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Briefing in review (Part IV) - Economy struggles despite fiscal reform

Published:Wednesday | January 29, 2014 | 12:00 AM
Dr André Haughton

 How did the final quarter of 2013 start?

AS WE entered the final quarter of the year, the exchange rate depreciated to a new high of $104.15 to one US. Although the International Monetary Fund (IMF) reported that Jamaica passed the test for the quarter ending June 2013, giving way to the disbursement of US$30.6 million, this wasn't enough to stabilise the dollar.

The depreciation came as no surprise as Jamaica failed to find innovative ways to attract the volume of foreign currency the country demands.

Jamaica's net international re-serves at the beginning of Oc-tober was three per cent above the IMF's target. News of the US government shutdown had a negative impact on the US stock markets. Remittance in-flow and tourism arrivals, our two biggest foreign-exchange earners, were adversely affected by the shutdown, as thousands of Jamaicans who work for the US government were on unpaid leave until further notice.

The World Development Report 2014 focused on effective risk management and opportunity for developing countries. The report explained that risks can be burdensome, but can provide opportunities if managed correctly. Highlighting that good risk management can be a powerful tool for development, the Inter-American Development Bank (IDB) issued its quarterly briefing in October, personifying our economic issues, headlining that Jamaica has hill behind the hills, indicating problems beyond problems.

Despite attempts at fiscal reform; debt exchange and reduction in interest rates; Jamaica's debt-to-GDP ratio remains one of the highest in the world at over 140 per cent. The report also highlighted energy as one of the main hindrances to growth in Jamaica. By the end of October, the Government introduced a cash transaction ceiling of J$1 million or little under US$10,000.

What from November should we remember?

IDB policy brief (2013) assessed the problems associated with competitiveness and the policy options available. The article discussed the advantages and disadvantages associated with the three different types of government exchange rate policy devaluations, i.e., internal devaluation, external devaluation and fiscal devaluation. The results of their paper indicated that fiscal devaluation is a country's best option as it provides the most benefits at the least cost relative to internal and external devaluations.

The Briefing discussed the roles of a credit bureau in Jamaica. The IMF confirmed that Jamaica passed the second test as of September 30, as required by the extended fund facility agreement. The Briefing discussed the different objectives that Jamaica must fulfil to remain eligible for the extended fund facility at the end of the year. To complete November, we discussed the essential features of an oligopoly market, using gas stations as the example.

How did the year end?

As the world economy recovered from turbulence, the World Bank's World Development Report (WDR) 2014 explained why it is important to turn risk into opportunity. It examined why risk management is important for development, how risk management should be conducted by various economic agents, including the household, the community, financial institutions, the business community, government, as well as international institutions, and discusses possible obstacles to risk management that these economic agents might face.

The WDR 2014 explains that risk management will allow people to take advantage of opportunities for improvement as well as build their resilience to soften the blow of adverse events such as future job losses, natural disasters or any other unforeseen negative event.

The following week, Nelson Mandela, the greatest man in our lifetime, died. The Briefing used several of Mandela's best quotes to summarise a story on the life of the legend. "Poverty is not an accident, like slavery and apartheid; it is man-made and can be removed by the actions of human beings". "For to be free is not merely to cast of one's chains, but to live in a way that respects and enhances the freedom of others."

In the third week of December, I made a presentation at the World Finance and Banking Symposium 2014 at the Central University of Finance and Economics in Beijing, China. The conference provided a high-quality discussion forum for all aspects of finance and financial economics for academics, professionals and practitioners.

The last week in December was Christmas, and the Briefing celebrated the mood with a discussion on the economics of Christmas. The main theory proposed by Waldfogel discourages people from buying gifts for their loved ones, emphasising that the money we spend on our gifts provide less value to the recipients of these gifts, especially if we do not know them very well. He instead endorsed the giving of cash or gift vouchers that allow the recipients of the gift to make their own gift choices.

Dr Andre 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 editorial@gleanerjm.com