Dol­lar­i­sa­tion, de­val­u­a­tion and Eco­nomic Growth Coun­cil

Jamaica Gleaner - - OPINION & COMMENTARY - Devon Dick Rev Devon Dick is pas­tor of the Boule­vard Bap­tist Church in St An­drew. He is au­thor of ‘The Cross and the Ma­chete’, and ‘Re­bel­lion to Riot’. Send feed­back to col­umns@ glean­erjm.com.

THE IN­TER­NA­TIONAL Mon­e­tary Fund (IMF) be­moaned that Ja­maica’s de­posit dol­lar­i­sa­tion was among the high­est in the re­gion. At June 2016, 45 per cent of de­posits were de­nom­i­nated in United States dol­lars. The IMF wants the au­thor­i­ties to counter the ris­ing trend (The Gleaner, Sep­tem­ber 21).

This is prob­a­bly in­dica­tive that the wealthy and the pro­fes­sional classes are con­vert­ing their mon­eys and port­fo­lios to US dol­lars, cou­pled with the re­al­ity that many in­vestors in the tourism and man­u­fac­tur­ing sec­tors do not keep their hard cur­rency earned here, in Ja­maica. It means that there is a big prob­lem.

The prob­lem is lack of con­fi­dence in the Ja­maican cur­rency and econ­omy by the movers and shak­ers in the so­ci­ety. The con­stant de­val­u­a­tion of the Ja­maican dol­lar has eroded con­fi­dence in Brand Ja­maica. Twenty years ago, thirty-five Ja­maican dol­lars (J$35) could by one US dol­lar. Now it takes al­most four times that amount to buy the same one US dol­lar. No house has ap­pre­ci­ated in value at that rate and few salaries have in­creased by the same rate. The sig­nif­i­cant de­val­u­a­tion of the Ja­maican dol­lar must stop for there to be con­fi­dence in the econ­omy and sig­nif­i­cant eco­nomic growth.

The IMF has high­lighted also the dan­ger of two banks con­trol­ling such a large mar­ket share. There is the peren­nial prob­lem of the wide spread be­tween sav­ings rate and loan rate in the com­mer­cial banks. A decade ago Ja­maica had one of the widest spreads in the re­gion. In ad­di­tion, the spread be­tween buy­ing and sell­ing of for­eign cur­ren­cies is too much. Min­is­ter of Fi­nance Aud­ley Shaw, in his ear­lier dis­pen­sa­tion and now, com­plains about that, to no avail. He be­lieves that is­su­ing three new bank­ing li­cences will in­crease com­pe­ti­tion and even­tu­ally lead to rea­son­able spreads. That is un­likely to shake those two banks. For many years, there is one ma­jor build­ing so­ci­ety that does not charge cer­tain fees and its ac­tion has not forced other fi­nan­cial in­sti­tu­tions to do like­wise.

Fur­ther­more, seven years ago in a con­ver­sa­tion with the head of one of the lead­ing com­mer­cial banks, I ar­gued that the spread was too much when com­pared in­ter­na­tion­ally. His re­sponse was that their se­cu­rity costs were high.

Para­dox­i­cally, the Eco­nomic Growth Coun­cil recog­nises that ac­cess to cap­i­tal is an im­ped­i­ment to eco­nomic growth. And the head of the coun­cil is Michael Lee-Chin, the chair­man of NCB, one of the two largest banks op­er­at­ing in Ja­maica.

It seems that Shaw should have a word with Lee-Chin and tell him that it is un­ten­able for him to be head of the Eco­nomic Growth Coun­cil while his bank is ben­e­fit­ing from such a wide spread which is in­im­i­cal to eco­nomic growth. Lee-Chin needs to set an ex­am­ple by mak­ing a con­tri­bu­tion to eco­nomic growth of low­er­ing the spread be­tween loans and sav­ings, and also in the trad­ing of for­eign cur­ren­cies. This would be a shot in the arm for eco­nomic growth.

Fur­ther­more, the Eco­nomic Growth Coun­cil has Pa­trick Hylton, group man­ag­ing direc­tor, Na­tional Com­mer­cial Bank, an em­ployee of LeeChin, on it. This needs to change forth­with be­cause the big banks are part of the prob­lem. One big bank should not have two rep­re­sen­ta­tives on the coun­cil. Why not the other big bank?

Ad­di­tion­ally, the Church is not rep­re­sented on the coun­cil and not in­vited to the meet­ings when the coun­cil shares its vi­sion and mis­sion. Eco­nomic growth need all hands on board and the col­lec­tive Church, the or­gan­i­sa­tion with the largest mem­ber­ship, has a role in spread­ing the mes­sage to a wide cross sec­tion of so­ci­ety and mo­bil­is­ing or­di­nary peo­ple to get in­volved in pro­duc­ing eco­nomic growth. Fi­nally, who is the IT ex­pert on the coun­cil?

For 5 in 4 ( five per cent growth in four years )to be a re­al­ity, th­ese changes are nec­es­sary.

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