What the JDX cannot do
The Editor, Sir:
Is the Jamaica Debt Exchange (JDX) successful? The answer depends upon whether one is thinking short-term or long-term and also whether the sheer manipulation of interest rates is a sufficient basis for economic prosperity, even when coupled with massive job and wage cuts.
In the short term, the JDX reduces, but does not eliminate, the pressures on the Government to meet its immediate obligations. If nothing more is done and the country continues on the path it has for the past 20 or so years, there will be no light at the end of the tunnel.
It may be useful to examine the consequences of a high interest rate policy and the appropriateness of such a policy to Jamaica in its present circumstances:
It renders it effortlessly profitable for banks and other financial institutions to lend funds to government because of the greater security and the higher returns available.
As a result, funding for businesses and other institutions becomes more difficult or even impossible.
Thus, the financial system - which should be directed towards supporting industrial, agricultural and other undertakings - instead becomes locked into government paper and therefore loses or compromises its real purpose, its raison d'être in the economy.
The foregoing, however, should not imply that a low interest regime is necessarily better as an alternative.
Under Allan Greenspan, the rate of interest charged by the Federal Reserve Bank was reduced to almost zero, without any of the desired outcomes. Actually, the policy has been blamed for the recent depression/recession that is still affecting the United States (US).
Thus, interest rate manipulation, per se, cannot restore a troubled economy to any satisfactory level. The experience of the US and the world at large should be enough evidence.
Financial institutions are respected, not so much for the magnificence of their buildings, but for the confidence and credibility they inspire in the minds of the people who have to deal with them. Thus, the real cost of the JDX is not just the amount of interest immediately saved, but moreso:
We need to deal effectively with production, training and organisation of skills, improvements in exports and in selling our services.
Finally, we should realise that there is no shortcut, no silver bullet. Success requires hard work and lots of thinking.
I am, etc.,
ROY H. ALEXANDER