Devastating devaluation

By Devon Dick

Recently, Omar Azan was speaking on CVM TV's 'Direct', hosted by Garfield Burford, on the issue of the tax on banks for withdrawals made by customers. He claimed that it was a smart tax which would affect him and his business. However, his bombshell comment was the 'devastating' effect the devaluation of the dollar is having on Jamaican people.

It appears that insufficient attention is being paid to the devastating dollar devaluation that is occurring while the minor issue of the withdrawal tax is hogging headlines. Audley Shaw, opposition spokesman on finance, in his budget presentation claimed that the yearly devaluation of the dollar had caused the debt to increase by $100 billion. How come the outcry is for the withdrawal tax of $3 billion while just a few voices are crying in the wilderness about the devaluation that causes a burden of $100 billion to the debt stock?

creative ways

Perhaps it could be that those who have access to the media are finding creative ways to deal with the significant devaluation of the dollar. Some persons with money are engaging in speculation and, therefore, making increment on their money above 17 per cent annually. Some persons are converting significant portions of their salary to US dollars or asking to be paid for labour, goods and services in US dollars. This is bad for the country because it shows a lack of confidence in our currency and country. Apparently, the withdrawal tax, if passed on by the banks, cannot be avoided by the well-to-do, and hence the disproportionate outcry.

The theory behind the devaluation of the dollar is very weak. It is claimed that it is to make our exports more competitive and imports more expensive, hence we will consume less imports and it would boost local production. In 1980, it took J$2 to buy US$1, and 34 years later it takes J$100 to buy US$1, a whopping increase of 5,000 per cent. By now, we should have the most competitive exports in the world and a booming local production.

I have read economist Dr Michael Witter's article in which he shows that deva-luation will not help our exports in any significant way. In addition, Governor of the Central Bank of Barbados, Dr Delisle Worrell, stated that all currency values were artificial. He urged countries with fixed currencies, such as Barbados, Bahamas and Belize, not to entertain the thought of any devaluation as a means of restoring stability to their economies. Establishing a rate of exchange is not an exact science. Devaluation is bad policy when aimed at stabilising the Jamaican economy.

inflation increases

It is claimed that devaluation is necessary, based on price parity between a country and its main trading partner, based on inflation index. In other words, as Jamaica's inflation increases more than the US inflation then there needs to be a devaluation. But when there is devaluation it fuels inflation, so inflation feeds on devaluation and the cycle continues.

The International Monetary Fund is off base when it claims that the currency is overvalued. Is that based on the last two years or since the 1970s? Even if overvalued, it can take a break now.

We need to defend the dollar and allow for some stability and prevent people from speculating, etc. From December, Richard Byles, president of Sagicor Life Jamaica, and co-chair of Economic Programme Oversight Committee said he thought the dollar was competitive. In that same month I said: "Defend the dollar".

The paradox, as pointed out by Shaw, is that if we deal with devaluation then we would not need to be finding $100 billion. In fact, we would need no withdrawal tax!

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.