Up to 1977 the Jamaican dollar was stronger than the US dollar – US$1:JAM 90 cents. The International Monetary Fund pressured the government and the exchange rate went up to US$1:JAM$1.25. By the end of 1980 the exchange rate was US$1:JAM$1.78.
Then there was the Manley period and perceived anti-US, anti-capitalist stance, followed by the Edward Seaga favourable terms period which at the end of the 80s saw the exchange as US$1:JAM$5.58 (five flights a day to Miami period). All the while the trade deficit was growing and the people were producing less and importing more. In 1995 Jamaica faced a trade deficit of US$525 million and the exchange rate went up to US$1:JAM$46.08, and by 2004 it was US$1:JAM$61.34. The deficit in 2007 was recorded at US$2.3 billion and the exchange rate reached US$1:JAM$69. A year later in 2008 the exchange plummeted to US$1:JAM$88.49. By 2012 the rate had reached US$1:JAM$90; since then the Jamaican dollar has continued on its merry way reaching and even exceeding US$1:JAM$100. A sad story!
The exposition of Dr Orville Taylor is here paraphrased. He is a senior lecturer in sociology at Mona. From an extract of a presentation by Governor Dr DeLisle Worrell to the Paterson Institute on April 17, 2014, I quote: “Small very open economies are different from large economies in that they face a foreign exchange constraint that cannot be alleviated by a depreciation of the real exchange rate or by other policies. This constraint affects monetary, fiscal and exchange rate policy, fiscal sustainability and the debt management: and patterns of economic growth.”
Quae cum ita sint (which things being so), as Cicero used to say, why do we in Barbados have such an open policy with regard to our foreign exchange? Should we not be harvesting and even hoarding our foreign exchange and even fighting to earn more? If deficit to foreign exchange is so vital, how can we be pushing the deficit to record heights by spending an unearned $50 million a month for almost six years ($3.5 billion) and borrowing it from the safety net – the National Insurance? (But Wild Coot, the politicians wanted to please the people – what sweeten goat mout’ . . . .)
Fighting to earn: who are the fighters? The hotels. But they constitute the most bad debts in the banks. They need to get out of the hole that they are in. Are we sure that the indebtedness may be alleviated by their bringing in all of their foreign exchange – after all, their payments are made through travel agents abroad. Sandals has a fantastic marketing strategy that could be used, but we need to be able to access the foreign exchange that accrues to the marketing.
So you see why the Wild Coot finds it difficult to write on a pleasant subject. On the present path we are faced with what has happened in Jamaica. And the Jamaicans have only survived because they have more than we do; plus they have learnt from long ago to feed themselves and to ignore the government and their central bank.
Barbadians are locked in it for the next four years barring the intervention of the Almighty.
Readers are invited to access the Governor’s address and judge how it relates to the Barbadian reality. (www.iie.com/events/event_detail.cfm?EventID=323)
Question: why support the offer of Treasury Bills by printing money if it is going to do damage and has done damage to the economy? The banks have an excuse – they are over-liquid. Can’t the Central Bank say no to the Government? It seems that the policy is to dampen demand, but it has taken six years to come to that conclusion; now spurious taxation and low returns for investments are the order of the day. Dampening demand hits the merchants hardest in spite of low interest on credit; hits the populace although it is not pursuing wherever possible import substitution, and foreign exchange suffers as policy is still open.
But Wild Coot, an open policy needs to be pursued in order to woo investors. Heavens help us! Shakespeare said “oh what tangled webs we weave . . .”. As for our poor minister, will there be “a shout about his ears and palms before his feet?”
• Harry Russell is a banker.
