Sat | Mar 23, 2019

Ja on its way back

Published:Saturday | June 28, 2014 | 12:00 AM
Lagarde

'IMF head says dollar devaluation to benefit the country'

Daraine Luton, Senior Staff Reporter

JAMAICANS are being told that the decision to devalue the currency is the correct one, with head of the International Monetary Fund (IMF) arguing that there are promising signs that the policy is generating results.

Christine Lagarde, managing director of the IMF, who is on a two-day visit to Jamaica, said during a luncheon at The Jamaica Pegasus hotel in New Kingston yesterday, that domestic production is beginning to replace imports for some agricultural goods, production is going up and foreign direct investment is increasing.

"The competitiveness of Jamaica is on its way back," Lagarde said.

The opposition Jamaica Labour Party (JLP) had warned that they would convey dissatisfaction to Lagarde over the policy of devaluation which it said is hurting the country. Opposition Leader Andrew Holness, along with finance spokesman Audley Shaw met which the IMF head, hours after she had meetings with Finance Minister Dr Peter Phillips and Prime Minister Portia Simpson Miller.

"The policy is not working. It is actually wreaking havoc in the productive sector," Shaw said while arguing that the continuing slide of the dollar has been an impediment to planning as producers are "unable to predict where the dollar will end up a month down the road," Shaw said earlier this week.

But Lagarde asserted that the overvaluation of the Jamaican dollar was bad for the economy and impacted on sovereignty.

"Governor, when you are at the mercy of having to get rid of your reserves in order to defend currency, I am sure it must have occurred to you that Jamaica was bleeding and that it was not good for the country to actually spend so much of its reserves to defend a currency which was clearly not valued at the right level," she said. Her reference to 'governor' was to Brian Wynter, head of the central bank.

The Jamaican dollar has fallen from $99.33 to US$1 on May 1, 2013, when the agreement was inked, to $112.03 to one US$1 at the end of trading on Thursday when Lagarde arrived.

In its last article IV review of Jamaica's economy, the IMF said the exchange rate adjustments were aimed at correcting an overvaluation of the Jamaican dollar from 22 per cent in May 2013 to about 15 per cent now.

FLAWED ARGUMENT

However Shaw said the exchange rate would end up at $120 to US$1 if Jamaica devalues by 22 per cent. He said the argument that the devaluation will boost export has proven to be flawed as based on recent trade data, while imports have decreased 25 per cent, exports have fallen by 34 per cent.

Both the Bank of Jamaica and the IMF have said that substantial improvement in the price competitiveness of the Jamaican economy has been achieved over the last year as the exchange rate has moved in line with market fundamentals. The BoJ analysis indicates that the exchange rate is much closer to equilibrium than the IMF's assessment of the 3 to 15 per cent overvaluation suggests.

Lagarde, meanwhile has said "there is still a little way to go, not much," in relation to the devaluation of the currency, and argued that keeping inflation under control is critical to reducing net devaluation.

"It is hard from a pure consumption point of view but it is driving in the direction of growth, better competitiveness, investments, jobs. That is the logic behind it and that is also the reason that there must be a social security net to protect the poor," the IMF head said.

Ja on its way back

'IMF head says dollar devaluation to benefit the country'

Daraine Luton

Senior Staff Reporter

JaMAICANS are being told that the decision to devalue the currency is the correct one, with head of the International Monetary Fund (IMF) arguing that there are promising signs that the policy is generating results.

Christine Lagarde, managing director of the IMF, who is on a two-day visit to Jamaica, said during a luncheon at The Jamaica Pegasus hotel in New Kingston yesterday, that domestic production is beginning to replace imports for some agricultural goods, production is going up and foreign direct investment is increasing.

"The competitiveness of Jamaica is on its way back," Lagarde said.

The opposition Jamaica Labour Party (JLP) had warned that they would convey dissatisfaction to Lagarde over the policy of devaluation which it said is hurting the country. Opposition Leader Andrew Holness, along with finance spokesman Audley Shaw met which the IMF head, hours after she had meetings with Finance Minister Dr Peter Phillips and Prime Minister Portia Simpson Miller.

"The policy is not working. It is actually wreaking havoc in the productive sector," Shaw said while arguing that the continuing slide of the dollar has been an impediment to planning as producers are "unable to predict where the dollar will end up a month down the road," Shaw said earlier this week.

But Lagarde asserted that the overvaluation of the Jamaican dollar was bad for the economy and impacted on sovereignty.

"Governor, when you are at the mercy of having to get rid of your reserves in order to defend currency, I am sure it must have occurred to you that Jamaica was bleeding and that it was not good for the country to actually spend so much of its reserves to defend a currency which was clearly not valued at the right level," she said. Her reference to 'governor' was to Brian Wynter, head of the central bank.

The Jamaican dollar has fallen from $99.33 to US$1 on May 1, 2013, when the agreement was inked, to $112.03 to one US$1 at the end of trading on Thursday when Lagarde arrived.

In its last article IV review of Jamaica's economy, the IMF said the exchange rate adjustments were aimed at correcting an overvaluation of the Jamaican dollar from 22 per cent in May 2013 to about 15 per cent now.

FLAWED ARGUMENT

However Shaw said the exchange rate would end up at $120 to US$1 if Jamaica devalues by 22 per cent. He said the argument that the devaluation will boost export has proven to be flawed as based on recent trade data, while imports have decreased 25 per cent, exports have fallen by 34 per cent.

Both the Bank of Jamaica and the IMF have said that substantial improvement in the price competitiveness of the Jamaican economy has been achieved over the last year as the exchange rate has moved in line with market fundamentals. The BoJ analysis indicates that the exchange rate is much closer to equilibrium than the IMF's assessment of the 3 to 15 per cent overvaluation suggests.

Lagarde, meanwhile has said "there is still a little way to go, not much," in relation to the devaluation of the currency, and argued that keeping inflation under control is critical to reducing net devaluation.

"It is hard from a pure consumption point of view but it is driving in the direction of growth, better competitiveness, investments, jobs. That is the logic behind it and that is also the reason that there must be a social security net to protect the poor," the IMF head said.