Jamal Mecklai: Bali Hai

Economics lessons from the tropical island

I just returned from a magical week in Bali. We rented a villa in Seminyak—2 bedrooms, a wide open, large living area that folded out to the lush, tropical garden, birds chirping everywhere, and, of course, the pool, where, as I luxuriated, plump frangipani blossoms dropped gently onto my somewhat-modest belly.

It was glorious.
As part of the arrangements, we had Ilu, the sweetest young Balinese girl, who took as good care of us as she did of the offerings she made each day to the trees and other gods that run Bali. And Kutu, cook extraordinaire—mie goreng to die for—and expecting her second. There was the gardener and handyman, and Made, the driver, and, perhaps most important, the lovely young girls from the nearby spa, who came by to massage us whenever we called.

It was heaven.
And when we tired of heaven, we’d slip over to Ku de Ta, an alfresco on-the-beach super-cool bar and restaurant—Goa plus. No, Goa plus plus plus. Like I said, more than magic.

So, one afternoon, there I was, sipping an Arrack cocktail with half-lidded eyes watching this beautiful and rather large girl on the next recliner, when I was suddenly distracted by a shadow that flashed over me and disappeared. I turned to see what it was and I could have sworn it was Dr Reddy—yes, the same, ex-Governor of the Reserve Bank. He was a little ways down the beach and out over the ocean, looking something like the caterpillar in Alice in Wonderland. And he was waving at me.

I rubbed my eyes. Surely, it couldn’t be—I never realized that he was a surfer boy.

But then I remembered, the ADB was having its annual meeting in Bali, and perhaps Dr Reddy was the guest of honour. He certainly should be, having guided Indian markets quite successfully through the perfect storm that unfolded in global markets at the end of his tenure.

It looked like he was starting to speak. I couldn’t hear him—he was quite a ways away and looked like he was surfing. My God.

I sat up spilling my drink. My well-endowed neighbor tittered—she was obviously watching me too. But, I paid no heed—this was much more amazing; besides, my wife was on the recliner on the other side.

It sounded like he was rehearsing his speech.

He said something like, “We need to understand that, unlike in commodities, where price volatility is an almost physical property, like density or elasticity, the volatility of currencies can—and needs to—change depending on the state of development of the country’s economy, its financial markets and, of course, the state of the global economy.

“In India, we used to run a very tight volatility ship—keeping a range of 3-5 per cent—much to the chagrin of many observers.” And I thought he nodded in my direction, but I could be mistaken—the sun was in my eyes. “And to be fair, they were sometimes more correct than us, and we often found, to our dismay, that this made the market—and the economy—very brittle. We would have wild breakouts of volatility, which made risk management very difficult and I must admit that some Indian companies ended up paying a price.

“But then, central bank communication, as we all know, is a viciously double-edged sword. Rather like bracing to the right and getting hit with a breaker coming in from the wrong side.” He feinted on his surfboard, as if to prove the point.

“By about the middle of 2007, however, we had learned that currency volatility can be used as a shock absorber to enable accelerated growth as our economy globalised. And now, we have a much better feel for how to—well—ride the waves in a sense. Which is why I believe we were able to weather the crisis so well—we had a maximum depreciation of only 20 per cent [I thought I heard applause], and, more importantly, volatility peaked at just a bit under 18 per cent.”

He stopped, and took a sip of a cocktail—he was surfing with a drink in one hand. My God!

“And what pleases me no end is that my successor is—believe it or not—even more of a surfboard hero.”

I reached for my drink, but I had already spilled it. I looked to the right—my wife was dozing; to the left, she was laughing at me. I called the waiter over—he was already there—and ordered another Arrack Attack.

As I looked back to the sea, Dr. Reddy was waving at me. I could barely hear him now. The roar of the breakers sounded like continuing applause.

And then I realised, he wasn’t waving to me at all. He was waving to the girl on the recliner beside me.

I rubbed my eyes, took another sip, and looked over at her. She had disappeared.

Reclining by my side was Dr Subbarao, the current governor, looking very debonair in what-looked-like RipCurl surfer shorts and shades.

“Fancy meeting you here, Mr. Mecklai,” he said.