Sat | Oct 20, 2018

Hylton Dennis | Why the BOJ governor talks a lot of crap

Published:Wednesday | August 29, 2018 | 12:00 AM

Banks should be vilified, not vindicated. For four decades, they facilitated the fiscal irresponsibility of successive political administrations of the Government of Jamaica (GOJ).

Public debt swelled beyond the country's sustainable capacity from 1974 to 2014. Government paper became the lazy easy money for an investor's utopian comfort zone. By easily mastering the swindle of promoting government paper, many financial dunces found safe employment haven in the financial sector under the glorified moniker of investment managers, legitimised by cut-to-fit MBAs.

The export manufacturing productive sector was mostly passed over by banks and other lending institutions in favour of gouging the reckless GOJ administrations with depositors' savings for unproductive political spending purposes.

The advent of FINSAC in the 1990s was inevitable. In an effort to cover their own fiduciary complicity with the GOJ's unsustainable high interest rate policy that caused it, banks tried to put the squeeze on those customers who were supposed to have been grateful they were exceptionally privileged to receive loans. Ridiculous loan balances resulted in wide-scale default, bankruptcies, desperate migration and even suicides. The indigenous entrepreneurial demographic was wrongly vilified and almost completely destroyed.

 

FISCAL INTENSIVE CARE UNIT

 

From those times, the Bank of Jamaica was sidelined as the political minister of finance ran the fiscal show. The prudential ratios regulatory governance and intervention model of the central bank was politically compromised. Governors began plotting the national economic travel and destination more speculatively, because they no longer had a hand on the steering wheel. Inflation and exchange rate shocks sent the Jamaican economy into the fiscal intensive care unit.

The GOJ learned nothing from FINSAC because the few remaining banks maintained the debt-feeding cronyism by which depositors were held hostage. Tools like stringent money-laundering laws were used to coral reluctant depositors to continue bringing their deposits to the banks. The banks seized upon the opportunity to start cannibalising depositors' accounts with a raft of service fees, beginning a process of changing the banking culture from a savings and loan, interest-paying and earning model to a fee-charging model, right under the nose of the BOJ. This eventually made the regulatory model of the central bank completely redundant.

As a consequence, the Bank of Jamaica governor mostly engages his time talking a lot of crap. He thinks the brake-free devaluation of the Jamaican dollar, trading spreads and failure of the banks to reciprocate regulatory-cut interest rates as the normal play of economic forces. Yet, he feels inflation should magically conform to set targets that are naturally defeated by these variables.

Audley Shaw, when he was minister of finance, pooh-poohed the 2008 global recession as Jamaica's fiscal integrity until big countries in Europe started defaulting on the heels of the subprime mortgage debt crisis in the US. Then he conveniently asked for the JDX haircut.

Peter Phillips, the succeeding PNP minister of finance, wanting to show it could better the JDX, which apparently he felt did not cut deep enough, came up with the NDX.

The Bank of Jamaica governor is derelict by default. The banking horse has bolted out the gates so long now, catching it and returning it to the stable seems impossible.

All the current minister of finance, Nigel Clarke, can say, in belated bewilderment, is that the foreign exchange rate is politicised and the equilibrium of inflation, notwithstanding the variance in the STATIN and BOJ calculations, is on the right trajectory.

The sage lesson in all of this is that regulation is restraint, not rhetoric.

- Hylton W. Dennis is a publisher and past vice-president of the Press Association of Jamaica. Email feedback to columns@gleanerjm.com and denscriptions@yahoo.com.