Wednesday, 22 June 2011 1:26 PM

Dollar Appreciation Needs Guidance

A Professor from the University of the South Pacific, School of Economics, warns that Solomon Islands could be harmed by the 5% appreciation if not handled properly.

Speaking to S-I-B-C news from Suva, Fiji, this afternoon, Professor Sunil Kumar says while the decision to appreciate the Solomon Islands currency reflects the confidence of the government and Central Bank of Solomon Islands in the country's international reserves, mineral and agricultural sector, such a move could be harmful.

He explains, apart from negative export if not guided properly, the capital inflow into the country could decline which is a serious problem as the country needs more capital inflow to improve its infrastructure, which may then diminish investor confidence in the country.

In an earlier media conference, Finance Minister Gordon Darcy Lilo said that the appreciation will also maintain consumer spending keeping it firm and robust.

But Professor Kumar argued that if consumption increases significantly because of the appreciation, import bills could further increase.

The head of U-S-P school of economics said that in such situations the government needs to assist the supply side of the economy and boost production.

He adds that monitoring prices of imported goods must be strengthened so as to ensure that the benefits of low prices imported overseas are trickled down to the rural populace and not translated by importers to make huge profits.