Please allow me to respond to one of the questions asked by Mr Butch Stewart in his article in the Jamaica Observer dated February 7, 2013. He asked: "When did we become a country with a will to export, to a country that is dependent on borrowing"? He was giving reasons why we should not be depending solely on the IMF deal should it go sour, but return to export to save the country.
Let me remind Mr Stewart and all of Jamaica and especially callers who asked this very question on various talk shows why we now borrow so much and have little or no export.
In 1989 when the PNP government came to power, within months they liberalised the dollar without the support of funds to back that movement. Because of the rigid system that was enforced by the previous JLP government using the auction system to determine the exchange rate and very limited US dollars for travelling pursposes, the US dollar took flight. All the hoarders and buyers of US dollars came out of the closet and droves of the precious bills left our shores.
In a very short time, interest rates began to climb, to the point where the banks had to seek alternatives and ventured into real estate and other non-banking situations. In tandem with this, the government had to find ways to bring in some well-needed foreign funds, thus the genesis of the 'Paper Investments'. CDs, treasury bills, bonds etc, were put on the market at very high interest rates to attract Investors who very readily converted US dollars to buy into these very attractive rates of interest, and by the way these were short-term investments.
Scores of foreigners were magnetted into the ring of this method of investment and within 3-6 months drew down on their interest and principals, which was quickly converted back into US$ and left the Jamaican shores once again.
Government did not have the funds to fullfill their obligations, so guess what they did? Yes, they printed money! And this went on for a number of years, manufactorers began to smarten up, invested in paper for a higher yield/return rather than having to bother with a labour force, and the more paper became popular the more Jamaica became poorer. The borrowing stage began. Businesses which had previously borrowed at extremely low rates of interest were now forced to absorb the high interest rate regime at up to 70-80 per cent and found that they could not honour their payments as that rate of interest was 'knamming' them to the bones.
An example of let's say someone borrowed J$1M at 15% soon discovered they were owing J$3. This was the advent of dear old 'FINSAC' and I believe everyone else should know the rest, thus the will to export went on the back burner while the government of the 90s were cyclical in printing money, mopping up liquidity and borrowing till this very day and thats the legacy of the PNP government, Jamaica!
I will respond in another letter one way to help bring in more people in the tax net.