World Bank Africa economist urges CFA devaluation debate

Africa's 14 countries sharing the euro-pegged CFA franc should consider devaluing it to make their exports more competitive and counter the weak US dollar, the World Bank's chief Africa economist said on Monday. The CFA franc's 50 percent devaluation in 1994 - the first since France created it in 1945 - caused widespread anger in West and central Africa when people saw the international value of their life savings halved overnight.
Shanta Devarajan said the combination of inflation stemming from high food and fuel prices and the dollar's 25-30 percent fall against the euro had made CFA-zone exports less competitive on world markets, and something had to be done.
"I don't know, and we haven't analysed the options there are at the moment, but they have to be analysed because the situation is very important," Devarajan told journalists in Africa via videolink from the World Bank in Washington. The euro surged to a record high of over $1.60 in July from a record low of barely $0.82 in 2000, according to Reuters data. The euro has since fallen back and dropped below $1.35 in Monday's trade.
Devarajan published charts last week on his blog
(http://AfricaCan.worldbank.org) showing the performance of the CFA against the dollar since 2000 is similar to that from 1985 up until the 1994 devaluation. "To be sure, the situation now is not the same as in 1994. But we must have a rigorous and open discussion before taking a decision," he said on the blog.
The CFA zone is split into eight countries in West Africa and six in central Africa, each group with its own central bank and notes. Both versions of the CFA are pegged at 655.957 CFA francs per euro. Devarajan said there were other options to improve competitiveness in the zone, including reducing taxes, bureaucracy or infrastructural obstacles to exports.
"But as you well know, we tried lots of things in Ivory Coast in 1993, when there was also a problem with competitiveness, and these "second best" policies did not succeed in improving competitiveness and we had to devalue in 1994," he told journalists.
The calculations that led to the unpopular 1994 decision were mainly carried out in France or the United States, Devarajan said on his blog. "The one thing I will insist on this time is that the question must be examined by Africans, by the people who are most affected by the decision," he said on Monday.