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The more things change...

Raulston
Nembhard

Wednesday, November 20, 2019

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Speaking at the Jamaica Labour Party (JLP) Clarendon South Eastern constituency conference in September 2015, then Opposition Leader Andrew Holness lambasted the ruling People's National Party (PNP) for the rapid slide in the Jamaican dollar vis--vis its US counterpart. Then, the dollar was moving in a band of $115 to 120 to the US$1. Holness rightly called attention to the hardship that the devaluation was exacting on especially the poorer members of the society. He also noticed its effects on the price of raw materials and its deleterious consequences on the cost of production with specific reference to the manufacturing sector and small businesses. He urged the Government to return stability to the foreign exchange market as the then devaluation policy was not serving the country well.

“The country is yet to see any compelling indication that our exports are becoming more competitive, and outstripping imports in any significant way,” he belched.

Fast-forward to November 2019 and what do we find? The dollar is now hovering at $142 to US$1 under Holness's leadership. What has become patently clear about the management of foreign exchange in the country is that the more things change the more they remain the same — and this is not to blame Holness or his Government, but to underline the fickle nature of the foreign exchange policy that we have pursued over the years. It is to underline the structural deficiencies in the Jamaican economy with its lack of productive capacity that has led to the gyrations in the exchange rate that we have witnessed over the years. Furthermore, it is to underline how big players in the economy can exploit and manipulate the situation to their own advantage without any due care being paid to the hardship their actions cause to the rest of us.

As things stand, any Government of Jamaica will be a hostage to the devaluation of the Jamaican dollar. That is why today the PNP is offering the same criticisms of the Government that Holness proffered against the PNP in 2015. In the present slide, the Government and Richard Byles, the new governor of the central bank, seem to have been blindsided by the activity of big players which contributed heavily to it. To not have known and even anticipated that there would have been a run on the dollar amounting to almost US$800 million in such a short time is tantamount to a dereliction of duty. If they did know, what corrective measures did they take to ensure that this kind of pressure was not exerted against the fledgling currency?

Now that they know the harmful effects of these big portfolio manipulators on the rest of us, what will be done to ensure that this does not happen again? What mechanisms will be put in place to prevent it? One has no problem with people acquiring properties abroad to expand their business enterprises, enhance productive capacity in the country, and contribute to growth in the economy, but it cannot be at the expense of the rest of us even if there is potential benefit to the country in the future.

We cannot allow any run on the few dollars we have in the system to satisfy these big portfolio purchases. A cap must be placed on what big businesses can get from the system when these purchases are made. They should be urged to go to the international capital market to satisfy these needs. We just do not have the money to do it at the present time.

How Byles, once one of the biggest players in the financial private sector, and the Government do this will be a test of fortitude. For, while they cannot convey to the private sector that they are not stymieing their investments, they cannot allow measures that can heap hardship on the poorest in the society. And this is what even a slight devaluation of the dollar does to the poor man. We have been down that road too often not to know this.

In the meantime, the Government must move with haste to correct the structural inefficiencies that still plague the economy. The macro economy is in a good state, but production and economic growth are still lagging. The “five in four” growth target was doomed to failure from the very beginning, as some of us warned. It was predicated on the false assumption that if you get mega projects into the country growth will take off like a rocket at Kennedy Space Center. It suffered from the top-down miasma of economic production, by ignoring the significance of the small- and medium-sized enterprises and other players in the micro economy which are essential to any sustained growth in the economy. This is development economics 101.

The Government must work more vigorously towards import substitution; and agriculture is best suited for this right now. More vigour must be applied to the linkage of the agricultural sector to the hospitality sector. Audley Shaw, minister of agriculture; Edmund Bartlett, minister of tourism; and others must sit with the critical players in these areas and see how this can be done.

We are long on pretty speeches, but short on implementation. I sense that a certain lethargy has set in among some government ministers, not necessarily any of those aforementioned. Lethargy is the bane of the professional politician anywhere. After awhile you get tired of making the same speeches over and over and then begin to doubt yourself when these speeches are not yielding any results of which you can be proud. Then, the pull of home and family become more insistent as some grow irascible and only hold on because they have to.

Holness is asking us to keep our eyes more on the inflation than the exchange rate. What the ordinary person knows is that whenever the dollar devalues his ability to purchase goods and services diminishes. He knows instinctively that this is due immediately and directly to the sliding dollar. He does not trust the prognosticators who tell him that the inflation rate is hovering between four and six per cent. It is what he feels in his pocket that he knows, whether the inflation rate is determined to be four per cent or 10 per cent. We have to do better to be transparent in how we arrive at these figures. The Government may be singing from an inflation target hymn book, but the words sound strange and distant to the ordinary Jamaican.

Dr Raulston Nembhard is a priest and social commentator. Send comments to the Observer or stead6655@aol.com.

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