THE LATEST BOJ balance sheet reveals that the bank is once again solidly back in the red with its year-to-date losses totalling $1.4 billion. The matter of BOJ losses was a 'hot issue' in the period leading up to the election. At that time there was an allegation that some elements of BOJ losses were excluded from its balance sheets making its losses therefore understated. The Finance Minister and the BOJ Governor effectively dismissed that debate. However, given the extent of the latest reported losses incurred by the Central Bank, the matter of BOJ's losses must be at the top of the agenda once more.
For one thing, the issue of BOJ's substantial losses is particularly worrying, for if the Central Bank does not have sufficient assets to cover its debts, the Finance Ministry - that is taxpayers - will ultimately have to pick up the slack.
Even more frightening however is the tale behind the numbers. For the period December 26, 2001 to December 26, 2002, BOJ increased its borrowings (holdings of other marketable securities) from $26.0 billion to $53.3 billion - an increase of $27.3 billion. Additionally there was a drawdown on public sector deposits over the same period from $26.6 billion to $10.3 billion - a reduction of $18.3 billion. Taken together then, government's increased borrowing and drawdown on deposits of $46 billion suggest that the bank was busy expanding money supply.
This increase in money supply occurred at a time when the Central Bank gave strong assurances that it was keeping money supply tight consistent with its monetary targets.
Probably the biggest irony in all this is that Central Bank Governor Lattibeaudierre has repeatedly been on record as expressing concern about the cost to the bank of mopping up liquidity. This 'mopping up' operation occurs when the Bank sells foreign securities to the market that increases money supply, and then offers additional instruments, usually at higher rates, to sterilise these funds that it originally created. In the just released accounts these Open Market operations actually had a negative impact of $89 billion. In large measure then the substantial losses represent the real cost of our circular monetary policy.
In our view, the latest news on the magnitude of BOJ losses, coming so soon after downgrading of our country rating by Standard and Poors, is a more than compelling reason for the government to review its current economic model.
After all it would be foolhardy indeed if we ignore the red flags that are being raised by critical aspects of our economic policies.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
