Letter: Is the JLP serious about dismantling Jamaica's fiscal and monetary policies or just tinkering?
It is time for a change in policy, as the benefits of dollarization would result in eliminating the risk of devaluation and reducing the country risk premium on foreign borrowing as well as obtaining lower interest rates for the government and private investors. Lower interest rates and more stability in international capital movements cut the cost of servicing the public debt, and encourage higher investment and economic growth.
While the overall thrust of the JP era economic policies was to attract increased foreign direct investments (FDI), mainly in the tourism sector, it created an over concentration of assets in the financial sector largely at the expense of manufacturing.
The JP administration may have also allowed the manipulation of the stock and foreign exchange markets by Trinidad and Tobago and local investors as well, to gain support for the Caribbean Court of Justice (CCJ), which is headquartered in Trinidad. Peter Phillip tried to stop this vicious recycle of investment returns between both markets in 2015 when he announced the Financial System Stabilization Committee, similar to what the JLP is currently doing to monitor the foreign exchange market, but may have been overridden by then shadow minister JP and the front of the PNP administration Portia Simpson.
So the recently announced “Working Group” is nothing new; minister of finance and public service Audley Shaw says the Jamaican dollar is experiencing a revaluation due to the working group that he established to monitor the foreign exchange market. In late November, the minister informed Parliament that he had established a stakeholder group, mainly comprising people from the financial sector, to work with the Bank of Jamaica (BOJ) to deal with issues that had caused the dollar to be sliding against the United States dollar.
“The working group is working, and it is having results because the exchange rate is revaluing now, coming back to under $129 to the US dollar,” the minister told a luncheon organised by the JN Small Business Loans Limited at the Jamaica Conference Centre in downtown Kingston.
Trinidad and Tobago may have been manipulating Jamaica’s foreign exchange market along with local investors to gain a significant hold on Jamaican capital assets and equities long the before the news broke in November of 2016. Even the current Bank of Jamaica (BOJ) governor thinks it was a good idea, “But Wynter told Seaga he was unaware that Trinidad companies were using the local economy in such a way. Still, the central bank chief also signalled that if it were happening, he would not be worried by it, saying Jamaica remains open for business.”
“I think this is a good thing,” responded Wynter. “I am not sitting here saying I want you to do it or whether you should do it. I am saying that you are free to do it,” Wynter commented. “We have the wherewithal to manage it. Jamaica has reached a position of strength,” he said. Wynter said Jamaica is able to handle increased pressure on the foreign exchange market, as the Jamaican government has reduced its fiscal imbalances. “It is a complete transformation,” he declared, “I cannot overemphasise it – it is just that it is not glamorous or easy to see.”
Trinidad and Tobago now has significant investments in Jamaican companies (equities) and for years with the help of PNP leadership they play the exchange rate and stock market game to buy US$ in the Jamaican market and earn millions from the spread. With a lower dollar, Jamaican stocks and equity, assets become cheaper. They then invest in equity/stock to drive up the value creating a shortage of US$, the Bank of Jamaica (BOJ) then intervenes with the remittance based NIR to stabilize the dollar by selling US$ lower than market rate.
They then sell these higher priced stocks to amass huge sums of US$ from the Central Bank sales to build up a long haul (stabilized period) after which US$ are sold back to BOJ at a higher rate to trigger further devaluation of the Jamaican dollar, creating Jamaican dollar liquidity in the market but at a lower value.
Stock market assets valued in domestic currency are even cheaper, which triggers reduced Jamaican dollar liquidity as capital flight to equities, creating an upward pressure on the value of the domestic currency, which in turn triggers another round of intervention from BOJ and the cycle repeats itself as this banded trading continues in cycles for years under the PNP administration as direct remittance investments (DRI) become the feedstock to create portfolio returns well over 20%.