Former Jamaica finance minister wants fixed exchange rate

Former Jamaica finance minister wants fixed exchange rate

Audley Shaw
Since March 2013, the Jamaica dollar has lost 12.2 percent of its value, moving from Jamaica $97.34 to US$1 to Jamaica $109.02 to US$1.

KINGSTON, Jamaica, Tuesday March 18, 2014, CMC – The Opposition Jamaica Labour Party’s (JLP) spokesman on Finance Audley Shaw has called on the government to fix the exchange rate in the interest of economic stability.

Shaw, in a presentation at the University of the West Indies (UWI) Mona Campus on Thursday, said calls for a competitive exchange rate are nothing more than a euphemism for further devaluation which he points out has brought little gain so far.

“Are we seeing more exports as a result? No, in fact exports are down, not up. That is supposed to be one of the benefits of devaluation.  Shouldn’t we then be fighting to maintain a stable or fixed exchange rate because the bigger negative impact is on our debt? It is time for us to start asking where is the positive impact of this continued devaluation of the Jamaican dollar, if all we have are negatives, then I suggest that we need to look at fixing the exchange rate, even for a period of time.”  

Shaw, a former Finance Minister, added that the slide in the dollar is responsible for J$140 billion of the J$300 billion increase in the debt in the last two years.

And in backing his calls for a fixed exchange rate, Shaw enlisted the help of studies which show the impact of a flexible exchange rate on economic activity.

“Most of these studies find that depreciation tend to be contractionary when foreign currency debt is high. The studies also find that the presence of high foreign policy debt can even cause the flexible exchange rate regime to be more destabilizing than when the exchange rate is pegged,” he said.

In response, Dr Damien King, Head of the Department of Economics at the UWI, has given a swift thumbs down to the latest call for the government to fix the exchange rate.

“But worse than being futile, to the extent that you are actually able to hold it, you are creating a great imbalance between the cost of imports and the cost of domestic production, because you are subsidizing imports with domestic production so you are really undermining any capacity for your local economy to continue operating when you are making imports cheaper and cheaper.”

He added that while stabilising the exchange rate is an important goal, it must happen through balancing the budget and having a conservative monetary policy, not legislation.

According to King, unless that is done the country will get itself into problems by trying to stabilize the currency any other way.

Since March 2013, the Jamaican dollar has lost 12.2 percent of its value, moving from Jamaican $97.34 to US$1 to an all-time high of Jamaica $109.02 to US$1.

The young professional arm of the JLP, Generation 2000 (G2K), has also expressed concern at the rate of depreciation of the local currency.

“The slide in the dollar is having a debilitating effect on all Jamaicans, especially those in the micro and small enterprise sector.  It is clear that at this pace of devaluation our businesses are unable to properly plan and forecast and it is completely eradicating the slim profit margins that these organisations currently survive on,” said President Floyd Green in a release issued last week.

The organisation noted that despite assurances, by Minister of Finance Dr Peter Phillips that depreciation may be good for the economy, the Government has put nothing in place to enable the Private Sector to benefit from relatively cheaper costs of exports.

“Young persons and our most vulnerable groups – the poor, children and the elderly – have also been adversely affected as they have to contend with the rapid increases in the cost of basic food items. The youth in particular are most affected as they not only have to contend with the high of cost of living but also the reality of living while being unemployed. We are now faced with the highest rate of unemployment among the youth that this country has seen in over a decade. The Minister of Finance who spent the entire first year of his tenure missing targets and overseeing the complete decimation of our NIR cannot now hide behind the IMF as blame for the erratic movement of the dollar,” Green added.

G2K has urged the Finance Minister to see to the restoration of some amount of stability to the foreign exchange market; to increase the pace of reform aimed at removing impediments to doing business in Jamaica; reward innovation and comprehensively reform the tax system. …..   Source: http://www.caribbean360.com

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Comments

  • Abert  On March 18, 2014 at 6:57 pm

    Kamtan
    Where are you Buddie. They may need your advice. They depreciated the Jamaican currency and it seem to be backfiring on them. There are many pros and cons on the issue of fix vs flexible exchange rates. The Chinese solve the problem: starvation wages at home, lower prices than anyone else and them foreigners will buy like crazy and owe us money.

  • Cliff Thomas  On March 18, 2014 at 8:25 pm

    Bad Politics by both opposition parties in Guyana will depreciate our currency because it appears that this is what they want to do to the detriment of all Guyanese.

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