By Ramesh Sujanani, Contributor
I was very pleased to hear that Edward Seaga had come to the House to meet his familiar friends, and to offer advice.
There are many matters that, as a manufacturer in the 1980s, I could mention, such as the removal of export financing and insurance, the structural adjustment programme that pushed us slowly out of business, the support given to banks to charge usurious interest rates.
That, now, is all water under the bridge. Suffice to say, at the end of the 1980s, there were few small manufacturers of all the various products made in Jamaica.
But that is no quibble at this time, just the advice that we must now peg the Jamaican dollar to a fixed exchange rate, as was done in the 1980s. Then, it brought tremendous problems to the manufacturing business, especially those who exported, because they were not getting a fair price for their product. The US dollar was being converted at the rate of $5.50 until the Labour Party left, and immediately thereafter when the People's National Party came, it shot right up to J$13-J$14 for one USD, and exports, that we would weep for today, were frustrated.
And the same advice, without rationale, is being offered to the existing Government by Mr Seaga - of a pegged or fixed exchange rate. I suggest we ignore that advice and press on to find the correct solutions, which, frankly, lie in the volume of goods and services we can export, or which we can substitute with local products.
SEAGA'S UNENDING DREAM
You would think by now that we would all realise that there is no quick solution to economics and nation-building. But we never like to give up our dreaming, and Seaga is great at keeping it alive. Every so often, when times are hard, we need to hear a fairy tale that makes us feel good for a few moments before trudging back to the reality that hard, smart work; education; low crime rates; and strong families with high morals, combined with business risk-taking, are needed to move us forward.
The factors which affect currency rates are: interest rates; inflation rates; gross domestic product; unemployment and employment rates; government spending and expenses; balance of trade; political and social environment; speculation; private banks and corporations; world market trends.
I can safely say that at least seven of the above factors are experiencing negative growth or having a negative impact on the Jamaican economy. The strength of any economy directly impacts the strength of its dollar. So if the economy is disintegrating, the dollar will follow.
Then why are we surprised that the dollar has been falling for more than two decades? A bankrupt country cannot have a strong currency, and in times of financial instability, that currency must depreciate. Granted, the rate of decline has steepened recently, but so have the currencies of major countries with economies far stronger than Jamaica's. The Russian ruble has devalued, and economists are wondering why. The same applies in Jamaica: We are not producing sufficiently and efficiently.
If Jamaica's GDP stagnates or the variables of production fall, the currency will fall, especially if traders and speculators take advantage. It is only the symptom of our weakened economy and not necessarily a cause. We should try to address the root causes of failure, rather than be influenced by symptoms.
At this time, the US dollar is the only reserve currency in the world, and in times of financial instability, the USD will appreciate, as it does all over the world because of the confidence that it inspires. Economies and investors have seen the USD as the only safe haven against a myriad other currencies.
The Jamaican dollar will falter in the current situation, and there is little that the Bank of Jamaica or the Government of Jamaica can do, but to put our house in order by strengthening the tools of production.
Ramesh Sujanani is a businessman. Email feedback to firstname.lastname@example.org and email@example.com.