Economic Management in a State of War
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Countries with a non-convertible currency and a developing economy more and
more often face low intensity and prolonged guerilla warfare which leads to a
gradually worsening economic situation.
Measures number 2C, 4, 6A, 6B, 7, 9, 11A, 11B below are applicable to such a
situation.
Another scenario is a crisis in balance of payments. The
country then often seeks trade relief under GATT or WTO rules and multilateral
financial aid packages (such as the IMF's CCF).
These measures are then applicable:
1B-1H, 2A, 2B, 2C, 2D, 2E, 3, 4, 5, 6A, 6B, 6C, 6D, 7, 8, 9, 11C, 11D, 11E,
11F.
The last and worst scenario is an unmitigated, all out, state of war.
These measures would then apply:
1A-1H, 2A, 2B, 2C, 2D, 2E, 3, 4, 5, 6A, 6B, 6C, 6D, 6E, 7, 8, 9, 10, 11C,
11D, 11E, 11F, 12, 13.
1. Foreign Exchange Regime and Capital Controls
1A. The central bank can fix the exchange rate or establish a currency board
1B. A ceiling or quota is often placed on foreign exchange payments to
non-residents
1C. Central bank approval is required for investments by residents abroad
1D. Approval is required for payments under guarantees or non-trade purposes
1E. Payments abroad can be effected from domestic accounts only
1F. Domestic credit facilities to non-resident firms, banks, brokers, etc. are
disallowed
1G. Limitations are placed on cash and credit card travel allowances in foreign
exchange
1H. Transfers between external accounts require approval of the central bank
2. Banking Regime
2A. Certain types of reserves of the banks with the central bank – for
lending to import businesses, for instance - are increased
2B. Certain types of reserves of the banks with the central bank - for lending
to export businesses, for instance – are decreased
2C. Reporting of transactions by the banks to the central bank is tightened
2D. Deposit controls are introduced (including a ceiling on interest payments,
and a prohibition, or encouragement, as the case may be, of foreign exchange
indexation of savings and obligations)
2E. Controls, ceilings, and quotas on withdrawals in foreign exchange are
introduced
3. Interest Rate Regime
Increases in Lombard and discount rates to offset speculation against the
currency.
4. Export Revenues Regime
Reduce the period for repatriation of export proceeds.
5. Import Controls
Prohibition on import of luxury goods and non-commercial vehicles.
Increase customs tariffs and duties on all imports (and introduce countervailing
measures under GATT/WTO rules).
6. Public Procurement Regime
6A. Ceiling budgeting (the imposition of ceilings on item expenditures and
micromanagement of the accounts of the budget users)
6B. Positioning of Finance Ministry supervisors and co-signatories in all budget
users
6C. Freezing of public procurement of non-essentials
6D. Freezing of public procurement of essentials
6E. Expropriation of logistical war materiel (for instance, cars)
7. Emergency Borrowing Facilities
IMF facilities under an
arrangement
World Bank - emergency borrowing
Bilateral – USA
Bilateral – EU
Bilateral – Others
Rescheduling of foreign debt (Paris Club, London Club)
Donor Conferences
8. War Bonds (linked to foreign exchange or nominal)
War effort bonds – voluntary (firms with turnover above a certain amount are
"encouraged" to purchase the bonds through tax incentives)
Patriot Bonds – compulsory (firms with turnover above a certain amounts are
obligated to purchase the bonds and a percentage of all wages is paid with these
bonds, or a fixed quota of bonds is purchased by each household according to the
number of members of the household)
Deductions from salaries are used to purchase the bonds
Financial transactions tax is imposed to finance the war effort
Increases in VAT, excise, and other consumption taxes are introduced in order to
finance the war effort
9. Budgeting
War budget items can be part of the current budget.
A separate, supplementary budget can cater to the financial needs of the war.
A War Fund can be established – separately managed and includes all the proceeds
from war bonds, etc.
10. Emergency Regime
Freeze on wages
Freeze on hiring in public administration
Freeze on indexation of pensions and other state obligations
Freeze on public expenditures and public procurement
Freeze on interest payments
Freeze on repayment of internal debt
11. Strategic Reserves
11A. Decision on which goods are to be included in the strategic reserves
(oil, food)
11B. Decision on the quantities of goods to be included in the strategic
reserves
11C. Budgetary allocation for the purchase of the goods in the strategic
reserves and their warehousing
11D. Preparation of warehouses
11E. Hiring a trading firm (not through a public tender)
11F. Discrete market purchases
12. Suspension of Laws
Suspension of tax reductions in existing laws
Suspension of Public Sector Reform
Suspension of liberalization of the foreign exchange regime
13. Rationing and Subsidies
Rationing of essential goods (oil, food)
Food subsidies to the needy
Fight against criminal and black market (war profiteering) activities
About the Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and
"After the Rain - How the West Lost the East". He is a columnist in "Central
Europe Review", United Press International (UPI) and ebookweb.org and the editor
of mental health and Central East Europe categories in The Open Directory,
Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor
to the Government of Macedonia.
His web site:
http://samvak.tripod.com
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Article Published/Sorted/Amended on Scopulus 2007-11-10 10:58:03 in Economic Articles
