$J depreciation an important correction, says Fund
Published:Wednesday | May 22, 2013 | 12:00 AM
THE International Monetary Fund (IMF) has said it welcomes the recent depreciation of the Jamaican dollar.
Jan Kees Martijn, who led an IMF staff mission to Jamaica for a routine visit, which is currently under way, said in Kingston yesterday that the depreciation was an important correction.
The Jamaican dollar has depreciated more than 11 per cent in the past 12 months.
In its request for an extended fund facility, Jamaica told the IMF that the country's external position has deteriorated significantly, with the current account deficit estimated to have remained very large, around 12 per cent of GDP.
The country also said sluggish foreign inflows, including from multilateral institutions, together with central bank foreign-exchange sales and debt-service payments, contributed to a sharp drop in the net international reserves to below US$0.9 billion, compared to US$1.9 billion at the end of 2011.
The country said that as part of a move to address the problem, "the exchange rate has been allowed to depreciate".
CENTRAL ROLE GOING FORWARD
In documents published by the IMF, Jamaica said: "A flexible exchange-rate regime should play a central role in Jamaica's macroeconomic policy framework and its structural agenda going forward."
The technical documents, which provide the basis for the IMF agreement, say "the recent nominal exchange-rate depreciation has been useful, by reversing part of the overvaluation of the real exchange rate that has emerged in recent years, thus supporting price competitiveness".
The country also said there may still be a need, at times, for interventions in the foreign-exchange market aimed at avoiding disorderly short-run movements. In this context, the programme contains clear reserve targets to safeguard the adequacy of reserve coverage - a key policy priority under the programme.