Mon | Oct 15, 2018

Letter of the Day | Pace of economic growth way too slow

Published:Wednesday | September 20, 2017 | 12:00 AM


Your editorial of Thursday, September 14, 2017, 'Banks not the villains', was very informative and on point. You focused on the debate about the interest rates banks currently charge. There is one aspect you mentioned in passing that I would like to expand on, and that is the effect that government policy towards banks can have on stimulating economic activity through impacting some of the statistics you use to make your argument.

The editorial identified some of the tools that are available to the Jamaican Government that can very quickly increase credit and stimulate economic growth. When the financial-sector crisis hit the United States in 2007, the main concern that the US government and regulators had about the fallout of this crisis was that banks would stop lending. They knew that if credit dried up, the situation would feed on itself and would get worse.

The United States had tools at its disposal that we here in Jamaica do not have because of the place that the US dollar has in world economic affairs as the global reserve currency. They printed money and loaned to the banks with the proviso that banks on-lend this money to each other and the private sector; this was euphemistically called quantitative easing.

We have no such luxury because our dollar is certainly not a reserve currency, and should we print money, inflation would very quickly become a big problem. We printed money before, 'ran with it', and ended up with FINSAC. There are, however, other tools available to the Jamaican Government that can increase the availability of credit. The "... 12 per cent and 14 per cent, respectively, of their Jamaican and foreign-exchange deposits" banks are now required to "... park in the central bank'' with no interest paid are huge sums of money that could be quickly freed up by the Government and be available for lending to investors.

This tax policy for banks is a holdover from previous administrations that were worried about high inflation. It was part of the 'mopping-up-liquidity' policy that Omar Davies was so fond of talking about. Our inflation in recent years has been in single digits, so why has the policy continued? If the Government is worried about the inflationary pressure banks lending this money for consumption could generate, why not simply stipulate that it can only be accessed for investment in production?




Another tool identified by you that's available to the Government is to lower the income tax rate of 33.3 per cent and the 0.25 per cent asset tax rate levied on banks. Lowering these rates, of course, has implications for budget revenue and IMF targets. However, if we accept that we must grow our way out of the situation we are now in, we need to look to the medium and long term.

I supported Andrew Holness in the last election simply because he articulated a vision for Jamaica with which I identified and has continued to have my support because since assuming office, he has set clear targets for

his Government.

Crime has been occupying his attention lately, but he must not forget that one way of reducing crime in the medium to long term is to curbing the temptation for school leavers to become involved in lawlessness by making jobs available to the young people entering the job market through increased economic activity.

Failure to deal with the crime issue may cost him the next election, but failing to grow the economy significantly almost certainly will.