluation of the CFA franc.

However, we know that the International Monetary Fund and the World Bank straddled the devaluation of the CFA franc. It was therefore necessary for these States to affirm that there would be no devaluation of the CFA franc.

As far as devaluation is concerned, the economic situation of African countries, as I have already said, had deteriorated considerably. The burden of France was increasingly heavy from the point of view of direct aid for public finances.

To share these financial burdens, the France still needed other partners. These partners who could provide substantial financial resources to States were among others the IMF.

Also, at the last meeting in Abidjan, the position of the France was that African States must decide on programmes with the Fund, otherwise financial assistance will not be granted.

The Fund, for its part, has told the States of the franc zone that without devaluation of the CFA, it will not stop any program with them. Faced with this situation, the choice was difficult. So they were forced to devalue.

Do not despair

I did hear here and there that it was a release on the part of the France. But as I said, I believe that the France, too, currently has internal financial problems. In addition, the financial burdens caused by African countries are increasingly heavy.

As a result, the France is also forced to let go of ballast to benefit from other assistance. In any case, the parity has changed against the French franc but still remains fixed. (One French franc for one hundred CFA francs today against one French franc for 50 F CFA since 1948).

Of course, looking at the sub-regional organizations that have already been created, such as ECOWAS, ECOWAS, we can perhaps be skeptical about the possibility of integrating economically, socially the economies of African countries.

But I think that we should not despair of achieving real integration. Such integration requires first and foremost political will. It is our heads of state, our politicians, who can actually express this political will. Integration also requires the surrender of sovereignty.

Because, if we want to create community organizations, we are necessarily obliged to make community decisions and impose a certain discipline on ourselves in their application. This collective discipline, this sacrifice is indispensable. If these conditions are met, we can achieve true integration.

The member countries of the EEC have been trying this integration for several years. There were difficult times when they almost broke up. Despite everything, they have managed to overcome all these difficulties and differences.

Today, they have achieved a minimum in the harmonization of economic and social policies. That is why they plan to create a common currency and a common central bank by the year 2 000.

So on our side, by accepting sacrifices, surrenders of sovereignty, we will be able to build overall economies.

I think that's the only way to survive. Since there are groupings everywhere, if we remain compartmentalized within our states, we will be totally absorbed.

To mint money, you need a strong economy

To mint money, I think we need a strong, healthy economy capable of guaranteeing the value of this currency. We need credible economic and financial policies that inspire confidence, both internally and externally.

Because, what assures the currency its value.c is really the national wealth It is to be able to have a mattress of comfortable currencies to ensure the coverage of the monetary issue.

Since the value of money is therefore based on the situation of the economy, on the confidence that is placed in the economic and financial policy that is being pursued, we believe that this is a prerequisite.

We have just described the economic and financial situation in which our States have found themselves since the 80s.

Such a situation cannot guarantee the health of a currency. With regard to the guarantee of external reserves, most of our countries most often have balance of payments deficits.

This means that we do not usually have external reserves, sufficient foreign exchange.

We are therefore obliged to borrow external capital to finance our external deficits. However, if we have structurally deficit balances of payments, this constitutes risks to the health of the currency.

But I must say that, in order to create a currency, one must not wait to have healthy, robust, strong economies before doing so.

I think these are responsibilities to be taken at one time or another. There will certainly be difficulties in the first years. But gradually, we will manage to control the situation.

If I take the example of the English-speaking countries, they do not all live in ensembles, but they have national currencies. However, they are not wiped off the map of the world.

if. It can be estimated that potentially one has the means to create a currency, given the resource prospects. But having resources is one thing; to be able to make them grow in such a way as to meet the needs of one currency is another.

Because we are underdeveloped countries, and potentially we can have significant resources.

But if from a technological point of view, we do not have the internal means to develop them in a consistent way to take advantage of them, it is as if we do not have resources.

So, even if we have consequential resources, we must be sure that we can exploit them in a rational and useful way in the sense of hedging the value of a currency.

I understand the concern of those who think so because the CFA has been attached to the French franc for fifty years.

There is also talk of the creation of the ECU as the currency of the European Economic Community to which the CFA would be attached. Of course, this can have its advantages and disadvantages.

In terms of advantages, we certainly have more openness to the EEC for our exports.

But when the ECU is going to evolve, the changes in the exchange rate that it could have to undergo on the foreign exchange market would lead to a development of the CFA in the same direction. As a result, its exchange rate against other currencies will vary.

This change in the exchange rate can then be favorable to our exports. The advantages and disadvantages that we see in attaching the CFA to the ECU are about the same as those of the CFA against the French franc.

With the devaluation, incomes will remain relatively stable

Theoretically, when there is a devaluation, it is estimated that exports cost less. Therefore, economic operators can profile this sale abroad that has become easy, cheaper to increase production inside. The currencies thus earned abroad will be converted internally.

These revenues will also increase thanks to the devaluation and thus increase the means of payment inside. They will thus allow an increase in demand since there will be a significant repatriation of income. And stronger demand will have a ripple effect on production.

As far as savings are concerned, with the devaluation, incomes will remain relatively stable. It goes without saying that there is a decrease in purchasing power. Income holders will tend to make adjustments to overcome difficulties.

The government, through the Prime Minister, has already indicated measures that will make it possible to make the most of the devaluation.

Promoting national SMEs

Yes, but since the devaluation induces a high blow of the imported products, if it causes a change in the Burkinabe mentality, of behavior in the consumption of the products, there will be a certain substitution.

He will consume more of the Burkinabe product similar to those he consumed but of imported origin. This consumption of Burkinabe products should normally encourage producers to produce more.

Domestically, whether in the industrial or agricultural sector, there is a certain revival of activity. And the government has already made proposals regarding the promotion of national small and medium-sized enterprises. This is an asset for us, because large investments are necessary, we must be able to make them.

But the main thing had to be the promotion of these small and medium-sized national, commercial and industrial enterprises.

Given the size of our country, if such industries were to grow to the maximum and invest in domestic production, they would promote the economic development of our country.

Even in this hypothesis, the cost of entry into our country is an unfavorable factor for them in this context of devaluation.

In addition to devaluation, there is the set of taxes to which these products are subject that increase the costs of imports.

The most favorable assumption for them would be that they devalue their currency more strongly than we do. In this case, our markets will be flooded with their products.

In economics, there is no miracle

I don't have one. In economics there is no miracle. Of course, we have a government that gives directives. But it is up to the Burkinabè, depending on the policy adopted by the government, to show creative imagination and dynamism. This is a national issue. You have to want your own development; from that moment on, the efforts made by the government, together with our own efforts, will help to promote our economy, our economic and social development. It is a daily work at ground level and long-term.

The Bank did not prevent the transfer. The notes that circulated outside the CFA franc zone came back to us through the Banque de France, and we bought them back with our currencies. The Central Bank has simply decided that we are not going to buy these notes again. With this measure, she wanted to dissuade people from going to deposit in banks in Switzerland or Austria or elsewhere.

The Bank of France therefore no longer accepted these notes and we in return did not buy them anymore. The measure is therefore intended to discourage exports of currency in this way.

Now, within the franc zone, there is free access for capital. The Central Bank has done its utmost to avoid the transfer by this measure. But as you know, any measure has its weak sides: that is why it has not had all the necessary effectiveness.

These attitudes on the part of customers were in fact anticipations of devaluation. It was calculations. They knew that they would reap double what they had expatriated to these European countries as part of the devaluation.

The Central Bank therefore does not need to take incentives to bring back these funds. The persons themselves interested in the profit they derive from repatriating them will comply.

The devaluation rumor has hurt our economy

No. The fact that we have maintained for a long time the rumor about the devaluation of the CFA francs has harmed our economy.

Because, when so many resources leave our zone to go elsewhere, it is as many resources lost for the financing of the economies of our States. In such a case, by what resources should we finance our savings? Should these resources be replaced by a monetary issue?

That is to say, an increased use of primary banks to the issuing institution? It would be dangerous because it creates an inflationary situation to replace resources already pledged by production and service (because they have already left our zone) with resources of monetary origin. So, economically, it has not served the interests of our states.

In addition to this, this situation weighs on our operating accounts of the French Treasury. Transfers that are in France, it's okay! But transfers that go outside the franc zone, burden our operating account. Taken from this angle too, it is negative.

The devaluation having been made and the structural adjustment programmes taken over by the IMF and the World Bank with our States, important resources to be injected into our economies, the resources that had come out having to be repatriated, I think that, taking into account all these elements, the macroeconomic balances (balance of payment, public finances), the States will be able to gradually restore these major macroeconomic balances.

But if unfortunately we do not succeed, I think we cannot avoid the possibility of a devaluation. Because any currency, whatever it is, is likely at some point to be devalued.

Given the economic and financial situation that guarantees the value of this currency. So we can't prejudge for now. But if at some point we find ourselves in the same situation as today, it goes without saying that new measures will be taken.