Michael D Higgins (Galway West, Labour)
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Question 198: To ask the Minister for Finance his views on the announcement by Ethiopia's central bank to devalue the birr by one fifth on 1 September 2010; the effect this will have both on Ethiopia and other countries in the region; and if he will make a statement on the matter. [36119/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am informed that on 1st September, Ethiopia's Central Bank devalued the Ethiopian Birr by 16.5%. The latest in a series of devaluations since January 2009 and I understand is in keeping with a Government policy of allowing the Birr to fall against foreign currencies so as to bolster Ethiopia's competitiveness. Ethiopia is one of the world's poorest countries. I understand that its growth and development gains came under threat in 2008 with the emergence of twin macroeconomic challenges of high inflation (with food inflation peaking at 92% year-on-year in July 2008) and an extremely difficult balance of payments situation. In the face of these acute challenges, the Ethiopian Government took a series of corrective measures which, together with support from the international community including the IMF, led to improvements during 2009 and 2010. However, I am informed that the economy remains fragile and under stress.

I understand that a recent IMF mission to Ethiopia considered that the devaluation of the Birr, supported by a prudent fiscal policy and monetary policy, would help to stimulate exports, import substitution, and economic growth. Overall, the recent IMF mission to Ethiopia concluded that Ethiopia has made good progress in the first half of 2010 in macroeconomic stabilisation and that the economic outlook remains favourable with continued strong growth expected.

The Minister for Foreign Affairs visited Ethiopia during the summer and it was clear to him that, while Ethiopia remains a very poor country, it is making real progress towards development based on economic growth. Ireland is playing a part in this process through Irish Aid which is having a very positive impact on social and economic development in the country. The Irish private sector is also now getting involved through trade and investment in Ethiopia.

I am informed that the impact of the devaluation of the Birr on other countries in the region is not likely to be significant as - in common with other Sub-Saharan African countries - most of Ethiopia's international trade at present is with Asian, European and North American markets rather than with African countries.