by Akilesh ROOPUN

Is it a bad thing to let the exchange rate of the rupee fall? After all, a weak currency strategy can be very handy to counteract Chinese invasion of the world?s garment markets. Apart from cheap labour, China allegedly manipulates its currency, the yuan, to outperform its rivals.

China stands accused of resorting to monetary weapons of mass destruction to flood world markets with a very wide range of industrial goods from garments and electronics to heavy factory and transport equipment. Europe and the United States are currently threatening to take retaliation actions against Chinese apparel exports if China fails to adjust its currency.

The European Union is getting more serious about putting up punitive anti-Chinese tariff barriers to protect its domestic manufacturers. Some members of the American Congress who are under the sway of the powerful local textile lobbies are also pushing insistently in that direction.

?Blame it all on China? is the name of the new (hideous) protectionist game fast developing in the Western world. Many of the attacks on China are gratuitous, to say the least. The yuan is pegged to the American currency. With the weakening of the dollar, the export prices of Chinese goods are being further lowered. The US economy should therefore also share some of the blame.

Back home, the debate on the value of the rupee has become much of a heated political issue. Giving in to a competitive devaluation in response to China?s threat has never been a declared policy. But one would suspect that policymakers can take comfort in the criticisms of US and Europe against China to further depreciate the rupee.

The apparel-manufacturing sector has been the main beneficiary of the export-led exchange rate policy in Mauritius. Risks of imported inflation have for long been traded off against jobs created in the Export Processing Zone (EPZ) and by the latter?s substantial contribution to the economic prosperity of the country.

But things are changing now. The textile industry has been shedding jobs despite an accommodative rupee policy. Labour market reforms, investment in new production technologies and a better skilled workforce should rather be the prerequisite conditions for a stronger garment industry.

The garment industry in China is so gigantic that no country can really hit back with tariff barriers or with currency manipulation. Mauritius should instead look for niche markets and avoid as far as possible head-on confrontation with the Chinese giant. Some manufacturers are already deploying a mid-market product strategy that can combine flexibility and volume.

The focus of the exchange rate policy should gradually move away from EPZ as services assume a greater prominence in the economy. Whether Mauritius needs a stronger currency is not the question at this stage. The rupee should however stand new tests. It should be judged on the true strength of the economy. The local industry has always carried some artificial weight due to the high tariff barriers that have protected it from foreign competition. The advent of the duty- free will surely shed light to its real significance in the economy.