New Foreign Exchange Control Act to secure Tonga’s Foreign Reserves
Tuesday, December 11, 2018 - 19:55
The National Reserve Bank of Tonga aims at securing Tonga’s Foreign Reserves at a level of about $457.3 million, equivalent to more than seven months of imports, with the enforcement of the Foreign Exchange Control Act 2018 on 1 November. The Act requires Tongan exporters to repatriate at least 60% of their export proceeds. And, if the economy fails and the foreign reserves drop below the threshold, - then the Act gives the government the right to try and force Tongans who have invested overseas to repatriate their funds to Tonga. The Act was passed at the time Tonga expected to start repaying its loans to China.
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Comments
A both terrible and immoral
A both terrible and immoral legislation. Terrible in that it is ineffective. Immoral in that it encroaches on private property rights, which is fundamental to human and economic development, rights and freedoms.
Lets say the pa'anga declines, are we really asking people to send money back and carry increased risks of taking losses, for no reason except do it for a bad policy from your country? Are we really asking people take on unnecessary risks with their life savings or retirement funds? Private individuals worked hard for their own savings. I'm not quite sure law makers fully understood what they are asking people to do with their private property, because it seems they don't and are not looking deeper into it and comparing it to actual needs in Tonga.
For alleviating downward pressures on the pa'anga, we need to increase exports and/or increase capital flowing in from outside. This is way more effectively done by creating incentives with better policies, not by force. There's many ways to do that. And maybe a simple solution to exchange rate worries is to aim for a simple target, balance out the annual payment for the loan with increased foreign investment into Tonga of the same size. Or increased exports of the same size. Might as well grow the economy at the same time. Assuming this is all about the loan payments.
And let's not forget the elephant in the room, why is Government increasing spending and their budget deficit, to secure votes perhaps? Not sure why private individuals are expected to do the Reserve Bank's job, iI think the Reserve Bank could come up with better strategies with the pa'anga.
In my opinion, this law is not well thought out. Parliament needs to focus on more effective economic reforms and policy changes. Leaving this law in place has its negative consequences as well.