Roper challenges Lagarde on devaluation
One of the governing People's National Party's strongest supporters, Rev Garnett Roper, on Friday challenged International Monetary Fund (IMF) boss Christine Lagarde on her organisation's policy of currency depreciation, describing it as a method of victimising countries in need of economic assistance.
Roper, who chairs the State-owned Jamaica Urban Transit Company, put the question to the IMF managing director after she delivered a lecture at the University of the West Indies, Mona campus, in which she said that the IMF — regarded by many as a cold organisation — had changed over the decades to a body with a head and a heart.
"Isn't devaluation the strategy that has always been used — a way of victimising the victim? So [the country] will be a stomping ground for suitcase investors like in the Asian Tigers and we end up with a country of migrant workers exploited by the metropolis. Is there an outcome different than that which you envisage from this round of devaluation or right-valuation as you call it?" asked Roper.
His was one of the two questions offered to the audience.
In response, Lagarde — who was on a two-day official visit to the island — told Roper that the previous value of the Jamaican dollar was unsustainable.
"You cannot bleed your reserves in order to support a currency that is overvalued," she said. "The currency has to have the right value and the Jamaican dollar was overvalued. It is a credit of this Government, the finance minister and governor of the central bank to have taken the bull by the horns because it is hard, as it impacts on consumers in the short term.
"In the medium term and long term, if you manage to do that, plus the structural reforms to address excessive bureaucracy, reduce cost of energy, improve tax collection, if you do all of that, then you improve the competitiveness of your economy. Then foreign investors will look at Jamaica with different eyes. Investors will refinance... They won't look at Jamaica with some contempt in the back of their mind, as if it is some country that cannot honour its commitments. So it is also an issue of dignity."
The Jamaica dollar lost over 12.9 per cent of its value against its US counterpart, moving from $99.30 to $112.14, since the IMF agreement was signed in May 2013. But prior to the signing, the dollar galloped from $92 to US$1 at the start of 2013 to $99, which led Roper to question in March 2013 whether the depreciation was an IMF pre-conditionality.
Hitherto the currency usually lost four to five per cent of its value annually.
Lagarde described the local currency depreciation as painful, but said it was necessary to achieve competitiveness and restore dignity.
"It is painful, but it has restored lost competitiveness," she told the packed lecture hall.
Addressing the uncomplimentary impression that people have of the lending and monitoring agency, Lagarde said: "The IMF has changed, yet we do not always enjoy a stellar reputation in some countries. Most of that is unfair as we are the scapegoat."
She explained that governments come to the IMF as a last resort and the subsequent harsh reforms are executed by the government rather than the IMF.
Lagarde, who delivered a 40-minute speech on the challenges faced by the island, arrived in a motorcade. Her security included local and IMF guards with ear pieces curling into their collars. The audience rose upon her entry into the lecture hall, a courtesy usually reserved for a head of state.
Jamaica recently completed its first year under the current IMF loan programme, called an extended fund facility, under which the island will get nearly US$2 billion in loans over four years with half from the IMF and the remainder from the World Bank and the Inter-American Development Bank.