Dawn Ritch, Contributor
POST-BUDGET, the Minister of Finance has again been saying that banks should lower interest rates.
According to this newspaper Dr. Omar Davies said that "We also have to get away from the notion that the competitiveness of the export sector is Government's business."
Whose business is it then, if not the Government's? Specifically it is the business of the Minister of Finance, Dr. Davies, who for the past many years has deliberately supported an overvalued exchange.
The revaluation of the Jamaican dollar around the time of the so-called "Butch Stewart Initiative" had the impact of killing exports and the tourism sector. Various companies had already incurred costs they could not go back on, whether increased salaries or new plant and equipment and property. Then they discovered that this same capital investment overnight, could have cost less.
Does anyone really believe that Butch Stewart revalued the Jamaican dollar? This is a function of the Bank of Jamaica and the Minister of Finance. Their continued intervention in the foreign exchange market has in effect deliberately supported an over-valued exchange rate. This in turn has led to the catastrophic decline in our CARICOM trade over the years, and the buying out of our country recently by Trinidadian and Barbadian firms for cheap.
Now that Jamaica is broke and our Government bankrupt of ideas, Dr. Davies is trying to distance himself from his own handiwork. The export competitiveness of Jamaica has been destroyed, but the Minister of Finance wants us to believe that it wasn't him.
When the President of the United States goes to Congress and asks for fast-track authority to negotiate trade deals, he does so because he understands that it is his responsibility to ensure the viability of U.S. companies and industries. The U.S. Government is there to protect local industry and support the expansion of U.S. trade overseas. They regard it as their duty to create the environment that can make this happen.
So why has Dr. Davies dropped the ball? Plainly because he's admitting that he never knew how to play the game in the first place. When the U.S. economy is in trouble as it has been recently, the U.S. Federal Reserve drops interest rates, as they have done. There everybody realises that banks must follow the Government's lead.
Here in Jamaica, however, interest rates are the responsibility of the banks, according to the improbable Minister of Finance. Any fool knows that it is the central bank in a sovereign country which determines interest rates, banks survive on the spread, and there hasn't been much of that recently in Jamaica. Since Dr. Davies would have us believe, however, that the banks set them, it's clear he takes the public for worse than a pack of fools.
Having imposed a decade of high interest rates which resulted in the bankruptcy of banks and companies islandwide, Dr. Davies says without any trace of remorse that the competitiveness of business is not the Government's business. Having destroyed our competitiveness with his disastrous policies, the Finance Minister is quite happy to wash his hands of the affair and walk away.
Opposition spokesman on Finance, Audley Shaw, is therefore to be congratulated on his "tour de force" last Tuesday in the Budget Debate now under way. In a three and a half hour speech he spent the first hour dealing purely with the Finance Minister's dismal performance of his ministerial duties and dereliction of his constitutional role.
Billion-dollar financial scandals and more and more public debt are tumbling out of the PNP Government's closets at an unprecedented rate. Mr. Shaw clearly relished every minute of reminding Dr. Davies that according to the Jamaican Constitution, the Minister with final responsibility is none other than the Minister of Finance himself. He presides therefore not only over an economy in shambles, but a Government in a complete financial shambles itself.
This newspaper has been carrying an analysis by Price Waterhouse Coopers. In this assessment it is suggested that the build-up in the country's Net International Reserves (NIR) is not from borrowing.
I beg to disagree. The empirical evidence is that each time there is an uptick in the NIR, it is accompanied by flows from U.S. loan proceeds raised overseas by the Government of Jamaica.
As every economist knows "funds are fungible," whether directly from inflows or borrowings. All funds go into the pool. Every time the Government raises funds overseas, it immediately sells those funds to the Bank of Jamaica for Jamaican dollars and the US dollars find their way into the NIR.
The Balance of Payment statements clearly indicate that the build-up in the NIR is not from earnings, because our Balance of Payments keeps deteriorating. Without borrowings and remittances, a large slice of which is illegal money, Jamaica would have gone broke ages ago.
The build-up in the NIR may not be directly linked to borrowing, but since public debt has gone up dramatically from borrowings, the funds can be switched. The suggestion therefore that there is a one-to-one relationship is misleading.
Much more attention is now being given to the mounting public debt, both in the current Budget Debates and in the media. I hope therefore that Dr. Davies will not personally feel put-upon when all the chickens come home to roost on his perch.
