- Rudolph Brown/Chief Photographer
Bank of Jamaica Governor Derick Latibeaudiere and president of Life of Jamaica Richard Byles at the LOJ's High Flyers Luncheon, Jamaica Pegasus Hotel, October 11. The BOJ governor was guest speaker at the function.

Ashford W. Meikle, Business Reporter

Governor of the Bank of Jamaica, Derick Latibeaudiere, says foreign direct investments have been the main source of funds for Jamaica's reserve account, to refute criticism that the central bank was using borrowed funds to grow the Net International Reserves (NIR).

At the end of September, the country's NIR stood at US$2.3 billion, sufficient to cover payments for 19 weeks of goods and services imports.

Critics of the NIR charge that the country's lacklustre economic performance - real GDP grew by 1.4 per cent last year - does not put it in a position to fund the reserves through debt.

But, on Wednesday, Latibeaudiere sought to counter the criticism, saying the Government's policy is to borrow to cover amortisations.

Zero net effect

"The truth of the matter is Government is paying back more than it is borrowing ... so at the best and worse of times, even though we have the foreign exchange coming in, it is also going through payments of amortisation so the net effect of it is zero," said Latibeaudiere Wednesday in response to questions raised at Life of Jamaica's High Flyers Luncheon. The central bank governor was guest speaker at the event.

Interest payments, according to the BoJ boss, totalled about US$500 million annually.

"The real issue in the economy is the investment inflow because it pays off the current account deficit and despite that we are able to accumulate the reserve," he said.

"Since this year, we have accumulated about US$200 million in reserves [through] investments that have been coming in."

He argued that the accumulation of the NIR - which a decade ago stood at US$496 million in March 1996 - was a deliberate policy objective.

Improvement

The improvement in the reserves, he said, "has allowed us to survive severe external shocks, to cope with shifts in investor confidence (and) continues to raise our profile in the international capital markets."

Emphasising that the reserves "represent the force that underwrites stability in the financial markets," Latibeaudiere warned that any use of the reserve outside of emergencies was a prescription for disaster.

"We have seen how the creative use of reserves helped to destabilise the economies of South East Asia, in particular Thailand, Malaysia and Indonesia, in the late 1990s. I would not want to be responsible for any decision that would lead the country in this direction," he said.

ashford.meikle@gleanerjm.com