Delroy Chuck THE CENTRAL feature of the government's macroeconomic policy, a stable exchange rate, is falling apart. Dr. Omar Davies' economic model, and his contrived economic stability, cannot be sustained and, indeed, was never sustainable. No economic model that fails to highlight the production of goods and services as its top priority and at the very foundation of the economy can succeed. Inevitably, Dr. Davies' gallant effort will come to nought, and ultimately proved disastrous. Devaluation will continue, already over 100 per cent during Dr. Davies' tenure, and the hundreds of billions of dollars in accumulated debt would have been incurred in vain.
The tragedy of the whole economic mess is that it could have been avoided. The wrong economic policies, stressing stability instead of production, have led us into this economic mud hole. The government cannot deny that the protection of the value of the dollar during the past 10 years or more has been its primary focus. The government pursued the policy with fanatical zeal, in blind faith, fully committed to the view that a stable currency is the sine qua non for economic growth and prosperity. The powerful monetary tool of high interest rate was its main shield, even while it was a destructive sword to the productive sector, especially exporters.
For 10 years and more, our trading partners enjoyed average interest rates below 5 per cent, while Jamaica's prolonged high interest rate averaged in excess of 20 per cent. Well, I would argue that until we can get interest rate to low single digit then there is no prospect of economic growth and prosperity, especially in this hostile global economic market.
We know, as should have been clear to anyone five or 10 years ago, that many private and public sector companies earned tens of billions of dollars from the high interest rate policy, without producing anything, or adding any real value to the Jamaican economy, or for that matter taking any serious business risk. Yet, nothing was done, and the absurdity continues, as many companies still rely on bank and Treasury Bill interests as their main source of income. It is from the government coffers that these hundreds of billions of dollars come and continue to deprive the economy of funds for health, education, infrastructure or other worthwhile governmental programmes or economic activity.
Just over five years ago, I argued in this column for a managed devaluation in lieu of the high interest rate policy, as I asserted then that devaluation was inevitable, and the dollar should be allowed to find its market level. Nothing was done, the high interest rate continued and, notwithstanding the use of this high interest rate, the dollar inevitably fell. Well, once again, I strongly urge the Minister and the government to gradually bring the interest rate down, and preferably in tandem with the inflation rate, which is the main benchmark that other countries use. Naturally, there will be devaluation but I plead as passionately as I can that the prolonged interest rate cannot stop the inevitable devaluation, allow it to happen, even if it is managed, but for God's sake, get the interest rate down, and allow businesses to survive and grow.
To be sure, no one really wants devaluation. In a normal, healthy economy, it is not a useful economic strategy. It bears hardest on the poor and the vulnerable. Overall, it hurts the economy, at least in the short term. Devaluation is inflationary, painful to fixed-income earners, damaging to business contracts, inspires speculation, amongst a host of other negative factors.
Yet, when the market seeks to eschew inefficiency and imbalances, devaluation becomes the only viable option, except we continue the ruinous policy of borrowing and accumulating more debt. In truth, devaluation is not a strategy; it is a medicine for a sick economy.
Devaluation is inevitable because we have become uncompetitive, inefficient and incompetent at producing anything cheaply for the world market, importing too much, exporting too little, and simply consuming much more than we are producing. Our country cannot continue to live on the productive surplus of others, we have to start producing and earning our keep in the global economy. When our locally produced goods become uncompetitive with imports, our trade deficits balloon, and not even the government can balance its budget, then the economy is dying and needs strong medicine to revive it. For the records, I have no personal interest in devaluation, as it will be very costly to pay my overseas expenses when all my earnings are in local currency. Yet, I must put aside my personal interest and ask for what is right for the country.
The challenge of devaluation, when it comes, is to put our house in order quickly, to get our production going, to open closed factories, to grow and produce more, and to take advantage of the competitive prices that will be available for local products. Imports will become expensive, so local products should get a break, and those farmers who are producing will at last make some money. Exporters will also benefit enormously and the production of goods for the export market should get a boost. The challenge before the country therefore is to make the best use of a market-determined currency, a low interest rate policy, and a competitive economic environment.
The challenge can only be met by increased production. Will it happen? It can only happen if the government makes production the top priority of its economic policy. It is time the government understands that Jamaica suffers and continues to suffer, as production is not seen as the linchpin of the economy, on which virtually everything else follows.
Where do we go from here? Sadly, the present government will desperately fight the inevitable devaluation, using the same tool of high interest rate and, naturally, continuing an uncompetitive and hostile economic environment. How do we explain and convince these hard-nosed socialists that the present economic policies lead to even greater hardships, more unemployment, more crimes, more migration and more hopelessness? Can anyone in the government understand that for the past 10 years and more, no wealth is being created, less production is taking place, the export sector is being strangled, businesses are barely surviving and, quite simply, it cannot be business as usual?
Jamaica urgently needs an emergency economic plan to rescue us from the mud hole in which we sink. Does such a plan exist? Jamaica, with its natural resources and hardworking people, can become an economic powerhouse, producing and providing the world with a variety of uniquely Jamaican products. Yet, if we are to recover and achieve some economic viability, the country needs a workable plan, a persuasive vision, and a clear strategy to take it on the right economic path.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at delchuck@hotmail.com.
