Lets assume P to be the principal base value of the kwacha four years ago. For simplicity let's use 100. (d) is the discount rate and (i) is the interest rate. There are two ways in which her explanation can be interpreted; either the 10% is d, the discount rate or i, the interest rate. I will compute the figures assuming that the 10% is either d or i.
In the first scenario, let's assume d to be 10%. The formulae goes as follows:
From the above compound discounting, we can see that the actual devaluation would have been 34.39%
over the four year period if the devaluation was 10% per year. Secondly let's assume that the 10% be i, the interest rate.
From the above, the devaluation would be 31.70%. In both instances, (34.39% and 31.70%) the devaluation by 10% per year is less than the 40% by which Banda devalued at the end of the four years. Why is that important? This exposes Banda's ingenuity in the whole devaluation saga. Her argument that her suggestions to the late waMutharika to devalue at 10% per year, over four years, is equal to her recent devaluation by 40% is not supported by math. So this leaves us to conclude that her recent devaluation of the currency was forced onto her by the IMF and she's just giving flimsy reasons, blaming waMutharika in the process, for her weak leadership. This devaluation has put Malawians in a tight spot. They will have to suffer from price hikes and food shortages in the short term and it's not guaranteed that the situation will change favourably in the long run because of the various rigidities in the Malawian economy. That's what happens when you have a leader who dances to every tune, imperial masters play.
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