'Unrealistic expectation' - Phillips says dollar wouldn't revalue with IMF deal
Published:Friday | June 21, 2013 | 12:00 AM
Finance Minister Dr Peter Phillips yesterday indicated that consumers will buy more yam, cassava and other local produce based on the slide of the dollar beyond $100 to US$1 mark.
The depreciation offers pain with gain, argued Phillips at a Gleaner Editors' Forum held at the newspaper's Kingston head office.
"In a strange, contradictory or paradoxical way, the overvalued dollar enables the high consuming segment of the population to consume luxuries at low prices, but that is no comfort for the man who wants imported rice or cornmeal," he stated, on the impact of the dollar.
"In the long run, what you have to do is incentivise a process whereby you are going to substitute yam and cassava and local corn and we are already beginning to see some adjustments take place. But the adjustment is not instantaneous but the price movement is instantaneous ... . The pain is instant but the gain is future prospects."
More than 12 per cent dip
The dollar dipped more than 12 per cent over 12 months, ending at $101 this week. It closed trading yesterday at an average J$101.47-$US1.
Yesterday, Phillips rubbished arguments that the IMF agreement, which came in April, would result in appreciation of the currency.
"The expectation that you would sign an agreement and return to what it was before ... . We never told anybody that and it would not be a realistic expectation," he said.
Commitment to programme
Phillips said that despite the hardships faced by consumers, it represented the dictates of achieving a competitive exchange rate.
"The programme has a commitment to a competitive exchange rate," he said. "It is not possible to run an inflation rate that is three times that of your trading partners and not end up with, in effect, an overvalued currency. So some correction had to take place."
Jamaica, he said, sustained an overvalued rate, especially when there were no inflows.
"The programme has an aggressive path for rebuilding the reserves and so, in the context of a market-determined rate, when you increase this level of demand there would be some adjustment," he stated.