Claude Clarke, GUEST COLUMNIST
Jamaica's amazing athletes have placed a spectacular exclamation point on the golden jubilee of our Independence with their superb performances at the London Olympics.
Indeed, there is much for us to celebrate.
It cannot be denied that during our 50 years of Independence, Jamaicans have established an enviable record of achievements in several fields of endeavour. Our performance in sports and the impact of our culture on the world are unmatched by any country of equivalent size. They are accomplishments of which every Jamaican can be justly proud.
Predictably, our Government will prate about it and seize the opportunity to further titillate our pride with circuses. But, if you will forgive my trespass on biblical text, 'man shall not live by pride alone but by the economic environment he creates for himself'.
Jamaica's impressive display of excellence has largely been in endeavours distinguished by individual effort. Bob Marley's iconic international stature and the legendary sporting achievements of our 'Lightning' Bolt are far less the result of government action than of individual excellence. Government had little to do with the world-beating coaching expertise of Glen Mills and Stephen Francis. And Trench Town Rock and Rastaman Vibration were not state projects. Where Government's performance is really needed - leading the country towards economic success - Jamaica has failed. Spectacularly.
As proud as we may be about the remarkable achievements of Jamaica's sporting heroes and extraordinary entertainers, only a successful economy can provide the means through which our people, as a whole, will be able to realise their hope for a prosperous and peaceful life. This is only possible if there is astute and committed economic leadership by government.
Only government has the power, the means and the responsibility to provide the policy and institutional framework within which individual effort will be able to create the type of economic value that can make the country prosperous. But Jamaica's performance in this regard has been an unmitigated failure.
Nothing more accurately demonstrates this failure than the extraordinary paradox of having a currency that remains chronically overvalued after having lost more than 99 per cent of its value against the United States (US) dollar. Instead of economic success, the opportunity to manage our own currency has produced an economy that stands dead last in macroeconomic competitiveness among the 142 countries surveyed by the 2011 World Economic Forum's competitiveness report.
The right of a government to issue its own currency is a most powerful tool of economic management; and the failure of our Government to properly manage our currency to foster our economic development is eloquent testimony to its failure to seize the opportunity of Independence.
As an accurate and reliable measurement and store of value, the Jamaican dollar has not performed in a manner befitting a truly independent country. That is why countries which, 50 years ago, we snubbed as federal partners, because of their economic inferiority, have today left us in their dust.
Instead of maintaining the currency's competitiveness, Government has focused its efforts on fighting what it quixotically refers to as speculators, and made the Jamaican dollar even more vulnerable to devaluation over time. Instead of managing the Jamaican dollar with economic prudence to protect its competitiveness, our Government has pursued the politically rewarding strategy of artificially maintaining our ability to acquire imported goods and services and perpetuating a mirage of prosperity at the expense of our farmers, manufacturers and workers.
These policies have left the Jamaican dollar with less than one per cent of its original US-dollar value. Unfortunately, too many of us in Jamaica have a big-fish-in-a-small-pond sense of privilege and remain unconcerned that the policy of continuously overvaluing our currency, while artificially boosting our individual short-term net worth in hard currency, undermines the country's long-term economic competitiveness.
Over the years, the Jamaican dollar has been distinguished by its instability. And it is the failure to keep it competitive that underlies this instability. In long stretches of time during Independence, this instability has kept the entire economy off balance, making business transactions inefficient and unreliable.
Not surprisingly, there is now growing support for surrendering the management of the Jamaican dollar to a currency board and pegging the dollar to one currency or a basket of hard currencies. There is much merit in this idea, and I hope it is being seriously considered by the Government as it negotiates the terms of a new engagement with the International Monetary Fund.
However, I also hope the Government is aware that the success of a regime that ties our currency to another rests entirely on the effectiveness of a policy and institutional framework that establishes and maintains a competitive relationship between costs in the Jamaican economy and the economy of the currency to which the Jamaican dollar is pegged.
My visit to Argentina in early 1993 gave me a practical insight into the consequences of failure to create this competitive relationship between the economy of the pegged currency and that of its host. This insight came out of the simplest of experiences. My overnight flight to Buenos Aires arrived without my luggage, and on my arrival I was forced to go shopping for clothes instead of sleeping off my jetlag.
However, the stratospheric prices in the stores soon straightened me out. Nowhere in Latin America had I seen prices like these. US-dollar equivalent prices in Buenos Aires dwarfed anything I had seen anywhere else in the region: not in Mexico, Colombia, Brazil or Chile. On enquiring, I found that the price incongruity was explained by the difference between the inflation rate in Argentina and the inflation rate in the US, to whose currency it was pegged.
Two years after pegging its peso to the US dollar, the Argentine economy was experiencing inflation six times as high as the US. Normally a devaluation of the Argentine peso against the US dollar could have been used to maintain the economy's competitiveness. But locked in the straitjacket of a currency board-managed 1-to-1 peg, the government was impotent to act.
Locally generated inflation led directly to higher US-dollar prices, driving down domestic and international competitiveness. It was, therefore, not surprising that the economy became increasingly uncompetitive. Its balance of payments went out of alignment. Its foreign debt increased and could not be serviced by a contracting economy. The peg could not be sustained and the country's economic nightmare climaxed in default on its foreign debt.
It is perilous for a country to relinquish management of its currency before putting in place measures to contain inflation in line with that of the currency to which it is to be pegged. Such measures include controlling the growth of government, the growth of incomes, and the growth of money.
We should discover how our regional neighbours have used these measures to successfully peg their currencies. Inflation in the Eastern Caribbean, Barbados and The Bahamas has been generally in line with rates in the US for several years. Their domestic currencies are trusted as stores of value and provide certainty to business transactions and planning. These economies have remained internationally competitive and achieved steady economic growth.
Though it does not have a pegged currency, Trinidad manages its economy as if it does. In the first place, before it liberalised its currency, it ensured it started at an exchange rate that made its internal economic costs competitive. For many years since then, its inflation rate has been close to that of the US. It has not devalued, except for an approximate 10 per cent strategic devaluation to compensate for the reduction of the protective import duty rates under the Common External Tariff.
Removing government's ability to manage its currency certainly proved disastrous for Argentina. But the Jamaican Government's power to manage the dollar has had no better outcome. Our debt-to-GDP ratio today is twice as bad as Argentina's was when it defaulted in 2001.
In 1993, I advanced the view that the instability of the Jamaican dollar was caused by the currency's uncompetitiveness; and that to correct it, Government needs to follow Trinidad's example of letting the exchange rate get ahead of the demand for foreign exchange, while holding the other fundamentals tight so that costs in the economy would not rise to continue pressuring the currency.
Our perennial experts, many of whom remain at large today, summarily dismissed this by invoking the convenient cop-out: "Trinidad has oil." But so does Nigeria, which remains poor. Trinidad also had oil in the periods that its economy was underperforming. It is the success of its economic policies since the 1980s, not oil, that is responsible for the Trinidadian dollar having stabilised within a band of TT$5.70 and TT$6.40 to the US dollar for almost 20 years.
Maybe we could begin the next half-century of our Independence by learning from the Caribbean neighbours we shunned in our march on August 6, 1962. Perhaps the Eternal Father will give us the wisdom to learn from them how to properly manage our currency to achieve economic stability, competitiveness and growth.
We may then be better placed, in our next 50 independent years, to offer our manufacturers, workers and farmers the opportunity to, with their own effort, enjoy the success achieved by our illustrious sporting stars and entertainers.
Claude Clarke is a businessman and former minister of trade. Email feedback to firstname.lastname@example.org.