Macroeconomic stability and devaluation


Macroeconomic stability and devaluation

Canute Thompson

Thursday, November 21, 2019

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Whenever I read or hear discussions about the state of the Jamaican economy I get a terrible feeling, as I find that so much of the views expressed are laced with sleight of hand arguments and/or unforgivable ignorance on the part of those who should know better. The truth is that by all accepted conventional standards of measuring macroeconomic stability, Jamaica's fundamentals are sound. We have been on this path since 2013, yet by immediate contrast 2017 saw a 12 per cent increase in the number of people living below the poverty line. Thus, the big question we must ask is: What does that mean for the majority of our people?

In an article published in the Jamaica Observer on Sunday, August 19, 2018, I cited the example of Mexico, which had achieved macroeconomic stability and was a global poster child of successful economic reform, yet for all the economic stability, economic growth over the period 1980 to 2014 had averaged only 2.4 per cent. We could look at another metric, the issue of poverty. Luxembourg, one of Europe's richest countries, which has a per capita income of US$40,914 — 41 per cent higher than the US$29,016 which is the average of member countries in the Organization for Economic Cooperation Development (OECD) — had a poverty rate of 19 per cent in 2015, which was an increase of 20 per cent (3.2 percentage points) over the 15.8 per cent in 2003. At the same time, the unemployment rate is 5.7 per cent.

Let us take another example, India, which has been experiencing macroeconomic stability for the last 25 years, yet economic growth has averaged 1.67 per cent. At the same time, poverty rates in some parts of India are as low as 5.09 per cent (Goa region), but nationally the rate is 21.92 per cent.

Let us take a final example, China. With a 6.2 per cent growth year-on-year in the second quarter of 2019, slowing slightly from 6.4 per cent in the previous three months, China has experienced the weakest growth in 27 years. Despite these record growth figures, when compared to other countries, China's poverty rate is 3.1 per cent, which is comparatively low globally, but this after a quarter-century of sustained and substantial economic growth.

The lesson is simple: Jamaica does a disservice to itself, the poverty of many people and the harsh squeeze facing the middle class when we talk glibly about economic stability without saying what will be done to enable people to experience a better way of life. And, to add insult to injury, some of the recent discussions on the devaluation of the dollar suggest that “is jus so di ting set up” and we should brace for more, or it is a good thing for the country so we should rejoice and be glad.

Kevin O'Brien Chang, in an article in the Jamaica Observer on Wednesday November 13, 2019, argues that at $141:US$1 the Jamaican dollar reflects parity. He contends that the concerns being expressed by some are mere hype and chastises Opposition spokesman Mark Golding for leading the histrionics and calls on people like the governor of the Bank of Jamaica, the president of the Private Sector Organisation of Jamaica, and the minister of finance to educate the people about the virtues and inevitability of devaluation. I find the views of,Chang, my friend, quite appalling and insensitive.

In a report carried in the Jamaica Observer on Friday July 19, 2013, then Opposition Leader Andrew Holness, in addressing the Jamaica Chamber of Commerce board meeting, admitted that while he was familiar with the economic arguments for devaluation, one of which was the need for the internal “rebalancing” of the economy, he argued that that was not a policy to be pursued at that time, even if it were necessary in the future. Hmmm, in the future! In June 2014, in continuing what he described as a responsible approach by the Opposition in respect of the dollar, Holness sent a letter to the International Monetary Fund (IMF) requesting a review of its terms. He also expressed concern about the depreciation of the Jamaican dollar “and the need to build stability in the Jamaican economy given the challenges which ordinary Jamaicans are experiencing as a result of the movement of the Jamaican dollar”. ( Jamaica Observer, June 27, 2014)

By 2015 Holness's measured tone had given way to stridency. Speaking at a rally Holness strongly challenged the Government to halt the continuing slide of the Jamaican dollar. Later, in a release, he said the Jamaica Labour Party (JLP) would not sit idly by and allow the dollar to slide beyond the $120:US$1. ( Jamaica Observer, September 19, 2015)

Today the dollar is nearly $142:US$1, and so one must ask:

1. What has changed?

2. Has the time come for the rebalancing that Holness said was not necessary in 2013?

3. Have the concerns about how the dollar affects ordinary Jamaicans evaporated?

4. Does the hard-won macroeconomic stability, made possible with wage freezes, taxes, and other sacrifices of the Jamaican people, justify devaluation?

5. Is there a plan to move the dollar to $150:US$1?

6. Is the slide (or fluctuation) in the value of the dollar good for businesses, the working class, and the poor?

Prime Minister Holness needs draw on his “Brogod” capacities, come to the Jamaican people, and tell us truthfully his position on devaluation. He must state clearly if, and why, his position between 2013 to 2015 and now has changed.

Cruelty in the FX market

One of the curious and confounding components of this exchange rate situation is the spread between the rates at which banks are buying and selling the US dollar. On Thursday, November 14, 2019, Scotiabank sold the US dollar at $141.81 and buying at $120.17 — a difference of $21.64. This spread is quite shocking.

I called to get an explanation for this wide spread. No senior person was willing to speak with me, but the information relayed to me by the call centre was that the bank cannot disclose its pricing mechanism.

I am also a customer of National Commercial Bank and so I checked there. The situation was better with selling rate at $141 and buying at $123.50 — a difference of $17.50. Still too much.

Banks generated $23 billion in revenues in FX trading, fees, and commissions in 2018 when they made over $50 billion in pre-tax profits.

Harsh reality

Each time I go to the supermarket and the gas station I wonder how the lower middle class, the working class, and the poor manage. Many will remember that dramatic scene in Parliament in 2015 when Andrew Holness took a basket of basic items to Parliament to call attention to the hardships people were facing. The fact is that this same basket costs twice that amount, and wages have not doubled.

A few months later Audley Shaw called for an annual minimum wage of US$5,000, which would have meant it should be then doubled. He went further to promise that on the campaign trail. Three-and-a-half years later, and heading into another election, that promise has not been fulfilled. And with 12 per cent more people falling below the poverty line since 2017, the “dutty tough” out there.

What is worse is that the basic food basket is exactly what it says — basic. It is the measure of what it takes for the poor to survive. It does not relate to prosperity, nor does it reflect the struggles of most working people who may wish to eat a little better than the basic.

Most public sector workers take home less than $100,000 each month after statutory deductions. A police constable, teacher, and nurse are nearer to that $100,000. When we go to the ranks of ancillary workers, we are heading towards a figure slightly above the minimum wage, and thousands in the private sector earn minimum wage. A family of four will need at least $30,000 each week for food and supplies. Many earn that each month. So, go figure. Many go without lunch and skip other meals. After food there is bus fare, rent and toiletries.

So, in my assessment, the discussion on macroeconomic stability, devaluation, and inflation is riddled with inconsistencies and dishonesty. I believe the poor and working class have been short-changed and the harsh reality facing many is treated as “just a little difficulty”, as Aubyn Hill infamously said in Parliament when the increase in poverty rate was being debated. With the mindset that the hardships faced by many is “just a little difficulty”. One should, then, not be surprised at Kevin O'Brien Chang's dismissal of the concern about devaluation as hype.

Time for action

Karl Marx famously said that the conditions facing the poor and oppressed will not change until the working class moves from being a class to itself, to a class for itself. It is high time citizens take action to demand better. The example by the University of Technology, Jamaica lecturers recently was a rare breath of fresh air. We need more people like them who are willing to take a stand. But taking a stand must go beyond merely fighting for our own salary and fringe benefits situation. It must include advocating to end the inequity in our education system; it must mean demanding better systems of garbage collection, ending the high life by public officials driving the most expensive vehicles at public expense. It must mean that we know who are the people getting lucrative contracts and their connections to the people in power.

Canute Thompson is chair of the People's National Party's Policy Commission, as well as head of the Caribbean Centre for Educational Planning and lecturer in the School of Education, and co-founder and chief consultant for the Caribbean Leadership Re-Imagination Initiative, at The University of the West Indies, Mona. He is also author of four books and several articles on leadership. Send comments to the Observer or

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