THE EDITOR, Sir:OPPOSITION Leader, Edward Seaga, yesterday presented a very well researched document on possible economic options for Jamaica. While I agree with several of his points and, truth be told, they can achieve some of his stated results, there are some major negatives that he neglected to include.
I claim to be no financial expert and I cannot match Mr. Seaga's expertise in the financial arena, but I must take issue with his view of the fixed exchange rate system and the CARICOM Single Market and Economy (CSME).
I agree that a fixed exchange rate regime will eventually lead to a lowering of inflation and interest rates, but Mr. Seaga neglected to mention its negatives. There is a reason why not every country has gone this route even as Mr. Seaga painted it as the saviour. How soon we forget Argentina. The fact is that having your local currency at a fixed value to an external currency places you at the mercy of fluctuations in that currency.
In Argentina's case during the late 1990s when the U.S. currency, to which their peso was pegged, was very strong, this made the Argentine peso equally strong. This made Argentine exports to their neighbours like Brazil more expensive and less competitive. This eventually precipitated a decline in their export sectors which eventually led to the economy collapsing. While it can be argued that Argentina had other militating factors such as its high external debt, it is clear that the effect of the pegged currency on its export competitveness played a major role in its demise.
The issue of the CSME is a delicate one. I must admit that I have a personal bias to regional integration even if it is only symbolic, I am not blinded by it. I agree that our 10:1 value of import to export with CARICOM is not the ideal. The issue is not that straightforward. Mr. Seaga himself acknowledged on a radio programme that our trade with CARICOM is small in comparison with our trade with other countries such as the United States. It should be noted that we run a significant merchandise trade deficit with the U.S. The fact is that our economy is based on oil as its main energy source. The CARICOM nation with which we have the largest deficit is the oil-producing Trinidad and Tobago and most of the imports from that island are petroleum products.
It would also be unfair to say that we do not benefit from enriching our CARICOM partners. Trinidad has invested heavily in Jamaica over the last few years. Both in our manufacturing and financial sectors and continues to do so. The Government has also benfited in the form of accessing loans in Trinidad at very favourable interest rates (better than we were getting from the Americans). The bottom line is that a lot of the money we spend importing from CARICOM comes right back here as long-term investments so our loss is not what it may seem.
The position that the CSME leads to even more imports from CARICOM is valid, but will it be any worse than any other free trade agreement that we are entering? What about the Free Trade Area of the Americas (FTAA)? The impact of the CSME would pale in comparison to that, yet on a morning talk show Mr. Seaga did not express similar sentiments to FTAA as he did CARICOM. Why? The reality is that we stand a greater chance of benefiting from a wealthier CARICOM than we will from enriching any extra-regional country, so why not continue to spend with them.
The issues raised by Mr. Seaga in his Budget presentation are valid and should be seriously considered, but this debate is far too serious and far-reaching for us to only include the aspects that support our position and neglect those that don't. We need BALANCE.
I am, etc.,
RICARDO SMALLING
rhamim@mailja.com
2c Mahoe Drive
Kingston 11
Via Go-Jamaica
