CENTRAL BANK ADVICE WAS DON'T REVOKE SOLOMON ISLANDS DOLLAR DEVALUATION

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HONIARA, Solomon Islands (April 7, 2002 - SIBC/PINA Nius Online)---The Central Bank of the Solomon Islands has said revoking the devaluation of the Solomon Islands dollar was not based on any economic or financial reasons.

Based on economic and financial analysis it carried out, the bank said it had advised the government against revoking the 25 percent devaluation.

But despite its advice, the government proceeded to revalue the dollar back to its former level, largely because of political considerations.

It said although it facilitated new Finance Minister Laurie Chan's instructions to revalue the Solomon Islands dollar, it made it very clear that he would be responsible for the consequences.

The bank said it clarified its position to avoid being blamed should there be a run on external reserves, resulting in a foreign exchange crisis.

The devaluation had been announced by the former Finance Minister, Michael Maina, in his budget address on March 26.

Prime Minister Sir Allan Kemakeza then sacked Mr. Maina amid protests over the devaluation within the coalition government.

Mr. Maina's announcement of the devaluation took government colleagues and the nation by surprise.

But the Central Bank and the Economic Association of the Solomon Islands strongly supported his move.

They said it was vital because of the country's fast depleting foreign reserves.

The Solomon Islands economy has been in a nosedive because of the two years of Guadalcanal-Malaita ethnic conflict and continuing law and order problems, despite a ceasefire.

Key industries are either closed or not operating fully.

Since the 2000 Honiara coup, aid donors have also withheld substantial amounts of funding.

They said they need proof that the Solomon Islands is addressing law and order problems and has reestablished credible financial management before funding is resumed.

Mr. Maina was sacked for what Sir Allan described as failing to consult the Cabinet before announcing the devaluation.

Sir Allan said Mr. Maina had to go to avoid a constitutional crisis and political instability.

Mr. Maina responded by saying that he consulted Sir Allan and Central Bank Governor Rick Hou before announcing the devaluation.

However, he said a devaluation is sensitive. It had to be kept secret and news could not be spread widely beforehand to avoid such things as a sudden drain of money overseas, he said.

The 25 percent devaluation led to an immediate increase in the price of many imported goods.

Shopkeepers were accused of exploiting the devaluation by raising prices on goods bought before the devaluation.

Sir Allan now faces a motion of no confidence filed earlier by the opposition parties. He is accused of not doing the things he said he would achieve in his first 100 days in office.

Meanwhile, Opposition Leader Patteson Oti has warned the public to refrain from making threats to Members of Parliament in the lead up to the no-confidence vote, which is expected to occur no later than Wednesday.

He urged all Solomon Islanders to allow the due process of parliamentary democracy to take its course.

Mr. Oti warned that any activities that impinge upon the freedom of the Parliament to function under the constitution can only bring more suffering to the struggling economy.

For additional reports from the Solomon Islands Broadcasting Corporation, go to PACIFIC ISLANDS REPORT News/Information Links: Radio/TV News/Solomon Islands Broadcasting Corporation.

Pacific Islands News Association (PINA) Website: http://www.pinanius.org 

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