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JLP to complain to IMF head about dollar slide

Published:Tuesday | June 24, 2014 | 12:00 AM

Daraine Luton, Senior Staff Reporter

MAINTAINING ITS position that the devaluation of the Jamaican dollar is poisonous to the Jamaican economy, the parliamentary opposition has indicated it will be placing that concern squarely before Christine Lagarde this week.

Lagarde, head of the International Monetary Fund (IMF), the multilateral agency with which Jamaica has agreed to undergo various structural reforms in exchange for balance-of-payment support and its imprimatur to access markets, is due to visit the island later this week.

"We intend to hand the managing director of the IMF a letter of concern on a number of issues, most notably the issue of the continuing aggressive slide of the Jamaican dollar," Shaw said yesterday during a press conference held at the Office of the Leader of the Opposition in St Andrew.

The Jamaican dollar has fallen from $99.33 to US$1 on May 1, 2013, when the agreement was inked, to J$111.86 at the end of trading yesterday.

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

Imports down

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

Shaw argued that competitiveness cannot be achieved simply by depreciating Jamaica's currency and that the point would be made forcefully when the JLP team, led by Opposition Leader Andrew Holness, meets with Lagarde.

"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.

Both the Bank of Jamaica and the IMF have said 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. BOJ analysis indicates that the exchange rate is much closer to equilibrium than the IMF's assessment of the three to 15 per cent overvaluation suggests.

He noted that there are contending views among economists of multilaterals such as the IMF who have questioned whether a flexible exchange rate is appropriate for small, open, import-dependent countries like Jamaica.