Tuesday 18 January 2011

Ethiopia: Devalutation and speedy growth breed economic chaos?

Ethiopian Government and entrepreneurs seem to have found a common ground to find a solution to a recalcitrant double digit inflation after the former was forced to revise a price cap it recently imposed on basic consumer items following commodity shortages in Addis Ababa, the capital, as a result. Some argue that a speedy growth coupled with a 16.7 percent devaluation of the local currency last September are to blame.
One of the government’s main reasons to set price ceilings on January 6, 2011, was to help curb a double-digit inflation that has hit the Horn of Africa country since the announcement of a 16.7% devaluation of the birr (the local currency) in September 2010.
Despite the sharp and historic devaluation of the birr, its inflationary impact was not regarded by the government who, on the contrary, blamed the country’s businesses for abusing the market and setting prices regardless of market principles.
Prime Minister Meles Zenawi, who recently conferred with some of the main actors of the Ethiopian economy, admitted to his government’s weak market regulation alongside an illegal market exploitation by businesses.
And after setting ceiling prices on 18 basic commodities, Zenawi cautioned traders to comply with set regulations whilst insisting that failure to do so would force his administration to import and dump some of the listed items. Meles Zenawi had also threatened to open the local market to foreign businesses.Read More

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