By Robert Hart, Parliamentary Reporter
Dr. Omar Davies, Minister of Finance and Planning, bringing the curtains down on the 2004/2005 Budget Debate at Gordon House yesterday. At left is Portia Simpson Miller, Minister of Local Government, Community Development and Sports. - Rudolph Brown/Staff Photographer
DR. OMAR Davies, Minister of Finance and Planning, yesterday dismissed as a 'flight of fantasy', an Opposition proposal that the country adopt a fixed exchange rate policy in an attempt to curb inflation and reduce high interest rates.
The proposal was put forward by Opposition Leader Edward Seaga last Thursday, during his contribution to the Budget debate, wound up yesterday by Dr. Davies.
While conceding that the Opposition Leader's proposal was deserving of serious analysis, Dr. Davies argued that Mr. Seaga had done damage to his case "by offering it as a solution for all of our (economic) problems."
"The reality is that the decision taking with regard to exchange rate systems has become far more sophisticated," Dr. Davies said.
He added: "There is a whole generation of decision makers in both the public and the private sector who are far more exposed to information and data, not just on Jamaica but on all our trading partners. An arbitrary decision to reintroduce a fixed exchange rate just will not wash."
The Finance Minister questioned whether the reintroduction of a fixed exchange rate would also herald the return of capital controls on foreign exchange accounts held by both companies and individuals.
"The Leader of the Opposition failed to mention that all the Caribbean examples he cited had controls on capital flows in support of the fixed exchange rate system," he added, scoffing at the statistics Mr. Seaga had brandished throughout his presentation.
Mr. Seaga had argued that some 30 countries within the Caribbean, which had adopted a fixed exchange rate policy, had received the benefits of low interest rates and relatively minimal inflation.
But shortly after yesterday's sitting of the House of Representatives, Audley Shaw, the Opposition Spokesman on Finance, told The Gleaner that he was disappointed in the Finance Minister's suggestion that exchange controls would result from the establishment of a fixed exchange rate.
"We felt that was dishonest of the Minister to put that forward because the economists will tell you that exchange controls are, in fact, inconsistent with a fixed exchange rate model. A fixed exchange rate model does not require or need exchange controls."
DIFFERENT SYSTEMS
He added: "In fact, most of those 30 countries have no exchange controls at all. They have free movement of their foreign exchange and there
is no such regime of exchange controls."
Mr. Shaw also expressed disappointment at the Minister's response to his proposals for areas of possible savings in order to preserve critical areas of the essential services and the productive sector.
During his Budget debate presentation last week Tuesday, Mr. Shaw had suggested increased spending of about $6 billion in several sectors. He also backed this up by proposing initiatives for savings of about $7 billion in the budget. About $4 billion of those savings, he said, was based on a suggested reduction of the average interest rate by one per cent.
The Finance Minister, however, noted that Mr. Shaw had arrived at the $4 billion figure by extracting one per cent of the $400 billion domestic debt, saying that, at best, the plan could realistically produce only $1.2 billion in savings.
"The Finance Minister's response shows no creativity at all. His attitude is that his interest rate predication and his allocations on each subhead are somehow ordained by God or by him and cannot be changed," Mr. Shaw said. He suggested that, if the Minister's calculations were correct, Dr. Davies could instead reduce interest rates by three per cent, leading to $3.6 billion in savings, just $400 million off the initially suggested figure.
