A letter to you recently from Dr Omar Davies has been brought to my attention. The area of the letter which concerns me is as follows:
"The foreign exchange auction system instituted by the (Edward) Seaga Administration in the 1980s did give rise to a black market, with the Bank of Jamaica resorting to using agents to purchase foreign exchange 'on the streets'.
"When this information came to the attention of Prime Minister Michael Manley in 1991, he ordered a full investigation, led by Sir Alister McIntyre, then the Vice-Chancellor of the UWI. The investigation revealed that this unacceptable practice had started in the last years of the Seaga Adminstration and had continued, unknown to either the new BoJ Governor, G Arthur Brown, or Prime Minister Manley. Governor Brown immediately put a stop to this practice and senior officials of the BoJ were dismissed. Immediately after, the exchange system was totally liberalised."
Since I was unaware of any such practice in my time as prime minister of using agents to buy foreign exchange on the streets for the BoJ, I contacted Sir Alister McKintyre, who was identified by Dr Davies as leader of a full investigation ordered by Prime Minister Michael Manley. I asked Sir Alister if he recalled carrying out any such investigation. His response was an immediate denial. He called it "pure fiction".
Once again the attempt is being made to bring the foreign exchange auction introduced by the Bank of Jamaica in the late 1980s into disrepute, this time with the charge that it "gave rise to a black market". To my certain knowledge there was a very active black market which commenced in the 1970s as US dollars were in demand for capital flight, purchase of imports, or the settling of debt, all of which threw the Net International Reserves (NIR) into a negative balance for the first time in the history of the BoJ. It remained negative for some 20 years. This black market continued until the auction was introduced in the mid-1980s at which time it subsided because the BoJ provided the necessary foreign exchange with a shortfall of only US$50,000 per auction. Hence, the applicants were pretty certain to find the foreign exchange required, if not on a Tuesday, then on a Thursday, the two auction days. In these circumstances there was little need for an active black market.
The black market revived in late-1988 to deal with the damage of Hurricane Gilbert in September 1988. The auction was disbanded on October 31, 1989.
As a consequence, the exchange rate depreciated rapidly from the $5.50 of the auction period, driving the Government to repeal control over movement of foreign exchange intending to attract inflows into the country. This did not materialise and the excessive outflows eventually caused the disastrous financial meltdown.
As for the buying of US dollars off the streets by the BoJ through agents, that did occur starting in 1992, not in the 1980s. The scheme became known as the BoJ Foreign Exchange Scandal. The genesis of this scheme was as follows:
The (Manley) Government established the Liberalisation Unit to prevent people trading in foreign exchange currency, and this brought back memories of the dreaded Financial Intelligence Unit of the 1970s. Government was incensed when a bank bought the US dollar above the official rate, but at the same time the BoJ was sending agents to the tourist areas to buy dollars above the stated rate — until one day things went badly awry.
On January 3, 1993 a BoJ trader was held up at Stewart Town, St Mary, and robbed of $2.5 million. What was surprising was that it hadn't happened before, as traders had been going into the BoJ garage and filling the boots of their cars with cash in order to do business.
The Most Hon Edward PG Seaga, a former Prime Minister of Jamaica, is a Distinguished Fellow at the University of the West Indies, and Chancellor of the University of Technology.