What is the state of the economy now?
JAMAICA'S NET International Reserves was three per cent above the International Monetary Fund's target the end of September, while the Jamaican exchange rate continues to depreciate against the US dollar; closing at a record high of $104.15 on Monday night.
The Jamaican dollar continues to lose against the US, even though the US dollar has been depreciating relative to other major traded currencies in the last week since the announcement of the US government shutdown.
The US dollar almost reached its eighth month low, dropping 0.2 per cent against a basket of major traded currencies on Tuesday. The US stock markets have also been negatively affected as the S&P500 dropped more than nine points and the Dow Jones fell more than six per cent. The negative effects of the shutdown on the US economy will have spill over effects on other countries around the world including Jamaica.
What is the US government shutdown?
The US financial year ended on September 30 and both political parties have not come to an agreement on a final budget for the new financial year 2013-2014. Since the budget has not been finalised, the US is unclear as to how much they will be able to spend in the upcoming year, so they had to cut spending on non-essential services and stop paying non-essential wages; these civil servants have been put on unpaid leave.
The debt ceiling in the US is also an issue as both political parties have until October 17 to increase the maximum amount the US can borrow per annum; otherwise the US might default on its debts.
What is the impact of the shutdown?
The US government shutdown has affected many civil servants. It has reduced the flow of government transfer payments, and it might lead to an increase in interest rates and reduce the availability of loans as well as other negative impacts on other cash-based processes in the US.
The shutdown is also beginning to impact businesses in the US as people's income falls, their purchasing power falls as well. Businesses are hopeful that Congress can come to a agreement soon.
What effects might it have on Jamaica?
Remittance inflow and tourism arrivals, our two biggest foreign exchange earners, will be adversely affected by the shutdown, as thousands of Jamaicans who work for the US government will be on unpaid leave until further notice. They might, however, receive retroactive pay since the 800,000 workers who were without work during the last US government shutdown in 1996 received compensation later.
The slowdown in remittances and/or tourist arrivals will put added pressure on the value of the Jamaican dollar. It will also reduce the purchasing power of the people dependent on these for their livelihood. Furthermore, with a fall in the purchasing power of US citizens, there might be a fall in their demand for Jamaican exports.
Can our economy grow?
There is hope for growth as we remain optimistic going into the third quarter of the financial year. Even Greece is hopeful of growth next year, claiming this is its last year in a recession; a government-approved budget forecast growth for the Greek economy next financial year.
Greece has attributed a lot of its growth and employment prospects to the increase in the number of social entrepreneurs and social enterprises in the country and across Europe.
One in every four businesses opened in the European Union is a social enterprise. The European Confederation of Cooperatives represents more than 50,000 companies, employing more than 1.4 million people with a turnover of 50 billion euros a year.
Why are social enterprises on the rise?
Social enterprises have been increasing in importance as there can be capital contribution of many kinds, not only money. Other forms of investment can be pooled together to get the complete project. For example, one investor may own the land; another might have the labour; another has the technical know how, and so on. Social entrepreneurs in Europe outline that their keys to success are:
1. They don't give up at the first hurdle.
2. They love what they do.
3. Focus on making quality products. The wages offered by social enterprises in Greece are 20 per cent higher than regular wages as employees are the owners of these companies. Jamaica must remain hopeful as social enterprises might just be our solution to growth and unemployment as well.
Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email firstname.lastname@example.org.