DAKAR – France is wrestling with a burden of debts and public deficits that led Standard & Poor’s recently to downgrade its credit rating. Even as the risk of recession looms, the country has been forced to implement a drastic austerity program. But France’s woes are also being felt far beyond its borders, sparking rumors of a possible devaluation of the CFA franc, the common currency of the franc zone, which comprises 14 African countries and the Comoros Islands in the Indian Ocean.
The franc zone is, in fact, an appendage of the French economy. The CFA franc& is convertible in& euros and freely transferable to France, whose companies control the lion’s share of the franc zone’s private sector and receive most of its public contracts. In effect, this is a formula for perpetual mass capital flight.
The& CFA& franc’s& fixed exchange rate is pegged to the& euro and& overvalued in order to shield French companies from euro& depreciation. But the currency’s overvaluation also underlies the lack of competitiveness that curbs franc-zone countries’ capacity to diversify their economies, create added value, and develop. Scandalously, they still have to surrender 50% of their foreign-exchange reserves to the French Treasury as a guarantee of the CFA franc’s limited convertibility and free transfer to France.
To curb the public deficits that such policies entail, the franc-zone countries underwent drastic structural-adjustment programs throughout the 1980’s and 1990’s, under the auspices of the International Monetary Fund and the World Bank. The CFA franc was sharply devalued in 1994, and outstanding debts& were& reduced. Since then, the IMF and the Bank have kept franc-zone budget deficits under tight surveillance, which has limited the direct impact of sovereign-debt worries on these countries.