Is fear of floating same as fear of appreciation?

So far, it has been felt that developing countries have this fear of floating.

Emerging markets have underdeveloped financial systems and don’t have easy access to finance. Hence they borrow abroad and as a result the balance sheets are mostly dollarized. In case there is a crisis, the demand for domestic currency goes down, and it looses value. As a result,the value of liabilities increase and if currencies are allowed to float freely, the impact of crisis could be severe and hence the term “fear of floating”.

This fear came at the time of South East Asian crisis. If you note, the main fear then was depreciation of the currency.

However, what we see these days is the opposite – fear of appreciation. Most emerging markets have managed floating exchange rates and intervene in forex markets to keep their currencies undervalued. They don’t want their currencies to appreciate as it would harm their exports.

Hence we have fear to appreciate. This has been conveyed in an excellent paperby Eduardo Levy-Leyati and Federico Sturzenegger. I was actually surprised why didn’t it strike me before?

More generally, the incentives and implications to intervene in order to avoid an appreciation are radically different from those related to avoiding a depreciation: where the latter focus on short-run financial crises, the former is usually predicated on long-term economic growth. Similarly, the context conducive to one or the other differs: whereas fear of floating would tend to arise in times of financial turmoil, fear of appreciation will likely be triggered by economic bonanzas.At any rate, treating interventions in a symmetric way –in particular, attributing any intervention to fear of floating as has been previously the case in the literature– may lead to overstate the incidence of financial factors –more so in recent years when fear of appreciation appears to have prevailed.

Read the paper for further details.

It has another surprise finding.The normal belief is that undervalued currency should help exports to grow and hence aide growth. In  other words, the growth is export driven. The authors find that exports hardly contribute to the growth and the main channel of growth is that depreciated currency leads to higher savings which are channelised into investments and finally growth.

This study is worth replicating in the Indian context and see the results.

Why is after sales service so poor?

This is one area where Indian companies need to improve drastically. I don’t have the numbers, papers etc to show how  bad they are. It is just based on my experience.

We often have a limited view of our purchasing decisions- How many choices does a consumer have? What is the price of the various products? Whether this is worth buying etc etc.

Why don’t we evaluate the product/service also on the basis of the “after sales service”? The answer is a consumer does not understand the importance of this at the time purchase. At the time of purchase he is most interested in the answers to the questions asked above.

Most companies do suggest that their after sales services are good etc. but it is all a false. They know the only important thing that matters is to push consumers into buying a product and anything else you do is wastage of money. Hence, the standards are extremely poor and one often feels cheated and dejected.

Taking a cue from Western companies most have set up call centres to take not of the complaints and do nothing about it. In the name of corporate governance and other management euphemisms they show their concern for the consumer. But you know all is false.

Some of the practices are so atrocious that one does not know what to do and only realises the same after the purchase of the product. For instance, say you buy a CDMA phone from the store of one of the reputed companies. The moment you let the store staff know you are here to purchase you are greeted really warmly. So you are all happy and after checking the features etc you buy one.

Now if it turns defective and you go to the same store again, you are told that they can’t help. Their logic is that stores simply provide the cellphones and are not responsible for the defects. They ask you to go one of the service centres of the mobile phone maker. If you appeal and say why should you go, well all you get is a ” I don’t care” attitude. So, you end up going to the service centre and you are actually told that you are lucky as the service centre is just nearby !!

There are many such examples. There are hordes of websites where you see consumers showing their dissent against the products and services. With so many products and services, you should expect better service standards, but what you get is the opposite.

Now, all this got me thinking. Why don’t companies improve their standards? Why is more concentration on just sales part of the business. Well the reason is well-known, lack of vibrant consumer courts. They know that not many people approach the consumer courts in India, hence they can continue to ignore the poor service standards. The people don’t approach consumer courts because of corruption related issues. Efforts are being made to increase consumer awareness but it will take sometime.

I was told that US companies lay more emphasis on the “after sales” as that is where most problems are. They may sell a product for 100 USD but if it is defective and the company is sued, they might end up paying many times of 100 USD.

But in India, they can afford to relax as there are bound to be no such problems. If few people even file cases, the cost of improving their services is higher than the compensation given to those few. As a result, the services hardly improve. 

Assorted Links

1. WSJ Blog points Government should spend $ 100 billion to revive US economy 

2. TTR points to World Bank’s latest report on world economy. It talks of soft landing

3. Tyler Cowen on what 4 things economists have learnt in the last year.

4. Rodrik points to new meaures for globalization.

5. Fin Prof is back after a long break and he points that prediction markets aren’t perfect.

6. PSD Blog points to YouTube for ideas

7. Econbrowser on how low will Ben go.  Another excellent articleon how subprime crisis originated.