By Devon Dick
Last week, Richard Byles, president of Sagicor Life Jamaica and co-chair of the Economic Programme Oversight Committee (EPOC), alongside central bank governor, Brian Wynter, suggested that the central bank needs to rein in monetary policy to resolve liquidity issues and the uncertain path of the falling Jamaican dollar. By his calculations, the dollar is at competitive levels. The Bank of Jamaica (BOJ) has not said where it believes the value of the dollar should land, but Byles appears to be pushing for the central bank to be forthcoming on the issue. (Gleaner, November 29).
Byles' request does not appear unreasonable. Since the BOJ Governor Brian Wynter has publicly stated what his ideal net international reserves (NIR) are, which is different from the IMF's, he should be able to state if he believes the dollar is competitive; or at least tell us that he will inform us when he and his team believe we have achieved the ideal foreign exchange rate. It would give a sense that we have a target in mind.
Byles argued against those who claim that continued depreciation would increase competitiveness exponentially. He claimed that the ability of the private sector to respond and produce more for export is limited by the reality that much of what is exported has a significant import content. Furthermore, half of the national debt is denominated in US dollars and the debt cost increases with every devaluation. Additionally, companies with foreign currency debts are under serious pressure.
There seems to be a veiled criticism of Wynter's obsession with his NIR target which is creating liquidity problems. We need to live with a lower NIR target as the IMF allows. Byles and Wynter work closely together on EPOC and there is a hint of understandable frustration in Byles' lecture. We need to support Byles' call for more transparency and information.
Over the last year, the dollar has lost 15 per cent of its value. The Jamaican currency is now being exchanged at a rate of around $106 to US$1 and it is time to defend that rate. The economy has had six quarters of economic decline, with its first sight of growth coming in the last September quarter. It seems that an argument can be made that the dollar is more competitive and there is not much more advantage to gain except in the export trade and tourism. Even if it is not at the ideal exchange rate, and the ideal is difficult to achieve, it is time to defend the dollar.
The devaluation is like an additional tax of 15 per cent on all citizens and can have a multiplier effect on the cost of living. The Government has imposed a huge billion-dollar tax package, plus, in the last four years, two debt exchanges at a cost of approximately $100 billion. This figure does not factor the multibillion cost of OLINT and Cash Plus schemes. It seems the economy has gone through serious stress and it is time to take a breather and defend the dollar and settle at a range between $105 and $106 Jamaican to US$1.
Defending the dollar and settling on this rate means that it will be easier to plan one's business. It will also drive out speculators from the foreign currency market. The Government has a role to play in defending the dollar and so, too, do the financial institutions, by accepting a reasonable spread between buying and selling rates in the foreign exchange market. It will ensure that we have industrial peace. There has been social stability and one should not push the envelope and court protests and riots.
We need to defend the dollar to ensure continued growth and maintain social stability.
Rev Devon Dick is pastor of the Boulevard Baptist Church in St Andrew. He is author of 'The Cross and the Machete', and 'Rebellion to Riot'. Send feedback to columns@ gleanerjm.com.