Daraine Luton, Senior Staff Reporter
Latibeaudiere says 'simplistic solution' won't help Jamaica's economic situation
FORMER BANK of Jamaica Governor Derick Latibeaudiere is contending that a change in the exchange-rate policy will reap little or no dividends to the country.
Speaking with The Gleaner yesterday, in reaction to a special presentation by former Prime Minister Edward Seaga to a joint sitting of the Houses of Parliament a day earlier, Latibeaudiere declared there was nothing wrong with the system on which the exchange rate is built.
"I want us to stop looking at systems and look more on the fundamentals. If the fundamentals are right, you don't have to think about which system you are going to use. The exchange rate would remain relatively stable if the fundamentals are right," Latibeaudiere argued.
Seaga, who also held the finance portfolio during his tenure as prime minister, had on Tuesday reiterated his long-held belief that a pegged exchange rate could open the door for potentially massive inflows of low-interest foreign exchange for mortgage financing and investment since the risk of devaluation or depreciation of the dollar would no longer exist.
"This would be revolutionary for attracting low-cost funds for agriculture, education, infrastructure and low-cost housing, creating thousands of new jobs," Seaga had said.
He also argued that "it would restore the economic growth which has been stagnant for two decades because the increased prices which follow devaluation would cease, ensuring that none of the substance of growth would be extracted from the GDP (gross domestic product) to pay the higher prices of devaluations".
ADDRESS UNDERLYING DYNAMICS
However, Latibeaudiere yesterday told The Gleaner that "it is just a simplistic solution".
"If the exchange rate moves, it is not a fault of the mechanism that you have. It is a fault of the underlying dynamics," Latibeaudiere said, while contending that it was the market that should determine the exchange rate.
"People go around and they blame systems. Jamaica is replete with examples of trying things. We go and we take a bit from here … . We (say that we) need to be like Cayman and we need to be like the Turks and Caicos, and we need to be this and that. At the end of the day, a system can't deliver for you what the fundamentals, that are out of whack, can deliver," Latibeaudiere said.
He added: "If the fundamentals are not correct, it is pointless you talk about systems. The fact of the matter is that demand and supply is in disequilibrium in the foreign-exchange market. I am not saying that it is easy to fix. The fact of the matter is that we are not earning as much foreign exchange as we want to spend and no amount of juggling is going to fix that."
SEAGA WANTS STUDY
In the meantime, Seaga yesterday told The Gleaner that he was not headstrong that the answer to Jamaica's foreign-exchange problem lies in pegging the exchange rate.
"I have never advocated a fixed, as a matter of fact, I am not even advocating the pegged. What I am saying is that these are the benefits that we can have from the peg. Now let us have a study of it and be certain," Seaga told The Gleaner.
He added: "I would like an urgent high-level academic study done on the pegging of the exchange rate."
Seaga said Jamaica's history was replete with examples of policy errors "because reality checks tell you it wasn't right".
"In other words, no studies were ever done on Federation and none were done on the incentives and tax relief that were given in the 1960s ... . Which businessman in his right sense would take a mighty jump, a hell of a leap without determining whether he can cover the ground?" he contended.
Seaga argued that with a pegged exchange rate, the authorities would determine the rate of exchange for the currency.
"We are already tied to the exchange rate, that is the rate of exchange that we measure the values of each currency. What the peg does is that the rate does not move. It is fixed, but you don't call it fixed because there are more rigid ways of fixing," he contended.
The former prime minister said he pegged the rate from 1987 to 1989, "and that is how we grew at that time".