THE LATEST sharp fall in the value of the local dollar vis-a-vis its U.S. counterpart has sent the money and foreign exchange markets into more than a tailspin.
Consider this. On Friday the dollar closed past the $70 mark. By the end of the week it had lost more than $4.36 in value. Additionally, BoJ came to the market with a $1 billion LRS offer that netted that amount at the high average yield of 34.21 per cent. Despite this reduction in the surplus liquidity in the system, the local dollar plunged a further $1.75 to record the largest one-day drop in recent history.
The obvious turbulence in the foreign exchange market sent shock waves through the broader economy and society. This was more so the case as the sliding dollar occurred in the context of the GCT being imposed on items that did not previously attract a tax. Additionally, there were reports that businesses found it increasingly difficult to price their products with the dollar being a moving target.
What is noticeably absent so far is a clear policy statement by the relevant authorities to counter the obvious lack of confidence in Government's ability to halt the slide. In our view it is unacceptable that because the Minister of Finance and his team were away, there was no clear policy statement by anyone in officialdom that gave the impression that someone still had control of the levers of the economy.
Instead so far, there was a tame attempt by some government spokesman to suggest that "wicked speculators" contrived the sharp fall in the dollar's value.
In fact, the Minister of Finance, on his return to the island, issued a statement that merely commented on the adequacy of the Net International Reserves. This did precious little to halt the slide as the dollar passed the $70 mark and there were reports that some banks actually ran out of U.S. dollars.
Prime Minister Patterson has announced that Government plans to collaborate with and conduct meetings with the private sector leadership, to discuss the latest development in the local currency market, as well as private sector proposals on taxation measures. We believe that increased collaboration between Government and the private sector will provide a conducive environment for confidence to be restored to the market.
It cannot escape attention, however, that Government continues to provide conflicting signals on this issue. This is evidenced in the yet unresolved issue of Government's decision to impose taxes on the productive sector at a time when increased production is required to boost exports, and in almost total defiance of the private sector's charge in the pre-budget period that that course should be avoided.
This suggests that Government has a rather capricious attitude towards collaboration. There is no denying that collaboration is an inescapable requirement to expand output and increase export earnings.
Ultimately, however, the cumulative imbalance in the economy relating to balance of payments and fiscal deficits must be corrected. This is the glaring message in the latest precipitous slide in the dollar's value. It is merely another wake-up call that the economy cannot heal itself corrective strategies must be pursued.
