Letter of the Day | Let the market do its work
THE EDITOR, Sir:
Two Fridays ago, the governor of the Bank of Jamaica, Mr Brian Wynter, commented in the Financial Gleaner on the fact that there is a widely held view in Jamaica that the exchange rate is a subsidised public good. This very accurate and succinct statement belies the tremendous hold which this view has over the society and its leaders and also the catastrophic consequences which it has had for the country.
It could be argued that the diligent pursuit of this subsidy has been at the heart of the economic upheavals and lack of growth that have plagued our country for much of the past 40 years. It has contributed significantly to the country's large public debt and the cost of servicing that debt has deprived the country of adequate investment in vital social services and public infrastructure.
The exchange rate subsidy prices local labour out of the market leading to high unemployment and is an implicit tax on exports and indeed on all local production.
Many countries (China, Germany, Japan and Singapore, to name a few) have demonstrated the efficacy of an export-led economic growth strategy in reducing poverty and raising living standards. It should therefore be quite clear that any policy which is inimical to the expansion of exports is essentially anti-growth.
Mr Wynter's call for a market-determined exchange rate should not be taken lightly if our objective for Jamaica is economic growth and increasing prosperity. In the first place, it is entirely consistent with an open capital account, that is, a regime where there are no restrictions on the movement of foreign exchange into or out of the country. It is also founded on one of the fundamental principles of the economic theory of the free market which is that the market is the most efficient allocator of resources and that prices should be set by the free interplay of market forces. To maximise economic growth we must optimise the allocation of our resources. Perhaps it is time that we let the market do its work.