Delroy Chuck IN SPITE of his perennial, gleeful, facial outlook and positive economic forecast, Dr. Omar Davies, the Minister of Finance, in his quiet moments of reflection, must wonder what a terrible maze into which he has plunged the economy. His changing economic fortunes are mixed blessings when he gets one policy right, the others are forced out of sync. When he comes to Parliament to make his annual budget presentation, if he is faithful and truthful to the Jamaican people, instead of reporting improvements he will report dark economic clouds.
When the country's inflation rate was in single digit, 6 per cent at one time, the treasury bill rate was in the mid-twenties and deposits attracted in excess of 20 per cent, which means the purchasing power of one's money improved. With inflation at 11 per cent, the BoJ has reduced its interest rate to 12.95 per cent, which is good for the economy, but devastating to long-term depositors. Cash-rich businesses and individuals, and those who are not economically blind or dumb, will seek a hedge against inflation and shift their funds to other securities or currency to retain their funds' purchasing power. In simple terms, instead of keeping one's money in the bank where it is rapidly losing value, it is better to invest in toilet paper, soap, wine and other non-perishable items, whose prices will rise through inflation.
THE INFLATION RATE
In fiscal year 2003/4, the inflation rate was 16 per cent, while it is likely to be around 12 per cent this fiscal year in spite of the predicted 9 per cent. At the same time, virtually all our trading partners experienced low inflation of 2-3 per cent or less. Over the past two years, when our cumulative inflation is 27 per cent or more, our trading partners controlled their inflation at 5 per cent and less, which means that Jamaican products and economy are rapidly losing competitiveness. Is it any wonder we are not growing, manufacturing and producing more, and our trade deficit, especially within CARICOM, worsens, and 90 out of every 100 containers bringing goods to Jamaica leave empty? We survive through loans, grants and remittances but this economic mendicancy cannot continue forever. In a globalised economy, or even under the CSME, it won't be long before economic shock waves, or an economic tsunami, overtakes the whole Jamaican
landscape.
To keep our economic competitiveness, our exchange rate should depreciate by at least 20 per cent and our dollar should be closer to 80 to 1, yet it is appreciating closer to 60 to 1. Well, call me an agent of doom, if you must, or attempting to frighten investors, if you dare, but tell me how can we avoid a significant devaluation of the dollar over the next year or two. Faithful readers of this column can easily recall, when I predicted, repeatedly, around 6 to 8 years ago, the inevitable devaluation of our currency, in spite of its contrived stability at around 35 to 1. No one then could have imagined the currency at this level of exchange, in the same way we cannot imagine devaluation to 80 or 100 to 1, but such a rate is inevitable, and quite likely under the present minister of finance.
LITTLE ROOM TO MANOEUVRE
Moreover, with our national indebtedness likely to rise during the fiscal year from under $700 billion to over $800 billion dollars, Dr. Davies will have very little room to manoeuvre, or even to satisfy the needs of one ministry. For the next fiscal year, he is likely to have less than $120 billion dollars to spend, while the minimum basic needs of the ministries exceed $130 billion dollars. If he can balance the budget, without further social decay, social trauma, social unrest and, ultimately widespread social demonstrations, would be a miracle. The well-intentioned Donovan Perkins, who suggested a delay in balancing the budget, does not appreciate that unless Dr. Davies does, he may not get any more loans in New York, Paris or Milan, which would spell immediate disaster for his already moribund economic programme.
What's the solution? We must grow the economy by at least 4-5 per cent annually through production and investment. More goods and services can only be produced if we become more competitive, able to sell our products and have an advantage over our trading partners. Well, we can only become competitive, or even entertain hope of a bright economic landscape in our old age or for our children's children, if, somehow, we extricate ourselves from the economic maze into which Omar has plunged the economy.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by email at Delchuck@Hotmail.Com.
