How can economic uncertainty in a particular European state with which Jamaica has no significant direct connection signal a further decline in our financial viability?

Earlier this year the pound and the euro fell significantly, approximately 400 pips in one day. A four hundred pip move in any one internationally traded currency over a one month period is considered to be highly volatile. Therefore to see this type of movement in one day was astounding. There was no major economic release or political activity at the time, but in Dubai there was uncertainty about a ten billion USD bond payment.

All those beautiful, amazing architectural marvels being constructed in Dubai were mostly financed by European Banks. British Banks had the lion’s share of the exposure to the developers. When news broke that the Dubai may not make the bond payment, investors, traders, fund managers all became uncomfortable with their exposure to the British currency and by extention British held securities.

This massive sell off in British financial instruments melted their stock market, securities market and currency markets with one blow. The damage was remarkable.

Back to Greece. Greece found themselves on the verge of a financial meltdown with a few banks needing to be bailed out in order to remain viable. Many options were explored as the greater European block came together to see what political influence could be exerted. Germany even agreed to make financing available. However, at the end of it all, Greece went with the IMF. The IMF demanded public sector wage freezes among a myriad of other demands. This is when the citizens took to the streets and staged a peaceful protest that turned into a riot involving 250,000 people. With the whole world watching, the European currencies including the Euro and the British pound faced another day of battering from which they have not yet recovered. Their capital and stock markets suffered the same fate.

The US has a two-year plan to boost exports with Europe being the main focus of their campaign. With such a strong USD the other European countries will find US products much more expensive than they had budgeted for. With US exporters especially car manufacturers missing their targets there will have to be cut backs in corporate expenditure. The next thing to follow would be job losses and a commensurate reduction in expenditure as those who do have funds will hold on to what they have and banks will seek to protect their liquidity by reducing lending or increasing the requirements for accessing loans.

On to Jamaica now. One of our main foreign currency earners, namely remittances, will slow down, as more Jamaicans living abroad will find it even more difficult to send money back home. Also as sales of our exports fall the funds remitted back to Jamaica will also decline.

Our two main groups of tourists come from Europe and the US. With depleted incomes, visitor arrivals may decline, burning a hole in our local tourism sector. And last but by no means least, there will also be a slow down in the willingness and ability of international investors to invest in Jamaica. At another time we will examine the Greek effect as it relates to our financial markets.

In this global village which we all now inhabit, events on one side of the world and over which they have no control, can indeed affect the lives of those of us living thousands of miles away.

Ron Walker is a Cambio Trader with Sterling Asset Management Ltd. Sterling provides medium to long term financial advice and instruments in U.S. and other world market currencies to the corporate, individual and institutional investor.

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