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'Halt this madness of devaluation' - Shaw

Published:Thursday | April 24, 2014 | 12:00 AM
Audley Shaw makes his contribution to the Budget Debate in Gordon House on Tuesday. - Jermaine Barnaby/Photographer

Edmond Campbell, Senior Staff Reporter

SUGGESTING THAT the Government should consider fixing the exchange rate for a period of time, as a precursor to a "managed floating system", Opposition spokesman on finance Audley Shaw has said a continuously devalued currency is a sure way to pauperism.

This move, according to Shaw, should be pursued within the context of an International Monetary Fund (IMF) agreement in which the Government has passed three tests and a fourth likely to be passed, paving the way for US$2 billion in flows guaranteed from the multilaterals.

"We must call a halt to this madness of devaluation which is leading us to nowhere, but more and more despair," a strident Shaw declared on Tuesday during his contribution to the 2014-2015 Budget Debate in Gordon House.

In opening the Budget Debate last week, Finance Minister Dr Peter Phillips contended that the value of the Jamaican dollar was being determined by the market and he would not veer from that course.

Foreign products

The minister had blamed the nearly 11 per cent devaluation last year primarily on a higher demand for foreign products purchased in United States dollars.

He argued that the Government would not be embarking on the rationing of foreign exchange or the banning of imports.

But Shaw insisted that the overused strategy of devaluation has "failed miserably to stimulate exports, contain growth in imports and to significantly reduce balance-of-payments deficits. It is not any different at this time".

Shaw is of the view that a stable currency is an essential prerequisite for businesses to succeed within that stable macroeconomic environment.

Quoting a Gleaner article of April 16, the opposition spokesman charged that the IMF indicated that the Jamaican dollar was overvalued by between eight and 22 per cent, noting that the devaluation of 11 per cent in the last fiscal year was "at the low end of the estimate".

"The clear inference to be drawn is that further devaluation can be expected until the exchange rate reaches at least J$120 to US$1," Shaw reasoned.

He made it clear that the Opposition was in general support of the extended fund facility with the IMF, but would not entertain any move that leads to the "reckless and ruinous path of devaluation which has the potential to do damage to the economy that is reminiscent to the FINSAC crisis".

"The question is, if and when the exchange rate reaches J$120, what magic is that figure which would have made the Jamaican economy suddenly, if not miraculously, more competitive?"

Exchange rate

Under the current dispensation, he said it would be anyone's guess where the exchange rate will end.

"The exchange rate will be like a dog chasing its tail."

Phillips, in his Budget presentation, had chided his detractors for comments on the devaluation of the Jamaican dollar, saying their pronouncements had been designed to spread confusion and apathy in the country. At that time, he said it was important that Jamaicans be treated to an honest debate on the subject.