By Al Edwards, Financial EditorJAMAICA SHOULD not place an over-reliance on the United States economy but rather should seek partnerships with other countries such as Japan, China and Eastern Europe.
So said the head of International Research for Scotiabank, Toronto, Mr. Pablo Breard, at a seminar entitled 'Global Economic Recovery: Impact on the Developing Americas' which took place at the Knutsford Court Hotel, Kingston on Wednesday, April 14.
He is anticipating that interest rates will increase in the United States after the presidential election, in November putting a further strain on those economies that place an over-reliance on the United States.
POSITIVE ECONOMIC CYCLE
"In the nineties the U.S. became the magnet for global investment. During that period it experienced the longest positive economic cycle driven by advances in technology and the fact that Japan was in a bit of a recession, Europe was growing below its potential. There was this feeling that capital flows going into the United States would extend the cycle forever.
"What we are now seeing is that the world economy is not the United States but rather that country accounts for a quarter of the global economy. In order to sustain the global economic momentum you need the other three quarters to grow. This over-reliance on the U.S. economy with heavy capital inflows created an over-appreciation of the U.S. dollar that over a period of time would need a correction. You don't physically invest in a paper called 'dollar', you invest in financial instruments denominated in US dollars. This lead to the equities market boom and subsequent collapse."
PERIOD OF ADJUSTMENT
He observes that the United States is entering a period of adjustment characterised by other economies awakening, more notably China and Japan, but at the same time, the United States is experiencing unsustainable levels of prices of assets.
"With these excesses and long correction period the U.S. felt the need for a fiscal stimulus, more to the point Government spending and low interest rates. With more synchronised global growth the pressures are taken away from the U.S. economy and it is the perfect time for it to be thinking about inflation, not growth."
He noted that many people in Jamaica talk about getting out of the debt trap when the focus should be getting into a new situation. Mr Breard said that he was in Jamaica a year ago and he can now, on this visit, see and detect discernible changes taking place in the country.
"I see irrespective of an initiative a dialogue taking place. I feel the collectiveness of Jamaicans has acknowledged that there are issues that need to be addressed and that there are areas that need improvement. We must be mindful that the action plans outlined may or may not work. I think the fiscal situation of a year ago was simply not sustainable, but mind you, Canada, with a massive deficit, faced the same challenges eight years ago. I am a proponent of reforms but you have to focus on the sequence of those reforms and its momentum."
He added that Jamaica has to recognise that some areas of improvement will take more time than others and should not dogmatically embark on just one initiative. He recalled that back in 1989 Argentina wanted to privatise its telephone company and so sold it to the Spanish company Telephonica who demanded that it do so as a monopoly, thereby transferring it from a public service monopoly to a private sector monopoly.
"What is more important to Jamaica: To achieve a balanced budget by 2006, or to just move to balancing it by 2006?"
One has to understand the challenges the Jamaican economy faces and place an importance on diversification. Tourism is always prone to shocks we talk about September 11, what about March 11? That was a direct attack on Europe.
"At the moment Jamaica is looking to attract more Europeans and this might set it back there. Jamaica needs to start thinking about Asia as a major economic force. It must take note of the emergence of Brazil. Let us not forget India and China. You must promote the nation state ,not the bond."
