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Lagarde comment could spur honest dollar debate - Phillips

Published:Thursday | July 3, 2014 | 12:00 AM

Daraine Luton, Senior Staff Reporter

FINANCE MINISTER Dr Peter Phillips said the contribution from head of the International Monetary Fund (IMF) Christine Lagarde to the discussion on the devaluation of the Jamaican dollar could lead to an "honest debate" on the issue locally, even as he conceded that the policy would continue to be fertile ground for political and other attacks.

Lagarde used speaking engagements during her two-day working visit to the island last week to advance the argument that devaluing the Jamaican dollar to its right value would enhance competitiveness.

"I hope that it will contribute to an honest discussion. I suspect that there are elements that have determined that this is a line along which to fight a battle. Some people are genuinely convinced of that position. Some people will see it as just a condition to be exploited, but ultimately, what we are really talking about is the future of a country that has a long-term history of economic underperformance, and once and for all, we need to give our people a chance of realising their dreams and aspirations," Phillips said.

Responding to questions from journalists at Jamaica House on Friday, Lagarde said Jamaica, at the time of the Extended Fund Facility agreement with the IMF, was "bleeding its reserves to support a currency that was clearly overvalued".

"A lot is being done. There is still a little way to go, not much, but it is clearly on the net value that you have to determine that devaluation. We are not talking about nominal devaluation. You have to take into account inflation as well and the differential between inflation in those countries with which you trade and the inflation back at home. The key factor is to keep inflation under control so that the net devaluation can be reduced," Lagarde said.

Foreign investment boost

She further said the increase of foreign direct investment by 15 per cent was a result of the devaluation that has taken place and commended the authorities for "taking the bull by the horns" in seeking to address what she said was an overvalued dollar.

Phillips said the Government had no choice but to make the adjustments, arguing that "we cannot expect to support our consumption by borrowing other people's money".

"We can't simply allow our reserves to disintegrate by trying to sustain consumption without paying attention to the production side of our operations, and that means getting greater competitiveness, and an element of that is having a competitively valued currency," Phillips said.

The opposition Jamaica Labour Party on Friday delivered a letter, penned by the spokesman on finance, Audley Shaw, to the IMF boss, which it said set out the Opposition's concerns about the need to build stability in the Jamaican economy, and outlined the challenges that ordinary Jamaicans are experiencing as a result of the movement of the Jamaican dollar.

Shaw on Sunday told The Gleaner that despite the rapid devaluation of the Jamaican dollar over the past decades, the economy had not benefited.

He described the policy of devaluation as "absolute madness" and charged that the "Government and the IMF are like the blind leading the blind".