Does the Rial need a break?

Now, almost everyone believes that Yemen desperately needs to adopt policies of reform on many levels...

Now, almost everyone believes that Yemen desperately needs to adopt policies of reform on many levels in order to concentrate on its war on terror. Many Yemenis will bitterly remember the three dosages of economic reforms that were implemented by the previous governments. Any economic reform, many believe, means further deterioration in living conditions to the vast majority of Yemenis as a result of higher inflation rates and the dwindling value of the Yemeni Rial against major world currencies. Yemen is an importing economy: apart from petrol and diesel, all essential commodities are imported from abroad, and therefore, the fall of the Yemeni Rial will have a direct impact on prices of these essential commodities.

Representatives of the major world powers gathered in London in January 2010 and agreed unanimously that the only way Yemen could come of out of its current status quo is by adopting stringent economic reforms; they pledged on behalf of their countries to support Yemen to get out of this unpleasant state of affairs.

Without getting into the details of “why” economic reforms would mean higher inflation and a declining value of the national currency, it is perhaps prudent to consider ways to minimize the effect of any such reforms on the livelihood of the vast majority of Yemenis. The last thing anyone wants is for those proposed economic reforms to have a counter-productive effect on Yemen by creating more public anger at the government, and hence perhaps giving the likes of al-Qaeda a golden opportunity to recruit more angry people into their ranks.

While politicians and economists are now busy drawing up the plans of how to build a sustainable economy, and listing all the development projects that Yemen needs in the next five years, it may be a wise decision to consider giving the Yemeni Rial a short break.

What I mean by giving the Rial a break is not to relinquish the national currency and therefore surrender the sovereignty of our national identity, or to bond the Yemeni economy to some foreign economy; not at all. Many may frown at such an idea and have all sorts of labels branded at those suggesting it, but leaving emotions aside, it might not be a bad idea, for the sake of the poor and impoverished.

What I mean by giving the Rial a break is to allow another more stable global currency, not necessarily the dollar, to be the currency of salary payment to the large number of public and private sector employees. Such a decision, if taken, may be looked at as a counter-inflationary measure during the period of economic reformation.

The use of a foreign currency is not bizarre or unheard of in situations of economic decline; as a matter of fact, many goods, appliances and services are already priced in US Dollars in the Yemeni market, and many Yemenis are paid their salaries in US Dollars, especially if they are working with foreign companies. Those who are paid in US Dollars are somehow secured from any economic decline, currency fall or expected inflation. Therefore, why not adopt similar measures with those who are less privileged in the wider employment market?

This measure is not meant to be permanent; it doesn’t make sense for it to be so. It is only until economic indicators and economic output start to show signs of recovery and economist are comfortable that the Yemeni economy is on the right path.

No one wants to see the experience of Zimbabwe repeated anywhere else in the world, when the hyper-inflation was quoted in percentages of billions and the currency exchange reached 300 trillion Zimbabwean Dollars for 1 US dollar. The government of Zimbabwe finally decided in July 2009 to take the decision to suspend the circulation of the national currency until industrial output reaches 60 percent of its potential capacity.

No one is saying that only the US dollar can play this role while Yemen undergoes economic reform, but other closer alternatives can be considered, like for example the Saudi Rial or the Emirati Dirham. Again, it is worth remembering that the main reason for such a measure would be to protect the livelihood of so many Yemenis who earn less than 500 US Dollars a month, given the fact that those who are earning more than that are probably already getting paid in another currency. It is also worth noting that the exchange rate for the US Dollar against the Yemeni Rial at the end of February 2009 was 200.09 Rials for 1 USD and in mid-February 2010 the exchange rate had reached 214 Rials for 1 US Dollars.

I hope we will have the courage to at least open the door for discussion of this topic and consider giving the Rial a break as a last resort, and make a plan to implement this measure for the sake of our economy.