Sudan, South Sudan plan new currencies after split

KHARTOUM/JUBA Tue Jul 12, 2011 1:33pm EDT

1 of 2. Sudan's President Omar Hassan al-Bashir (C) addresses the parliament in Khartoum July 12, 2011. Sudanese President Omar Hassan al-Bashir said on Tuesday the north will launch austerity measures to compensate for the loss of oil revenues after the south's secession and bring in a new currency.

Credit: Reuters/Mohamed Nureldin Abdallah

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KHARTOUM/JUBA (Reuters) - Sudan's president said on Tuesday the country would launch a new currency, a day after newly independent South Sudan confirmed it would do the same, as both states worked to disentangle their economies after the split.

The move came as the United Nations reported fresh violence in a northern border region, the first time since South Sudan declared independence on Saturday at the climax of a 2005 peace deal that ended decades of civil war.

Analysts said it was crucial the two countries coordinated their currency launches closely, to avoid future disputes.

But South Sudan's Central Bank Governor Elijah Malok told Reuters he had not been informed about the plan by Sudanese President Omar Hassan al-Bashir - and the key issue was how the south would now redeem up to 2 billion old Sudanese pounds still circulating in its economy.

Bashir told the Khartoum parliament he would bring in a raft of austerity measures to compensate for the loss of southern oil.

The south took about 75 percent of Sudan's 500,000 barrel-a-day oil reserves with it when it left.

"The package of the economic measures includes issuing a new currency in the coming days," Bashir said, without giving further details.

On Monday, South Sudan's finance minister said it would start circulating its previously announced new South Sudan pound next week - much earlier than expected - pegging it at a one-to-one value with the existing Sudan pound.

South Sudan's central bank governor Malok had said it would take up to three months to replace the Sudan pound with the new southern currency.

Malok did not give a date when the south might remove the peg with the existing north Sudan pound and take more control over its economic destiny.

After Bashir's announcement, Malok told Reuters he had no information on the Khartoum decision. "It will not change our plans. The matter is what to do with our old currency," he said.

ECONOMIC PATH

Sudan and South Sudan's economies are likely to remain closely tied together in the coming years - the south has most of the oil, but currently depends on the north's pipelines and port to get it to market.

But their economic paths will likely diverge. Without its southern oil reserves, Khartoum says it will have to diversify its economy into agriculture, gold and other industries. It is still under crippling U.S. trade sanctions and saddled with a near $40 billion national debt.

Economic analyst Abda al-Mahdi told Reuters the introduction of a northern currency could have a disruptive impact on the south. "It can have an impact but there is still time. A currency will not be introduced overnight ... It will be gradually exchanged. The threat can be reduced greatly."

Mahdi said Bashir's announcement looked like a defensive move, reacting to the south's own currency plans.

"The north is launching its own currency to safeguard its interests after the south said it would start its currency. The question is what happens to the (Sudan) pounds after the south withdraws the notes circulating there. The worst thing would be if the south throws them back into the market in the north."

The Sudan pound has been falling on the black market in Khartoum for weeks as economists say foreign currency inflows needed for imports will decline alongside falling oil revenues.

Khartoum and Juba still have to agree on a range of issues such as handling oil revenues, assets and debt as well as ending violence in parts of their poorly defined border.

The U.N. reported new violence in the northern oil state of South Kordofan where the army and groups allied to the south have been fighting since June 5, forcing tens of thousands to flee.

"The security situation in South Kordofan state remains unpredictable, with aerial bombing and gunfire reported again in the vicinity of the state capital, Kadugli town, on 11 July," the U.N. office for the Coordination of Humanitarian Affairs (OCHA) said in a statement on Tuesday.

For the past six days gunfire has been reported in the state, OCHA said.

Around 2,000 people fled from one area on Friday, it said, citing northern figures. It added that the overall figure had dropped significantly below the initially reported 73,000 displaced people since many had returned home.

Analysts fear violence could spread to the northern state of Blue Nile where, like in South Kordofan, thousands of former southern rebels ended up on the northern side of the border.

(Additional reporting by Alex Dziadosz in Juba; Writing by Andrew Heavens; Editing by Alison Williams)

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