The Nizwa rendezvous
Experts at the Nizwa University opined that Oman ought to look at tinkering with its exchange rate mechanism: revaluation or devaluation of the Rial

Thirty-five-year old Ghabish Salah is well built and speaks passable English. He works with the Royal Oman Navy as a security guard. On his weekly off, Sunday, he drives a taxi, ferrying passengers mostly in Muscat. Occassionaly, he accepts passengers for a trip outside the capital. On other days, he drives after his office working hours. Recently, on a hot April Sunday, he drove me down to Nizwa (170 km from Muscat).

Salah has no chance of knowing Ali Hamdan Al-Raisi, the foreign-educated economist working as a senior manager at the Economic Research & Statistics wing of the Central Bank of Oman. This is because the fortyish, bespectacled Al-Raisi does not engage taxis and prefers to drive his own Sayarati.

Despite their different stations in life, both have been victims of the unstoppable rise in price levels. Am I referring to inflation? Yes, but in different ways. “Making 400 Rials a month is insufficient to protect my family,” admits Salah, looking at me through the rear view mirror.

Rising Concerns
Salah’s is a nine-member family: himself, spouse and seven children. Such a huge family at 35? The question rolls out automatically. He flashes a weak smile. How does he manage twin jobs? “Everybody in Oman does it,” he responds. Why? “How do you expect me to manage my family with a single income?,” he asks rhetorically. “Don’t you know the price of everything is going up and up and up… Unless I drive my cab daily and return home with 10-12 Rials, life will be tough.” Salah does not mind sharing his personal history with strangers like me. May be he finds in me a kindred soul to lighten his burden.

But, having paid him RO30 for the Muscat-Nizwa-Muscat round trip, I feel may be he can take it easy for the next two-three days. I recollect that I had paid RO16 way back in December 2005 for the same distance. Today, it’s almost a 100 per cent jump in cab fare.

When I share this nugget of information with Al-Raisi at the Nizwa University, where both of us were participants in a seminar on “Inflation and Exchange Rate Mechanism in GCC Countries”, the CBO official quips: “You should have hitchhiked with me for 10 Rials.” Sadly, I could not avail myself of this subsidised facility!

Six economists, seven opinions
At the Nizwa rendezvous, speaker after speaker, academics and experts from the real world, categorically pointed out that Oman’s inflation management was not commendable. While conceding that global events did impact the Sultanate, experts opined that Oman ought to look at tinkering with its exchange rate mechanism: revaluation or devaluation of the Omani Rial. And like all economists, they agree to disagree. Remember the saying: when there are six economists engaged in a debate, don’t be surprised if there are seven opinions! Even a young economic student from the audience questioned Central Bank of Oman’s decision not to be part of the GCC Monetary Union.

Dr Ahmed Nawaz Hakro, Assistant Dean for Research, was blunt. He thundered that the possibility of the monetary policies of GCC economies would continue to be tied to the monetary policy of the US and the GCC economies would remain exposed to further falls in the dollar. Move away from the dollar peg was his clarion call.

Dr Dennis Powers, another academic, posed the question of what now, and responded with a gem: GCC countries must choose the lesser of two evils – the cost of imported inflation or the cost of revaluation. Oman and Al-Raisi were caught in a cul-de-sac. Dr Houcine Boughanmi, Associate Professor of Agriculture Economics and Rural Studies from Sultan Qaboos University, highlighted the linkage between global food prices and exchange rate. Capital Market Authority’s Economic Advisor, Dr Sohail Magableh, also held forth the view that inflation management was a tough job for any central bank.

At the end of it all, I could not help wondering: did I hear anything fresh and new on the burning topic that is gripping almost every nation? Nope. Was I privy to anything fresh and new from the government side after hearing Al-Raisi? Nope. Then what did the seminar or workshop achieve? The only commendable achievement was the transparency and the readiness shown by academics/economists to comment on the growing concern over rising prices and the readiness of a Central Bank of Oman official to sit through the whole exercise.

Zero inflation?
Giden Gono, Governor of the Reserve Bank of Zimbabwe, equates his country’s inflation rate of more than 3,700 per cent to an economic HIV. Sri Lankan Central Bank’s Deputy Governor W A Wijewardena without mincing words, claims that inflation is public enemy number one. A recent International Monetary Fund study on the linkage between globalisation and inflation states that governments across the globe increasingly prefer ‘low and stable inflation’. Earlier experience, it points out, was learning to live with ‘high and variable inflation’ in
both emerging markets and advanced economies.

Inflation is inevitable. Learn to live with it. What’s Al-Raisi’s take on this? According to him, there are four sources of inflation viz., positive output gap, rapid expansion in aggregate demand, external shocks (rising global food price, etc.) and inflation expectations. “Past inflation influences current inflation, and current inflation influences inflation in the near future, since pricing of commodities and services
is based on inflation expectations,” he remarked.

Salah, the multi-tasking Omani, has no time for all these intellectual dispositions. He quietly collects 30 Rials from me as I alight in Muscat and calls out: “Remember to call me for your next trip to Sur. Choose my day off to carry you.” I nod politely. Is this not what 200 years ago, Adam Smith, the father of economics, called ‘the self interest’ that drives economies?

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