EDITORIAL - Shaw picks up currency gauntlet

WITH AUDLEY Shaw, political jousting and bombast are almost ritual.

So, no one should be surprised at his attack on the Government's economic policies and his conclusion that the Portia Simpson Miller administration and its finance minister, Peter Phillips, are generally heading in the wrong direction, even as he conceded support for the broad reforms dictated by Jamaica's agreement with the International Monetary Fund (IMF).

But from his high wire, Mr Shaw highlighted a clear point of difference in policy between himself and the finance minister and, ultimately, the IMF: whether the Jamaica dollar should be fixed or be allowed to float.

Mr Shaw insists on the former, or some variation thereof.

He told Parliament during his contribution to the Budget Debate on Tuesday: "... Research on the experience of devaluation in Jamaica shows that this overused strategy of devaluation has failed miserably to stimulate exports, contain growth in imports and to significantly reduce balance of payments. It is not any different this time."

The shadow finance minister branded the continued flotation of the Jamaican dollar, which, over the last two years, slipped by 27 per cent, as "madness ... which is leading to despair".

In that regard, Mr Shaw accepted Dr Phillips' invitation for a serious re-engagement of a debate that has been on and off without resolution for several years - and certainly since the removal of exchange controls in the early 1990s. He argued that any recent period of reasonable economic growth in Jamaica, during the late 1980s and his last year as finance minister in 2011, coincided with relative stability of the exchange rate by a management of the system.

While Mr Shaw provided selective data to support his case, this apparent correlation lacks the persuasiveness of empirical analysis. And, in any event, there are substantial counterarguments as to why a fixed/managed exchange rate is unfeasible in an economy with a high, unsustainable debt, a chronic problem of fiscal and current-account deficits, and the need to put right its macroeconomic imbalances.

Mr Shaw will also have problems he has to resolve if he returns to the job of finance minister before the end of 2016, and the completion of the current four-year agreement with the IMF: winning the exchange-rate argument with the Fund, by whose reckoning the Jamaican currency continues to be overvalued.

Under Mr Shaw, the previous IMF agreement ran aground within months, not over exchange rates, but the pace of implementation of other politically tough reforms. Perhaps, he will, this time, be more persuasive with the IMF technocrats.

For now, though, Audley Shaw is to be congratulated for the seriousness with which he picked up Dr Phillips' gauntlet and engaged the issue. Hopefully, a quality debate will persist, continuing Mr Shaw's most fruitful offering to the Budget Debate.

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