EDITORIAL - Dr Phillips must hold his nerve

Dr Peter Phillips must be under tremendous pressure from his Cabinet colleagues over the slide of the Jamaican dollar in relation to the greenback, now at J$100:US$1.

But Dr Phillips and the central bank governor, Mr Brian Wynter, must hold their nerve. In fact, Dr Phillips has pushed back hard, telling his colleagues to accelerate and begin to deliver on projects to stabilise the economy.

Further, it is important that the finance minister and other holders of key economic portfolios move urgently to keep private-sector leaders on board in the face of the surprisingly naive response by some to the exchange rate adjustment.

At the same time, it is critical that Prime Minister Portia Simpson Miller get with the job that this newspaper has long pleaded with her to do. She must use her unique talent to communicate with the majority of Jamaicans to engage in a continuous conversation about the importance of sticking with the policies to which her Government declared itself to be committed. Failure to give these policies a fighting chance is an assured, and quick route, to deeper economic crisis.

The crux of Jamaica's difficulties is well known. We, nonetheless, repeat the critical ones.

We owe too much and produce too little, too expensively. Our national debt is around 150 per cent of gross domestic product. Even with the default of its domestic debt, more than 40 per cent of the Government's Budget is for debt servicing. All the taxes it collects and grants received are barely enough to pay debts and public-sector workers.

It is against that background that we went to the International Monetary Fund (IMF) for an economic support agreement and are having to endure an austerity programme.

It just can't be business as usual.

That is a lesson that we should have learnt during the period of the 2010 aborted agreement with the IMF, but didn't. That agreement and an accompanying debt default were wasted.

So, between 2010 and 2011, the gap on visible trade worsened by 26 per cent to nearly US$5.1 billion. It improved only mildly in 2012, as did the current account, but not sufficiently to make a substantial difference to the macroeconomic variables.

Orchestrated revaluation

But something curious was taking place against the backdrop of these numbers. The former finance minister, Audley Shaw, orchestrated the revaluation of the Jamaican dollar, not only worsening its competitive position, but losing the opportunity of devaluation as a tool against runaway imports.

For instance, between 2008 and 2012, accumulated inflation in the United States, Jamaica's major trading partner, was 10.7 per cent, or an annual average of a bit over two per cent. By contrast, consumer prices in Jamaica jumped 41 per cent, or above eight per cent a year.

Yet, having reached J$89:US$1 in May 2009 and a low of $89.51 by March 2010, a revaluation of the domestic currency was soon engineered. By early October, the rate had fallen back to below J$86:US$1. By the time of the election of December 2011, the domestic currency, despite a downward drift to $86.61 to the US, had revalued by nearly four per cent.

It has since then moved in the other direction, but still has competitive distance to make up. The drumbeat must now be about taking advantage of the gains.

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