KINGSTON — Jamaica is in a deep financial crisis and the Ministry of Finance ought to be telling the people what the situation is.
Using December l971 as the date of departure, the Jamaica dollar has slid from $0.77 = US$l.00 to an unprecedented $90.32 = US$l.00. As a result, prices and inflation are rising because it is costing importers more to import goods and services.
The Net International Reserves, a critical component to the country’s ability to pay for the import of goods and services at the end of September this year, could pay for only 14 weeks of supplies. Unless foreign exchange flows in quickly as a result of an agreement with the International Monetary Fund, or some holding funds are obtained elsewhere until the agreement is signed, the country will be in serious trouble.
It was against this backdrop that the matter of foreign exchange dominated the news last week. Edward Seaga, former prime minister and minister of finance, pointed out the advantages of having the Jamaican dollar pegged to the US dollar.
He said it would:
* Reduce inflation to the minimal levels.
* Lower the still high interest rate on commercial loan rates of financial institutions to business-friendly levels.
* Reduce expenditure in the cost of servicing external debts and making payments on interest, profit and dividends earned by overseas investment, and indeed, reduce the stock of debt.
* Open the door for potential massive inflows of low-interest foreign exchange for mortgage financing and investment since the risk of devaluation or depreciation of the rate of exchange would no longer exist. This would be revolutionary for attracting low-cost funds for agriculture, education, infrastructure and low-cost housing, creating thousands of new jobs.
But before the government could study the merits of Seaga’s suggestion, former Bank of Jamaica governor, Derick Latibeaudiere, dismissed it as a simplistic solution which will not help Jamaica’s economic situation.
Latibeaudiere noted that the country should look more on the fundamentals instead of the system.
“If the fundamentals are right, you don’t have to think about which system you are going to use,” he said. (Observer)