No compromising external sustainability with regular FX intervention, declares finance minister

No compromising external sustainability with regular FX intervention, declares finance minister

BOJ exchange intervention has halved since 2017

Observer business writer

Sunday, November 24, 2019

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Finance and the Public Service Minister Dr Nigel Clarke is sending a strong signal to the foreign exchange (FX) market that the Bank of Jamaica (BOJ) will not be intervening as often as before in shoring up the Jamaican dollar, whilst compromising the country's external sustainability.

This strong declaration by the minister is in response to calls from some segments of the business community for the Goovernment to do more in bringing stability to the FX market, which has seen the dollar depreciate to record levels.

The Jamaican dollar is now trading at a buy rate of $135.48 to US$1 coming from last month's all-time high of $140.53 to US$1.

The business community has been reeling under the sliding dollar with manufacturers and merchants, in particular, declaring that they are unable to plan in such an unstable FX environment.

Some in the business community have made out a case for use of the country's growing foreign reserves to smooth out the volatility in the FX market.

Jamaica's net international reserve at last count rose by US$71.52 million last month to US$3.17 billion.


However, the minister is hitting back, advancing the point that Jamaica's FX regime is market-driven and not artificially set.

Speaking at the launch of Development Bank of Jamaica's redesigned Credit Enhancement Facility (CEF) on Thursday, Minister Clarke was adamant that the Government will not be making any regular FX intervention placing the stability of the local currency at the feet of the private sector, which he reiterated is the country's engine for growth.

Addressing the large gathering of bankers, business interests, and entrepreneurs, Clarke remarked, “Some are talking about using public resources to ease or smooth out the imbalances in the FX market — we can't do that, the country cannot afford that; the people who best know that are in this room. Where there are imbalances it is best handled by the private sector.”

He made the point that Jamaica has not been externally sustainable for years; hence, the country had to engage in a borrowing relationship with the International Monetary Fund (IMF) 16 times since Independence, representing 32 years out of the 57 years Jamaica has been a sovereign State.

Declaring that Jamaica is now externally sustainable with adequate foreign reserves and a trade deficit that is covered by trade receipts and foreign direct investment, Dr Clarke was quick to acknowledge that sometimes the coverage is uneven.


According to Minister Clarke, external sustainability is not something to play around with, cautioning the public not to fall victim to political opportunism regarding the sliding dollar.

He noted that the BOJ's intervention in the FX market is now half of what it used to be since 2017, pointing to the improvements made to the country's external sustainability.

He encouraged banks and businesses not to all rush in at once in the FX market when the need arises for hard currency, but to plan their entry so there is no pressure or shortage.

Dr Clarke told the gathering of the reforms taking place, such as the privatisation of some government assets, the broadening of the investment options from pension funds and retirement schemes, as well as greater access to credit for the micro, small and medium enterprises (MSMEs).

He described the redesigned CEF, which will offer access to credit amounting to some $45 billion over the next five years for MSMEs as, “The most revolutionary credit facility in recent history….which will make today's MSMEs into tomorrow's GraceKennedy.”

Dr Clarke stressed that the CEF is utilising an innovative approach to ensure that MSMEs have access to credit that they have never had before.

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