A Jamaican friend who runs an investment business and I were discussing the foreign exchange (FX) market and the Jamaican dollar exchange rate, yesterday. I will not go into the abstruse points we touched on. I will distill things into what the FX market is about, in fact what any market is about-buyers and sellers (not permanent states, though some are more significant than others); gainers and losers (not permanent states, though some are more significant than others). I’ll offer a smidgen of context that’s not yet clear, as odd things happen during the pandemic, but the essential story is not affected.
Jamaicans buy lots of imported things-the weaker Jamaican dollar can hurt them (consumers and producers and retailers), if its effect is passed on into prices. Their voices tend to be loud and more often heard. The impression given is that the country is suffering when the rate goes to, say, J$154:US$1, as it did this week.
Jamaicans receive large amounts of remittances from overseas-the weaker Jamaican dollar can help them as they get more J$ for every US$ or UK£ they receive. They often are not heard complaining or their views sought when the rate goes to, say, J$154:US$1, as it did this week.
The reality we know and must see is that many Jamaicans are surviving better because of the weaker J$. Why? Because ‘weakness’ is the lot of those who don’t have FX assets or inflows. Those with such assets are smiling and happy that they are protected from the FX movement and may actually be gaining purchasing/spending power.
Now, I don’t expect those who are gainers to get up and start beating their chests, but have a look around. If you wonder why the Jamaican economy has not gone into a deep spiral downward because of the pandemic, especially its impact on local tourism, with far fewer foreigners coming to this lovely island and spending their money on fares, and hotels, and trips, and trinkets, and food, etc. Sure, economic indicators show negative growth and tendencies, but not as bad as some expected. Why? Because Jamaicans abroad have been sending to friends and family here huge gobbets of US$ and UK£.
According to a report from the Bank of Jamaica (BOJ), the amount of total remittances for the period from January 1 to December 31, 2020, was US$2.91 billion. This represented an increase of 20 percent over the same period in 2019, which totalled US$2.47 billion. Over 2/3 of these inflows came from the USA. (In December of 2020, net remittances totalled US$282.4 million, an increase of US$79.9 million, or 39.5 percent, over the total amount in December 2019. The BOJ attributed that increase to a rise in gross remittance inflows of 35.3 percent (US$78.7 million) helped by a reduction of 6.2 percent (US$1.2 million) in outflows. The rise in gross remittance inflows stemmed from an improvement measuring 42.7 percent in inflows through remittance companies and a rise in other remittances of 0.7 percent for December 2020.)
Those remittances almost offset what was lost from tourism.
So, next time you hear the catawauling about the exchange rate remember it’s those who’re suffering who making noise. Those who are gaining, are kicking back and eating oxtail and curry gravy. 🙂
What determines the level of a country’s exchange rate? Traditional economic theory focuses on a set of financial variables, plus some ‘contextual’ characteristics of a country, all of which go into setting the relative advantage of one currency over another. These variables are well set out as follows:
1. Inflation differentials: Generally, a country with a consistently lower inflation rate has a rising currency value, as its purchasing power increases relative to other currencies. Countries with relatively higher inflation typically see depreciation in their currency in relation to the currencies of their trading partners. This is also usually accompanied by higher interest rates.
2. Interest rate differentials: Interest rates, inflation and exchange rates are all highly correlated. By adjusting interest rates, central banks or monetary authorities can influence over both inflation and exchange rates; changing interest rates affects inflation and nominal currency values. Lenders in an economy with higher interest rates get a higher return relative to other countries. So, higher interest rates attract foreign capital inflows and pur pressure on the exchange rate to rise. However, the effect of higher interest rates is mitigated, if inflation in the country is much higher than in others, or if additional lower interest rates–i.e., lower interest rates tend to decrease exchange rates.
3. Current account deficits: The current account is the balance of trade between a country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends. A current deficit shows the country is spending more on foreign goods and services than it is earning, and that it is borrowing capital from foreign sources to cover that deficit. Hence, the country needs more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country’s exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests.
4. Public debt: Countries use deficit financing to pay for public sector projects and governmental funding. The borrowing stimulates the domestic economy, but nations with large public deficits and debts are generally less attractive to foreign investors. Why? A large debt encourages inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real foreign exchange in the future. In the worst case scenario, a government may print money to pay part of a large debt, but increasing the money supply inevitably causes inflation. Moreover, if a government is not able to service its deficit through domestic means (selling domestic bonds, increasing the money supply), then it must increase the supply of securities for sale to foreigners, thereby lowering their prices. Finally, a large debt may prove worrisome to foreigners if they believe the country risks defaulting on its obligations. Foreigners will be less willing to own securities denominated in that currency if the risk of default is great. For this reason, the country’s debt rating (as determined by Moody’s or Standard & Poor’s, for example) is a crucial determinant of its exchange rate.
5. Terms of trade: This ratio compares export prices to import prices, and is related to current accounts and the balance of payments. If the price of a country’s exports rises by a faster rate than that of its imports, its terms of trade have improved. Increasing terms of trade shows greater demand for the country’s exports. Consequently, this results in higher export revenues, which provide increased demand for the country’s currency (and an increase in the currency’s value). If the price of exports rises by a lower rate than that of its imports, the currency’s value will decrease in relation to its trading partners.
6. Political stability and economic performance: Foreign investors prefer stable countries with strong economic performance in which to invest. A country with these positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil may cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries.
The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio’s real return. A declining exchange rate obviously decreases the purchasing power of income and capital gains derived from any returns. Moreover, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from domestic securities. Exchange rates are determined by numerous complex factors that often leave even the most experienced economists baffled.
The modern popular portrayal of the Jamaican dollar is of an ailing body:
While that may appeal to the fancy of the media, it needs to be put into context.
In recent years, Jamaica’s government has done much to repair decades of damage to its finances. With support from the IMF, the so-called ‘economic fundamentals’ are on a sounder footing. That should help the exchange rate avoiding being dumped at a rapid rate. However, while inflation is down, debt stock is down, and debt payments are being made on time, the economy is far from fixed. For example, the debt-to-GDP ratio is falling, but still well over 100 percent. No right-thinking person, especially one thinking of investing in Jamaican assets would regard the Jamaican economy as fixed.
The economy remains ‘misaligned’, as economists would say, on several other fronts. An indicator of that is the continued negotiations that have to take place over the size of the public service, which is deemed to be a drag on economic performance. Things that drag the economy, like a bloated public service, have a negative effect on sentiment towards the exchange rate.
For all that Jamaica is seeing increasing tax revenues and a streamlining of tax affairs, plus a shift to try to broaden the base of tax payers by moving away from direct to indirect taxation, Jamaica remains severely burdened by too many people avoiding their share of the tax burden. Put that differently: our informal way of doing many things, though full of convenience at a personal level, leaves the country poorly placed to pay for its many services and obligations. Though it may be impossible to write an equation that measures that aspect, it is the sort of thing that weighs negatively on the mind of people thinking of holding Jamaican dollars.
We have seen that Jamaica is divided politically, as demonstrated by a tight national election and the winning party having the slimmest of margins–one seat. For some, that demonstration of sound democracy also opens the door to a unknown world of political fragility. Such uncertainty has a negative effect on the exchange rate.
Many signs suggest that Jamaica has serious problems with corruption, despite hardly any cases going to court or people being imprisoned. The smell of corruption lingers. Investors wont come flocking to countries with such a smell. So, while some capital may flow in to be risked on projects in Jamaica, most ‘well-thinking’ investors are avoiding the country. That has a negative effect on the exchange rate.
These elements are part of what I would call a ‘risk premium’ that plays on the exchange rate, despite the good economic policy. How much? Good question. But, that premium is being demanded, and the declining exchange rate is a flashing warning light. I would say it’s amber, not red, which is better than it was or could be. But, it’s there, whatever politicians may want to tell you. It’s the same kind of warning light that the pound sterling has had blipping over its head since the referendum vote to leave the European Union. The UK did not suddenly become a basket case, but its prospects seemed to worsen and the heightened uncertainty has seen sterling take a pounding–sorry for the obvious pun.
But, the exchange rate is only one indicator of what people think about Jamaica. If I were a Jamaican politician, I’d think about what some other composite indicators are telling me about my country.
The Jamaican stock market outperformed the world in 2015 (read Bloomberg report) and continues to perform strongly. That feature, and the results of various surveys, national and international, suggest improving confidence in Jamaica and improvement in many economic areas. Now, the stock market is more limited in its picture than the foreign exchange market, but its array of companies are generally the stronger and larger ones in the economy, whose performance drive many economic indicators. What the stock market tells me is that betting on Jamaican companies is seen as smart. In other words, the sky is not falling.
But, what the exchange rate tells me, in its vague and hard to measure way is that ‘contextual’ problems that afflict Jamaica continue to exact a price of all of us, via the declining value of ur money. Those problems are well-known: corruption (stop pretending it’s not there and widespread); violent crimes (if you thought you might need to flee in a hurry, would you prefer to have your assets in Jamaican dollars or in US dollars?); slow implementation and a still-too-prevalent ‘no problem’ approach to that. Odd though it may seem, one of the worse examples of that last point is how politicians and public agencies go about what they do:
Look at how Parliament runs itself. Do you think that politicians who seem to slack off on their work sends a positive image to the world? Do you think that people rush to hold currencies of countries whose politicians routinely do everything late, including attending Parliament?
Look at how some public agencies seem to constantly find themselves in financial hot water. They may not understand that in the mind of traders, these are signs of a sick country and must be negative for the exchange rate. People don’t generally like to hold currencies where lots of it keep disappearing into black holes.
The last IMF staff report (see box 4) informed us that Jamaica is becoming more dollarized (my stress): ‘June 2016, with more than 45 percent of deposits denominated in US$, Jamaica’s deposit dollarization is one of the highest in the region, accompanied by dollarization of investment portfolios too. Likewise, the three-year-long freeze of the domestic bond market, which resulted in greater reliance on external capital markets resulted in higher dollarization of public debt.’ So, government action forced portfolio managers to hold more foreign assets (buy more foreign exchange). So, understand who is forcing this process and putting pressure on the exchange rate: it’s the financial sector and government. So, when Finance Minister Audley Shaw sits down with the working group he’s established to ‘deal with the devaluation’ of the Jamaican dollar against the US dollar, I hope he understands at whom fingers need to point. The Jamaican government made the J$ a one-way bet! Traders love to make easy money 🙂
Ordinary Jamaicans don’t seem to be running towards the US dollar. I base that on a few anecdotal experiences that all point to general indifference to holding greenbacks: I’ve sometimes no J$ to hand and have asked if the person I need to pay would like US$, and they often say ‘No thanks!’ Whatever the US$ attraction, maybe the transaction costs outweigh other features. Then again, ‘ordinary Jamaicans’ are consumers, rather than savers and investors, so the currency of preference for consumption remains the J$. We still do not see US$ pricing as a standard feature in Jamaica–aside from in parts of the tourist business. I take that as a positive.
It’s a sad reality for highly-indebted countries that they are their own worst enemies, from start to finish. Getting out of the debt bind forces things to happen to seem to make matters worse before they get better. The declining exchange rate is one such effect, and it’s as much arithmetic as anything else.
Finally, what the exchange rate is also telling me is that the promise of better economic prospects has not yet materialized and that must be reflected in the tendency of the J$. Simply put, countries that do not appear to be growing tend to have weaker exchange rates, so decades of anemic growth has built up lots of antipathy towards the J$. However,if the latest data on quarterly GDP growth showing the best results for 14 years is the start of a trend in that direction, I would expect the exchange rate to stop suffering as much.
Yesterday and today are rest days before the last two matches in the World Cup. The final will be at football’s Mecca, Maracana Stadium. Many fans made their trek to the venues for those matches, and Rio was awash with Argentina fans, who seemed more numerous than Germany fans. No surprise, given relative distances. I presume Brasilia saw an influx of Dutch fans; Brazilians can leave travelling it till later. Those fans I saw were in good mood, mostly decked in shirts other than team colours. They were helping the economy a little more by shopping and taking taxis. The rains did not let up, and drenched Rio all day and throughout the night.
We took it lazily and found our way to a fabulous restaurant, named Aprazível, in the Santa Teresa area of Rio, up a step hill near to Corcovado.
The area has lots of older buildings, and the hills make the area seem more like a European town. It’s become a place for arty types, and has a bohemian feel, with narrow, cobbled stone streets. We just enjoyed some nice Brazilian fare
as my wife and her friend and daughter celebrated The Bahamas 41st anniversary of Independence. We then went to help the economy, too, to dodge the rain and be somewhere less gloomy and cold–a mall in upscale Leblon.
It made for a long day, and we did not get home till well past 9.30pm. My little daughter got to stay up really late, playing cards with one of her sisters.
Rio has been blessed with a lot of technological investment from its hosting of mega events, and free wifi internet access is widespread. So, when we have downtime, it’s easier to do some surfing rather than leaving it all till day’s end. (We are not alone, and the mall was awash with people sitting in groups doing the same. International roaming charges are no joke.) I took the opportunity while my ladies shopped to read up on Rio and some elementary Portuguese. As I caught up with the day, I read, as usual, news from Jamaica. It makes for interesting contrasts to the heavily football-centric focus now in Brazil.
Here, even the not sports news is related to football. The budding ticket scandal, where a FIFA-affiliated hospitality company official, Briton Ray Whelan, has been arrested for selling complimentary tickets and match credentials. Latest news was he’d ‘escaped’ and was on the run. My older daughter wondered if he’d headed to The Amazon rainforest.
A blooming ‘would have, could have’ story is coming from the British press, asking if the first penalty kick by Holland, which was initially saved by the Argentina keeper, actually crossed the line. Read and watch a replay. This could just brew into a little more embarrassment, who seem like fly paper in that regard. With much-touted goal line technology, it seems that match officials are still in the trigger whistle mode and not accustomed to waiting and getting a conformation of near incidents. The fans and IT mavens will have a little field day.
In Jamaica, the news has been much about the parched conditions are the drought now biting. For over half a century, that little island has shown how the curse if riches works. Resource rich, but application poor. We have water coming at us from all possible angles, but cannot get it to where people are. Or, we squander nature’s abundance like children and splash and dash away valuable rain water. “No problem, man!” You better sing another song, if the Weather Service predictions of little rain throughout the coming months are correct. What Rio has had for the past 48 hours would do us a treat. I bet people are begging for a tropical storm to come lash the island. I read a few days ago about fields catching fire in St. Elizabeth, the island’s bread basket, then saw a report yesterday about the government ‘implementing’ a J$30 million drought mitigation project (or maybe just recycled news) island wide . Hi, Lily, hi low. Oh, the plight of the beggar! What’s that passage about reaping the fruits of our labour? We work at not working, so our basket must stay empty.
The stories swirl about the Commissioner of Police’s sudden resignation and retirement. Just in his 50s, and giving every sign of being ready to sail on into the sunset of 10 more years. Then, brap. Just so,he says “Nah! I want to go fishing.” Was he jump or was he pushed. He doesn’t seem the jumpy type. Let’s leave it there. But, read Mark Wignall’s column from last week, which puts the skeptical case well.
Eyes have also focused on the latest exchange rate developments. My reading is that the central bank governor did something normal, but some want to see it as extraordinary. He intervened in the market to maintain ‘orderly conditions’. Governor Wynter reportedly said the rapid rate of depreciation within the last few weeks was not justified by any fundamentals in the market. Jamaica just got a kiss and hug for being teacher’s pet from the IMF MD, and successfully launched a US$800 million bond. That would suggest that speculative pressure on the exchange rate should lessen, and it’s rate of depreciation slow. The Gov did something extraordinary by announcing the intervention. That could be a classic ploy of signaling to the market that enough hanky panky has gone on. Forget about the rate having reached a bottom. Jamaica doesn’t have the dosh to slosh into the market and defend a level, and Mme Largarde won’t accept it, either. So, keep on with end Lamasse breathing.
Jamaica is over twice the physical area of Rio, with about half the population. It’s not been blessed to sit within a huge land mass, or to have seen years of intense economic and social change. It’s a place with hopes but woeful vision. Rio and Brazil are almost the opposite of great hopes and too much vision. It wouldn’t take the wit of many people to fix Jamaica’s woes. But wit we use to be twits.
Once upon a time, the acronym IMF stood for ‘It’s Manley’s fault’, in Jamaica. The IMF as an institution was for nothing but vilification in the eyes of many, if not most, Jamaicans. I do not think that has changed drastically, but time and repeated experiences have led many, if not most, Jamaicans to understand that the IMF and Jamaica will be locked at the hip for many years because Jamaica likes too much to be a naughty boy and cannot be trusted to do what he’s told. He also hag an annoying tendency to start something, make out that he was doing it, and then drift off to watch some cricket match and leave the task unfinished. By the time the match was over, all the work had been wasted. The child was a royal pain. But, children do grow up and change with age. So, with Jamaica, it seems.
The IMF’s Managing Director (MD), Christine Lagarde, made her first official visit to the Caribbean, starting with Jamaica. She met the principal policy makers: ‘the Most Hon. Prime Minister Portia Miller-Simpson, Hon. Minister Peter Phillips and Bank of Jamaica Governor Brian Wynter’. She laid on the words of praise and some spoonfuls of feel goodness. Based on the IMF’s press release:
commended … commitment to reform;
economic outlook is improving…growth has picked up, unemployment has declined, inflation has been brought under control;
Debt-to- GDP has firmly been put on a downward trajectory.
But, more needs to be done:
Other major reforms that are still pending, including improving the collection of taxes, modernizing the public sector, and improving the business climate, and a prudent fiscal stance needs to be sustained.
The MD also met with representatives from the private sector, labour unions and opposition.
She also met with an interesting peer group: “Women leaders and I also discussed critical gender and economic challenges.”
Finally, she acknowledged what many, if not most, Jamaicans feel: “Economic adjustment is painful in the short run. Many Jamaicans have experienced wage freezes, and are facing higher prices for food and other essentials.”
So, she was pleased with the student, and wanted to see him to continue the good work.
The statement does not cover every word the MD uttered. Some seem to be excited that she mentioned that some US politicians urged the IMF to help Jamaica. That’s no great shakes. Lobbying is part of the American political scene. Jamaica has its supporters and I would be surprised if they had not put in a word. That’s one of the reasons why we have an Ambassador in Washington, DC, to help steer some politicians into supporting us and making some noise for our causes. But, there are plenty more US politicians who don’t give a tinker’s cuss about Jamaica, whether because they have little truck with the IMF and its bailing out, or they thing that domestic needs trump any foreign concerns, or because they have their own preferred overseas area to support. So, let’s not thinking that Jamaica has suddenly hit the jackpot with American political sentiment.
But, what did the MD say that was new in any substantive sense? Nothing, that I can see. We knew that Jamaica had done some things well: the IMF performance criteria had been met and disbursements came as scheduled. We knew that more needed to be done: the programme is not near completion, so that must imply that way is left to go. We can reason, right? We know that the road is painful: the levels of unemployment have stayed high; inflation has eased slightly; the exchange rate has been on a water ride of a slide, which has touched everyone, even those well-protected with foreign exchange assets, or income streams. So, why the glee about the obvious? MD’s do not make country visits to lay into their hosts about how badly they have done things. The MD is not briefed to leave a bad taste behind after the trip: visits like these are not about pushing countries off the gang-plank, but to keep them walking and believing that they wont fall off and drown in shark-infested waters.
The MD also made a visit to UWI Mona, where she spoke about ‘The Caribbean and the IMF—Building a Partnership for the Future’. She talked touchingly about Jamaica, including about its cultural and sporting prowess worldwide. She also talked about the most touchy of subjects, the exchange rate: “In Jamaica, letting the exchange rate depreciate, although painful, has helped restore a good deal of lost competitiveness, and will support investment and job creation.”
It so happened that the day after that remark, I found myself in the company of two businessmen, trying to coax a little white ball around a grassy area. I had returned the night before from Europe, so was jet lagged. I had never met them before, and in getting to know them I mentioned that I used to work at the IMF. We talked about the exchange rate. “What do we have to export?” one of the men asked me. I began talking about bauxite, tourism, and agricultural produce. We agreed that most of that set was not really sensitive to the exchange rate, either because prices were negotiated, or tourism depended more on conditions in the home country. Tourists also like spending as little as possible above the cost of the holiday, especially in places that they don’t know too well. So, the depreciation wouldn’t help much in making us more competitive for the bulk of our exports.
We talked about the fact that Jamaica had good agricultural markets, but these were no longer there. Did the depreciation really help us regain those markets, e.g. bananas to Europe. It did not seem so.
The businessmen thought most of the impact of the depreciation was on domestic costs, and imports, rather than on generating exports. In other words, much pain for Jamaicans, and little to show by way of a much improved balance of payments.
I mentioned one of our best exports: labour skills. We talked about the well-trained labour force that the country (and region) had in the 1950s/60s, much of which was shipped off to Britain, and in later decades many were shipped off to the USA and Canada, as well. We also reaped the benefit of a later and strong trend of graduates leaving Jamaica (some 80 percent). Both helped by remitting to Jamaica, but also they could offer eyes that had seen more and could offer new ways to Jamaica. We are still reaping the benefits of ‘exporting’ those skills–we get about US$150 million a month, or US$1780 million a year (according to the Bank of Jamaica’s Remittance Report for February 2014). Those figures almost match what we earn from tourism, and exceed what we earn from exporting goods by about 30 percent, and is many multiples what we gain from foreign direct investment. Jamaicans get about US$760 a head. Remittances continue on an upward trend. But, the country has no plan to develop and export its people skills: that happens because job opportunities in Jamaica are so poor. Now, we can argue about whether or not those remittances mainly bolster an excessive demand for foreign goods and services. They sustain the economy to a degree that means we would have been dead, buried, and up in smoke years ago, without them.
The MD had to be delicate about the nation’s treasured flower, though. The Jamaican dollar has been wilting and showing the need for water. Many, if not most, Jamaicans, see the exchange movement without realising what it really represents. Because, the country has opted to let the market determine the external value of the currency, it is allowed to show that the exchange rate has been significantly overvalued. The IMF has said this for some time, and markets agree, and keep selling it more than buying it. But, the slide is also the ‘reward’ for faking it all these years. The fact that no one came and hung a sign saying ‘Beware! Naughty boy lives here’, does not mean that the world did not know what was behind our national gate. Sure, the world loved Jamaica when it saw its sprinters lapping others and bolting to the finish line first. They also adored the way they were captivated by musical rhythms that forced any living person to dance. But, they were not fooled into thinking that Jamaica was the best in any wider sense. The exchange rate reflects what they think: the Jamaican economy stinks. That’s what the MD means when saying that more depreciation has to happen. The stench was so high that the J$ has to go lower to compensate: it’s an inverse odour meter.
Where will the fall stop?
The market does not tell you when the bottom has arrived. It may continue falling to 115, or 120, or 125 to the US dollar. People hate not knowing, but that’s going to be the way for a few years to come. No point thinking that it will find a level and stay there for ever. Countries that have fixed exchange rates make us feel worse because they do not suffer this visible vote of no-confidence. But, they are supposed to be having more pain in other joints of the economy. We know that’s not the case, but that can’t last either, so The Bahamian and Barbadian economies have yet to experience some nasty shocks–but, let’s not dwell on our neighbours’ problems. Ours are bad enough.
My business persons, saw the problem simply. Too many public servants. Too little productivity. We do not know how to work hard. I could agree easily with the latter two points. We have anecdotes to support those views, even if data are slight. Just the same morning, I had stopped to pick up some staff of the golf course, who were waiting for taxis to get up there. They were 45 minutes late for work when I got to them. That’s a double mark for low productivity and how not to work hard. But, I would find it hard to blame them, totally. We have poor public transport, even though we have a lot of public transport. Working people without cars suffer a type of hardship that is really heavy. By contrast, I had just been in London and France for two weeks, and knew that getting around by public transport can be much easier. But, both countries have been into that for centuries; they both have some of the oldest public transport systems, that run around the place like strands of spaghetti.
I had trouble with the public servants argument. People say the same in almost every country, and the drain they supposedly impose has not dragged all countries down to where Jamaica is. My French hosts talked about how they public servants were just idlers, but someone was responsible for the country looking neat and clean enough to almost eat off very street. Sure, there may be too many public servants, but I would argue that many private firms are also bloated. We just prefer to sack public servants because we hate taxes, but we pay higher prices with less of a snarl. In France, they are a hated species also because they often want to exercise their rights to withdraw labour for better working conditions. We don’t see that much in Jamaica.
Yes, cut some government workers and lessen the public spending. How much better would Jamaica be in producing things? Not much, I hazard, because our poor work culture is not just a problem where the public purse is concerned. We have some amazingly dedicated people. Anecdotes again. Check out the service provided by Knutsford Express bus services: punctual, clean, tidy, good value for money. But, also check out any range of private companies that offer services and goods, with a ‘it soon come’ attitude. The Jamaican patty shops are not a great example of how to run a streamlined ship. But, we still go there and line up for patties. Jamaicans are probably no different at this moment than some of the world’s so-called efficient countries. We are locked into watching World Cup football. The Chinese have devised grand schemes to get doctors’ sick certificates to have the month free from work. Jamaicans just wont bother the doctor. Same results. But, when the Chinese go back to work, we believe that they will soon catch up, where the Jamaican will always be behind.
We have not figured out how to enjoy what we want on this tropical paradise and still get it done in terms of the things we say we are committed to doing. We need to treat getting to work on time the same way as we do getting flights to Florida: late doesn’t cut it. We need to do our jobs like those who fly planes: you can’t go and take long lunch breaks and expect the people to wait for you to return. They wont fly with you. We need some serious pride in ourselves and our country. In the same way that France, and much of England, too, has understood that cleanliness is very important, and now add to that by having organized waste collection and recycling, we need to follow. I went to Portland and back over the weekend. I did not appreciate seeing drivers in front of me throw their plastic bottles out of the window to land on the verge, and join other bottles. Who did the drivers think would pick up their garbage? I did not need to see piles of rubbish on the beach in the morning when I went for a swim.
I liked the way the people who organized the party I attended did it: guests picked up and put into plastic bags; men raked up and put into trash bags; a truck came and took it all away. We did not separate, as would have been the case in Europe, so that material could go for recycling and less would go to trash. But, we dealt with the cleaning. Some electricians came late in the day, to dismantle the lighting and dance set-up. They tried not to disturb our football-watching, but worked to clear the area fast, then head off. The caterers had done an excellent job with dinner and then breakfast. They get paid for what they do, but they did it to a very high standard. The principal guest said “delicious”; I said “excellent”. They left just before the last guests did, just after the first televised match. They cleared away, and left no trace of their activities. It’s not really hard, if you just do your job.
But, we are like the football players: we switch off. For them, the results are clear: Balotelli sneaks behind Cahill to head in at the far post–England lose 2-1. We try to do a rush job and it’s botched: Casillas had an easy clearance but muffs the kick and Robben dances away with the ball to help the Dutch to a 5-1 trouncing of Spain. Or Cote d’Ivoire, with time almost done and a tie locked up, giving away a needless penalty, and losing to Greece with the last kick, and not progressing to the next round, instead of the Greeks. Lost focus; forgot the context; lost the match. Beat themselves.
We look to blame others for faults of our own: we adopt the so-called ‘Suárez defence’. We do not commit any foul and bite someone. Instead, we trip and then stumble into their shoulder, and the teeth marks are just another indication of how the powerful elites will do anything to keep the little man from beating the bigger man. Like Uruguay, we are the perennial victims. Never expect us to shoulder (sorry, Chiellini) the blame for what we did.
Well, the world has other ideas. It wont give us a chance to steal victories when we have played like stinkers, and get to a penalty shoot-out and get lucky to take the trophy. No, the world treats us like marathon runners. Do it better than everyone else for a good long time and you shall win the prize.
Jamaicans love sport, so the analogies may get those message over better. We need to stop praising ourselves like we do cricketers, who can block and obstruct and be told they are doing a really fantastic job. We need to look for the example of the Jamaican sprint relay team, who thrash the Americans with basic talent, but great teamwork to pass the baton efficiently. We want to be like van Persie, having the imagination to craft the sublime header to startle the world and score the goal. That’s what our creative industries tend to do. We need to be grafters, whether old or young: work is work. Messi can be flashy, but most times, he just never stops working to do what he knows needs to be done. Dodging the boots and elbows, and not taking the easy option of falling over. Then, he sees his opening and takes it, left footed into the top corner, with time running out.
Go and talk to Iran. Or, Timmie Cahill doing his job, even though it did not change the match: watch this.
Jamaicans know what to do. They just need to understand that it wont happen without their actually doing it.
I don’t want to give the impression that I do not care what happens to the Jamaican dollar exchange rate; nothing could be further from the truth. I just see things from a particular perspective: I am an economist and I used to trade foreign exchange. One of the first lessons I was given about foreign exchange markets as a trader was that traders are not good at picking tops or bottoms to trends. Also, markets tend to latch onto the prevailing direction more easily than go against it. Think also about metaphors concerning catching a falling knife. I am not surprised that more comments appear to be coming about the current level and direction of the J$. Anyone living through a 20 percent decline in the value of their currency during the short period of two years or less should be worried. It’s like living in a period of rapid inflation: the loss in value of the money you hold is almost visible. In some sense, the exchange rate slide is just that, of course. Our prices have risen too fast relative to most of the countries with which we trade; or our costs have not been as well contained as theirs. Our competitiveness has declined. The exchange rate is a price, and it regulates the prices in our country in comparison to those overseas. If we fall out of line with our relative prices/cost, the exchange rate should move to keep the prices/costs the same for foreigners.
Several government politicians have noted recently that the exchange rate is an outcome that reflects fundamental conditions in the Jamaican economy. I would not disagree with that: at its base, that should be the case. But, fundamentals do not affect the exchange rate in any clear and simple way. More worrying, improving fundamentals need not show up in an improving exchange rate either quickly or fully. In that sense, markets are capricious. They also take account–sometimes, too much–of sentiment (call that confidence, or lack of it, in the policy makers). If markets do not believe that policies are credible, they tend to hammer an exchange rate. Despite the success in sticking to the current IMF programme, the government has not seen that translated into improved business and consumer confidence. Such confidence is rising in Jamaica, but still remains very low, according to the last set of data, for the first quarter of 2014. Despite the increases for almost all areas, confidence levels are “nowhere near the highs” of previous periods and are coming from two quarters of extremely low levels, Don Anderson, managing director of Market Research Services was reported to have said.
But, people are often afraid when they see no end to things they dislike, and the exchange rate is no different. Well, it is different because people often put a lot of national pride in the level of their currency, and feel it personally when the currency seems to be weak. That’s no different for countries with large, strong economies, compared to those that are small or weak. Many of neighbouring countries are quick to see the Jamaican dollar rate as a clear indication of how far down the hole this country has fallen. Those with fixed exchange rates, such as The Bahamas and Barbados, often do not relish any notion of having a floating exchange rate, given the kind of slide that has happened with Jamaica’s currency. They also do not fully appreciate that they are living a lie–their economies have not stood still relative to the USA since the day the rates were fixed, so their currencies should have fallen too, more so, because they have not made policy changes to offset the differences that have occurred. They are paying for that in other ways–unemployment, for example. They also still need to deal with some of their core problems, such as the level of their budget deficits and a ballooning debt burden.
I don’t envy the Bank of Jamaica’s governor or our minister of finance. They are in a hard place sitting under a falling rock. The country does not have the means to ‘defend’ the exchange rate.
Our net international reserves–the amount of foreign exchange available to finance imports–sit at about 14 weeks of imports (that’s close to an internationally accepted satisfactory level of about 3 months of imports), see a recent press report on that level, though for concern that they are slipping. I would rather see that stock used to help buy what the country needs, rather than trying to hold a price that may not be right. I suspect the government agrees. So, the ‘slide’ wont stop because the government throws foreign exchange at it.
Some press reports caught yesterday that the Inter-American Development Bank commented that the slide in the currency was affecting adversely business and consumers in the short-term. Well, sorry, that is part of the expected effect. Importers and consumers of imports are not supposed to feel good when the exchange rate falls; they are meant to consider changing their behaviour because the national demand for foreign goods is too high. Now, the current structure of Jamaican businesses and Jamaican consumer tastes may have a strong liking or need for imports, but that’s what has to shift. Of course, it cannot happen instantaneously. The businesses need to figure out if their inputs need the foreign content. The consumers have to consider if their tastes for foreign things cannot go down. I’m not into the drama scene of hand on brow. I read a tweet yesterday about no radishes and cilantro in the supermarket. Well, find another local salad vegetable and get growing with substitutes like mint leaves in the near-term, or if we really cannot live without those items, start growing them. But, then we get back to how well can we do that at prices that make us competitive. It’s not enough that our ground is fertile, but at what cost do we get the stuff out of the ground or off the trees?
I am not going to scream as the dollar declines. We have been very good at laughing and joking for decades about what needed to be fixed in Jamaica’s economy. Governments have lied about the state of affairs, and people have lapped up the lies like a cat with a bowl of milk, because it was much easier to do that. Change is a great source of fear. But, often when you don’t change voluntarily when you should have, then the forced change is often more drastic than it would have been and more sudden. We are going through that phase. It’s really painful, like tight shoes are, or even tight briefs, if you are a man. But, like with those sartorial problem, you can either wince and not get into something more comfortable, or make the adjustments to walk comfortably.
Government hasn’t quite got it right in making people see that they need to make those adjustments, I think.
It’s perhaps significant that, late yesterday, I told friends that I was in a pitbull mood. My teeth were going to sink into something hard; it could also be someone’s body part. I let the seething mood subside and found myself quoting Ephesians 4:26, which encouraged me to not go to bed angry. I closed the night by posting an image of a dog with a megaphone.
What had gotten my ire was two things. First, was the golf business about which I had written yesterday; my blog had gotten more airplay and I got some supportive comments from various people. Second, was a more mundane matter: the garbage men had collected bins from my yard, emptied them, then left them strewn in the street, with my gate wide open. This seemed to be just disrespectful. I do not keep my garbage out in the street, and I have the gate closed, not least because my daughter has a puppy, who is sometimes attacked by a neighbour’s dog. I wanted to exact revenge, or at least make my point clear. I asked on social media how I should react. I got no reply. (There’s a message there, and maybe I will step away from that arena. But, that’s a separate topic). I wanted to disable their truck the next time I saw them. Someone told me that it’s part of establishing ‘new relations’ with residents; once I’m better known then my bins will be given their due respect. Well, judging by the way my long-established neighbours’ bins were also in the street, I think this relationship-building is a long-term project. Which brings me to another point: the exchange rate.
As I woke early this morning, wanting to use the bathroom, another friend, currently working in northern Europe, noticed I was online and asked if I suffered from insomnia. I replied that I went to bed early, just after putting my 10 year-old to bed, at 9pm. I also used to trade foreign exchange, so am in the habit, sometimes, of waking for the European market opening (around 2am EST), catching up on news when I wake, and now thinking about topics for writing. Well, I heard a pack of dogs baying in the distance, and my topic was set.
Foreign exchange traders know that markets get fixated by things that do not matter much, but are eye-catching.
These include round numbers, such as 100, and then steps in round numbers, such as 105…110. Action can be frenetic as these numbers are approached, and traders may be trying to defend or break the level for good reasons, for instance, if options are due to be triggered by crossing the barrier. Well, as far as I know, option contracts in the Jamaican dollar are not what caused interest in its approach to 100 to the US dollar, or its passing that for 105, and recently 110.
I had a brief exchange last night on Twitter with a current government minister, Julian Robinson (@julianjay) and a senator (and former minister) of the Opposition, Jamaica Labour Party, Marlene Malahoo-Forte (@oohalam). It was about the nature of the exchange rate depreciation. The senator has mentioned exchange rate ‘strategy’. The minister said it was not ‘strategy’, but an ‘outcome’ and market-determined; I said it was not market-determined, but reflected intervention, so a strategy was at work. The minister then said all central banks intervene; I replied that not all do, eg, the US authorities. I cited the IMF’s annual Exchange Rate Arrangement study for 2013, which has Jamaica classified as having a ‘crawling-type’ regime (sounds like a nasty disease?). That seemed to close that aspect of the discussion online.
Classification aside, the minister made his very valid point that the exchange rate outcomes depended on fundamental factors; Jamaican needed to address the weaknesses there to give the exchange rate a chance to stabilise. This dealing with fundamentals should always be the case. Traders and central bankers know that fundamentals are just one factor, though, in the actual outcome, and they may not affect the rate quickly or consistently, not least because some of the pressure for the rate to move comes from sentiment. That can drive the exchange rate in any direction faster and farther than warranted by fundamentals. Tell me! Markets also are supposed to anticipate, and so may have already factored in the fundamental features, so react more to sentiment and news, or just a bit of whimsy and who has the most to play with in the market. Big boys, with big bucks, pushing little boys around. The central bank may want to smooth the exchange rate movement, but may also have a hard time doing so, depending on their available foreign exchange reserves and the market’s willingness to let them have their way. Generally, however, central banks cannot sail against the wind for very long.
The senator, whose basic feeling is that the exchange rate has moved too far and too fast, later posted a reference to a Bank of Jamaica paper entitled “Exploring Contribution of Temporary & Permanent Shocks to Real Effective Exchange Rate“, which she wrote indicated that there was ‘negligible benefit from depreciation’. Well, trying to be thorough, I searched for this paper. Thank goodness for the Internet, because at 3am in the morning, I did not have to knock on the door of a university library, or go to the Governor’s house, to find a copy. In the spirit of true collaboration, I’ve included a link to the paper: no need for us all to be walking around in our PJs trying to find copies in people’s garbage (I made a connection).
I am not going to read the paper at this hour, and am skipping the scary maths that I see. Its conclusions are notable, and I will give a bit more than the senator:
Despite the considerable depreciation, a major correction of the current account imbalance has not been observed, which indicates the need for structural changes in the economy.
Temporary shocks played a larger role in explaining the variation in the real effective exchange rate (REER), while the current account was largely driven by permanent shocks.
Over the past decade, the real sector in the Jamaican economy has not been able to facilitate the necessary adjustment that should take place from the REER to the current account.
We therefore conclude that this adjustment in the current account imbalance may not be entirely achieved through the manipulation of monetary variables such as interest rates but rather through enhancing the macroeconomic environment to increase productivity.
Policy should be more geared towards creating a macro-economic environment that can facilitate the increase in exports resulting in a boost in external competitiveness which would then cause a correction in the current account imbalance.
Now, that paper, based on empirical analysis, was written in 2010. Jamaica has not changed much in four years to invalidate the basic facts. So, we have a learned view from central bank economists that Jamaica’s current account problem was not much related to the exchange rate, and that its depreciation wont do much to improve Jamaica’s competitiveness; the key is our productivity. I’ve pointed to the need for the latter, even a few days ago; many others have, too. I have never had much belief in depreciation working to help Jamaica’s competitiveness–even putting me at odds with one of my employers in the past.
So, why has the exchange rate been allowed to slide as much as it has over the past 20 months? Now that I have reached that question, I need to pause for more than some tea. If our learned economists have concluded–caveats about personal views noted–why are we pursuing something that we have shown does not work? I don’t want to rush to any conclusions, so will ponder that for a while.
The IMF has stated that Jamaica’s real effective exchange rate was overvalued; the nominal deprecation during the current programme has done much to reduce that overvaluation. The Fund indicated that the latest situation was due for a full review during the next Article IV Consultation, which has just concluded, with the team flying off to Washington last weekend. So, we may get a better idea of what the state of the real exchange is. The internal logic of the IMF programming means that it would be a hard sell to Management and the Executive Board, for a country with a severe balance of payments problem, wanting to use IMF resources, was allowed to do that with a real exchange rate that is highly overvalued and not programmed to see that eroded. But, if its being brought down doesn’t matter much in changing the real economy–and, in some sense, is a cosmetic numerical shift–then, the pain it has exacted on the population by eating away at peoples’ J$ wealth (by some 20 percent) needs a good explanation. That may be round two of exchanges, but should really be a broader discussion. I go back to the PM’s budget speech about ‘balancing people’s lives, while balancing the books’. Maybe, it wasn’t dogs that I heard howling.
I began this week determined to write about the Jamaican dollar. Instead, I was shocked and jolted out of my concern for the exchange rate by news that Jamaicans were being thrust into the dark ages by an American lady with striking blond hair.
JPS did not throw in the towel in its fight to deal with electricity theft, instead it threw out the baby with the bath water, soaking everyone when it pulled the plug on a well-known and too-much tolerated practice. “Mummy!” cried a lot of paying customers. In came the caring parent to see what was wrong, and she calmed the crying child, and tried to shoo away the boogie (wo)man: “Oh, Kelly!” West Beverly’s lyrics seem so apt:
A little bit wrong means mostly right I didn’t mean to p*** you off I’ve found that you can be too honest, Bright-eyed butterfly just took off
Clearly, Beverly was talking about Jamaica, because the song has other apt references:
I know I cut us short, but that’s Just because I knew that I wasn’t fair
I’ve found that you can be too diligent, I’m sorry and thanks a lot
I can’t believe you stood me for so long
You helped me find some balance in this world
I know I pulled the plug
That’s eerie. So, thanks Kelly for diverting my attention from the sliding dollar.
But, like all real problems that go unsolved, the dollar’s slide is still there. Over the weekend, one of the Sunday columnists, businessman Claude Clarke, went to look at the ailing patient and wrote about many of the points that I had in my head, in his piece entitled ‘The devaluation dilemma‘. He made two telling points:
The question is not whether we should have a fixed or floating exchange rate. The real question is whether there are policies to maintain competitiveness once it is achieved. And because competitiveness cannot be achieved without reducing domestic costs, devaluation is a legitimate strategy to achieve it.
The question our leaders must address is whether they are prepared to leave the country trapped in its pattern of pointless devaluations, delivering pain without competitive gain. And if they aren’t, will they be bold enough to devalue sufficiently and swiftly and combine the devaluation with effective cost-containing policies that will make the benefits stick.
Now, I appreciate what Kelly did. She focused our eyes on a part of the problem with the exchange rate. Jamaica is a highly uncompetitive economy. JPS shows that clearly by charging US$0.42 per kWh for electricity. That is an industry-killer in the modern world. If that were halved, we’d be where many industrial countries are. We link the exchange rate back to the story of the preceding week–Energy World International and its licence–and the prospect of life-giving electricity at just over US$0.12 per kWh. High costs are part of the uncompetitiveness equation; its other main part is low productivity.
The exchange rate has been trying to bridge the gap between us and the rest of the world in terms of lack of competitiveness. But, as Mr. Clarke pointed out, the numerical value of the exchange rate cannot do it alone. Its fall should make the cost of what we offer the rest of the world less. It should also encourage us to consume less from abroad, because imported goods and services become more expensive. This is the standard economics argument. But, Jamaica has once again messed up the thinking. We seem to not respond in that standard way, or at least not as fast as expected or needed. So, we live with higher costs but seem reluctant to change behaviour fast or long enough for the exchange rate to be able to take a breather and stabilise.
Kelly also focused our eyes on the productivity part of the problem. It’s an open secret that a significant part of Jamaica’s population have been given a diet of welfare which we cannot afford. They have been led to believe that they are entitled to a range of services free-of-charge. The cost of that was borne by the rest of the country through the government’s budget deficit, and on the balance sheets of public utilities–both electricity and water providers are close to insolvency. That entitlement culture was created and sustained by politicians. We have all been made poorer by it. So, the scrabbling around for foreign loans is the backwash that comes from that sort of ‘living beyond your means’.
I get sick and tired of people wanting to blame the IMF for something that Jamaican governments and politicians did wilfully over decades. It’s a crock. Own your problem! Then, you can address it. The IMF never took loans and grants and put that money to bad use. The IMF did not offer people freeness for which it could not pay. The IMF did not hamstring enterprises from collecting on obligations. That was the work of Jamaican public officials.
A sad reality about economics as we understand it, is that it all has to add up. If there is a gap somewhere, it has to be filled. The system has to balance and the whole set of numbers closed. Put simply, if all the economic agents in a country are in deficit, the rest of the world has to provide some surplus to help us get in balance. Often, we find that within a country, some part (e.g., government) is in deficit and other parts (private enterprises or private persons) have surpluses that can help get the country in balance. That’s what all the fancy talk of ‘budget deficit financing’ and ‘balance of payments deficit and financing’ is really talking about.
It’s also sad that few things are really free (besides the air we breathe, usually): a price is there, somewhere, and the questions are who will bear it and when. Cynics say that governments love to pay late(r). So, we often see that government is pushing costs off into the future. At best, they can be dealt with by successor governments; at worst, the same government will pass on the costs into the future again. But, the bills have to be faced sometimes. That’s what Jamaica is now having to do in a punishing way: the debt burden at around 140 percent of GDP (in other words, our debt is way above what we earn) needs to come down sharply, and that can only happen if we create budget surpluses to help pay it down. But, we are in a trap. The exchange rate needs to decline to help us be more competitive, as part of the move to be able to earn more to pay down the debt. But, much of the debt is denominated in foreign currency, so the falling exchange rate means the debt in J$ terms keeps rising. We are a like Sisyphus: ‘punished for chronic deceitfulness by being compelled to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever‘.
Much of this is not easy to explain to people, which is a great pity, because they need to understand.
Many social problems persist because the people mired in them do not have a good understanding of how they contribute to the problems. I understand what poverty means and how hard it is to get by with no income. It is a panic-inducing state to have to pay for things with money you do not have. You want to hang on as long as possible without paying, if you understand that you are supposed to do that. Some people do not understand that–it’s learned behaviour, not burned into our DNA. So, using guilt or moral suasion is not the way to go. People need to be sat down, and walked through what their actions mean. Then, comes the harder part, getting them to act the way we want. Encouraging non-payers to pay is the way to go. Getting them to pay consistently is what we want to achieve–without their falling into debt or their lives going into a shambles because they cannot budget and pay bills but do not cut down on other spending.
That’s where people start to shed tears. Poverty is a hard state to be in. Having gotten out of it, even with unreal freeness, people dread its return. How to convince people to do without is going to be a big challenge. We can be all-intellectual and talk about the need to get rid of big freezers, flat-screen TVs, and other appliances that are not essentials, but people have seen these as part of normal life and depend on them. Yes, they should be hauled away, but at what price? I cannot believe that relative social calm has existed in Jamaica through so many years of economic stagnation except through the sugar-coating of it through this ‘welfare’. Take it away, and those standing ‘naked and afraid’ are likely to make the rumbling noise of a volcano that is about to erupt. That’s a frightening sound. But, the damage the eruption leaves behind is worse–much worse.
When I’ve thought in recent days how to try to fix some of the problems I see in Jamaica, I came back to a familiar stumbling block. The image I have for Jamaica’s future may not be shared by many.
Take aside the fact that I may have an image of a country where many things happen smoothly, in an environment that is largely clean and litter-free.
Ignore that I foresee a time when time means something important to everyone.
Put away the notion that we would not feel that a free-for-all was possible any and everywhere, and that many would not need to opt for that because they had plenty of good job opportunities, or good options, generally.
I’m not sure why my image of Jamaica keeps coming back to a Caribbean version of Switzerland. It may be that I like the Alps, and living in the shadows of the Blue Mountains in Kingston my mind can make the switch more easily.
Whatever vision political leaders have put forward to the Jamaican people, they have not painted a picture of a Jamaica that is really very different from what we had and what we have now. No doubt, north coast hotel developments have changed dramatically the coastline. Yes, Highway 2000 has changed dramatically the road landscape between Kingston and May Pen. The newly remodelled Norman Manley International Airport is a showpiece, matched by a newly paved road along Palisadoes, with its huge rocks protecting us from sea surges. The mining and industrial complexes in St. Elizabeth and Ewarton light up the sky in a spectacular way.
Whatever they promoted, did we really expect to see Jamaican streets largely empty because most of our people were working feverishly in offices or factories, tilling farmland, reeling in fish, studying in classrooms, or doing things in homes that were truly welcoming to those who had to spend the days productively outside? Or did we still see street corners with young men playing dominoes, drinking beer, talking, sitting with hands in jaws, appearing to have nothing to do?
Did we see a country that did not have men pushing hand carts, each one a unique design of natural woods, and cast-off tyres?
Did we see a land where cars were not idle on the roadside, with men running to or from them with petrol cans, and passengers waiting patiently for their return so that they could continue their journeys. Did we visualise that the 5-seater car in which passengers sat would be a comfortable waiting area for all nine of them and their bags?
Recent discussions about how Jamaica could learn lessons from, and follow, Singapore have at their base something similar to my visualization of Jamaica as a Caribbean Switzerland. Both are pristine-looking countries, where order reigns, where tidiness rules, where rules rule. They are places where garbage cascading along the roads when there has been heavy rain is not a usual sight. They are place where when someone says “I will come soon” it means that they WILL come soon. Could that ever be Jamaica? If the country were to change what would it have to give up?
It’s hard, maybe impossible, to visualize a Jamaica that does not have goats running along the sidewalks of commercial and residential districts, chomping away at the unkempt grass and weeds that line the road. Those goats serve a purpose by trimming when the public purse and personnel are not there to do so, and when the private entrepreneur who could make work from doing so has not yet seen the ‘market’ opportunity. Those same goats max out by noshing on whatever garbage Jamaicans have thrown from car windows of dropped casually as they walked. Jamaica’s gone backwards. I remember years ago, when pigs were there, snout by horn, with goats. Where are they now? We’re told that that country has a glut of pork, so where are the street pigs?
Who can see a Jamaica where roadside vendors, with their rickety shacks, and colourful displays of fruit, vegetables, briefs, panties, Dutch pots, tyre rims, and other life-essentials do not form the scenery for every journey on this island?
Who could imagine taking a road trip and not seeing the cookshops, the soup pots, the oil drums converted into barbeques, the bammy and fried fish offered on plates, bags of pepper ‘shwims’ [shrimps], cashew, roots drinks, and more?
All of those things I love about Jamaica. But, am I to believe that they are also part of what is wrong with the country? Could we move to another state and keep all or most of that texture that has been what makes life here the pleasure that it is?
Do we look forward to a Jamaica where road users keep to their side of the road at all times? Why should I be surprised to see a motorcyclist, without helmet, carrying two small children (without helmets) on the petrol tank of his bike, headed toward me in traffic, on my side of the road? Where did I think I was that this would not be a near-daily happening? Life’s hard and people do what they need to do! Get over it!
Do I want a Jamaica where taxis and private bus operators do not mistake the roads for speedway circuits? What kind of country would it be if those same public transporters did not just stop in the road when it seemed right for them, oblivious of anyone or anything else on the roads at the time?
I love to see the bodies pressed together in the large city buses in Kingston, with their faces looking from the windows wondering how long it would be before they got near to home.
What about a Jamaica where every time I stop at a traffic light I do not have a flock of young men spraying soapy liquid onto my car windscreen, and scraping it off to leave a sparkling, clear glass through which I can see the long line of cars waiting ahead? The Jamaica that does not have nearby that same youth, an old woman, with crooked teeth and bent back pressing her hand against my window, with gnarled fingers hoping to clutch just a few increasingly worthless dollars?
The country that we have is one that has less than it needs to live the way that it does. People in fancy suits talk about the fiscal deficit–we’ve spent more than we earned. We were not broke because of that. We borrowed some money to tide us over. But, we were never really able to pay the money back. So, now, we earn as much as we can and pay back as much as we can, and spend a little of what is left over to keep things ticking over.
We’re not dirt poor, but we have lots of characteristics of dirt poor countries. We have aspirations that are fine and we have shown those to the world with some of what we have constructed. We also show those aspirations in the way we house ourselves, if we have means or can get to borrow the means. We show them, too, in the kind of motor vehicles that we drive–shiny, new, foreign, often too large for our real needs, but hefty and able to deal with our rugged terrain. That rugged terrain is not all natural, though. Much of it is man-made. We have BMX tracks for roads, and our children get to have roller-coaster rides every day as we try to get them to and from school, and ourselves to and from places of work and elsewhere. None of that should bother us. When our cars are damaged, we just add the cost of repairs to another of the many expenses loaded onto us because we haven’t spent money we don’t have to do repairs to essential things that we have built. It’s simple. Get over it!
I have in my mind a kind of Jamaica that is really very different from what I see and experience now. (It’s not necessarily free of all those things I see around me now.) I think I know some of the things that are needed to move to there from here. I can imagine what people need to do and what they may need to spend to get some of it done.
I don’t know if anyone else sees what I see in the future. My view is one based on a hope for certain kinds of change. My view is also based on being able to live without certain kinds of social and economic pressures.
My biggest daily problem is not what will I eat. My biggest daily problem is not where should I go today to see if I can earn some money? My daily challenge does not include wondering if I can get from my house to anywhere else I want to go. My days do not involve wondering if someone will come to disconnect the illegal electricity supply that I have rigged up. My weeks do not involve hoping that the water I am stealing from the Water Commission is suddenly locked off. My nights do not involve wondering if those bangs were the sound of a car backfiring or the sound of guns firing. I don’t think about what my child is doing when I turn off the lights at night–she’s in bed asleep, not somewhere on the street. Those concerns, and more, are not there just for a small minority, but for a very sizeable portion of this country.
I can only speculate what vision someone has who lives behind a corrugated fence around a wooden shack near a gully strewn with old fridges, washing machines, black plastic bags and food boxes.
With viewpoints so different can we move together to create something that will be better for all of us?
IMF staff include some of the best-trained economists on this planet. So, I am not going to put my head in a noose and say that they don’t know what they are talking about. The latest staff report includes one of those phrases which those who are being trained to write should see in a class called ‘How to not say what you mean’: ‘To support growth, it [the IMF] called for measures to boost competitiveness, including structural reforms as well as greater exchange rate flexibility.’ When most people think about ‘flexibility’, they imagine some lithe body, writhing and being put into positions that sometimes seem to defy physics. When economists use the term, it also means movement, but not necessarily back and forth. In this case, I will call a euphemism a euphemism: flexibility means depreciation or devaluation. It takes a while, but those latter words are actually used in the report: ‘A flexible exchange rate regime should play a central role in Jamaica’s macroeconomic policy framework and its structural agenda going forward. The recent nominal exchange rate depreciation has been useful, by reversing part of the overvaluation of the real exchange rate that has emerged in recent years, thus supporting price competitiveness…’ Now, that we understand what the ‘medicine’ is…
Just as I arrived back in Jamaica, after 50 plus years abroad, I witnessed a new milestone for its currency: it touched a low point against the US dollar of 100. There were no cheers on the street. Thankfully, my arrival was low-key and no one has put together my arrival and this milestone and made cause and effect.
Countries, rightly, feel a sense of pride in the international value of their currency. However, in trying to hold onto a particular value when pressures are building for it to be ‘flexible’ (and I do mean in either direction), resistance may be useless and can be downright dangerous to the health of politicians and central bank governors. I remember one of the famous occasions in UK economic history, when in 1967 the British Pound was devalued from US$2.40 to $2.80: the then Prime Minister, Harold Wilson (a pretty decent economist and Oxford don), famously said “It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” (It’s worth listening to the broadcast as a lesson in how a politician may try to tell a population some bitter news.) The British gnashed their teeth. Stiff upper lips quivered. Chips fell where they would (but not out of bags of fish :-)) Now, some 45 years later, Britain has not become annexed to the US, but the pound is worth about US$1.50–much stronger than in Harold’s day. Unfortunately, Britain paid a heavy price of higher inflation along the way, and the pounds in the pocket of most people are now worth much less, and weigh very heavily when you’re standing at the bar waiting to order a pint.
Jamaican cartoonists are very good at vivid imagery and the falling Jamaican dollar has not been spared their taunting. I’m not one who believes that the planned depreciation will have a major impact on Jamaica’s root problems of low productivity growth and competitiveness. Those things need to improve but that needs to come from people having a different mindset. Granted, the experience of having the value of their money being worth much less may give them pause for thought. Overall, I don’t believe that Jamaicans don’t want to do better for themselves and their country. My experiences this past week gave me an insight into what is good and not so good about some parts of the economy.
I needed a cell phone repaired. On Thursday afternoon, I took it to a store in New Kingston that sells and repairs phones. I’d bought a phone case from them and thought they were very attentive, whatever the situation. The young lady (early 20s) there told me the cost of repair and how long it would take. She also told me that I could trade-in the phone and get another one, paying a difference in price, if needed. I did the sums of cost of repair (and no certainty the damaged phone would work) against cost of new phone (with 30 day guarantee). I went for the trade-in. She gave the damaged phone to a technician to evaluate and meanwhile contacted their warehouse to get the new phone delivered. She told me the process would be about an hour. I waited, hoping that things would move faster. In the meantime, people came in and asked for things, and I noticed how the lady answered crisply and courteously to every question, including “We deal with everything but Blackberry; for that you need to go next door.” She spent about five minutes on the phone with a customer who was apparently not able to get the phone she wanted for her daughter: “It’s the shippers, Miss. We rely on them and if they don’t deliver the product, it’s we and you who suffer.” My kid was at swim practice, so after waiting a while, I left to pick her up. When I got back, the new phone was there, but the lady’s face signalled a problem: “The case is cracked. It must have been damaged in shipping. I don’t want to sell it to you and compromise our business.” We then spent half an hour trying to decide what phone in the shop would be an acceptable substitute. It was now well past 6pm, when the store should have been closed. Eventually, with the help of my 9 year-old, we decided on a new phone and wrapped up the deal. It was now 6:30, and we were late for dinner. I noticed that some other customers were in the store and still dealing with their problems–all happy to spend a bit more time given the prospect that things would work out. On Friday afternoon, just as I got back from a trip to Mandeville, my phone rang; I saw the number and knew it was the lady from the phone store: “Hello, Mr. Jones. I just wanted to check how things were going with the phone and if everything was alright.” We chatted for a few minutes. I was impressed: it was service that went a little further than expected or really needed and it made me (the customer) feel good.
On Saturday, I needed to round off the repair by having the SIM card replaced by the phone company: the new phone needed a different size SIM. I took the phone to a LIME store in Half Way Tree, where I was told initially that the change would be a “24 hour process”. Then the representative realised that the account was not in my name, but was for an organization, so I couldn’t make the change there but would have to go to the ‘main office’, which was just a few minutes down the road. Off I went. “Well, to make this change, Mr. Jones, you’ll need a letter from the organization…” I frowned 😦 We talked a little and after a few sentences, and I was asked for some ID. I gave two documents. Moments later, computer keyboards were being tapped, forms were being completed, new SIM card was being processed, phone was in full working order. The man gave me an invoice that showed ‘J$0’, and told me that the normal J$300 fee did not apply. Happy camper.
My mother-in-law is visiting from The Bahamas. She’s flabbergasted that the Jamaican currency “gawn don so”. “How can The Bahamian dollar be worth one US and the Jamaican is 100?” she’d asked me when arriving a week ago. She’d studied here in the mid-1980s and remembered better days for the J$. I gave a quick Econ 101 lesson about fixed and floating exchange rates. “I don’t know. It’s a crying shame,” she said after my attempted explanation. She bought green coconuts in Mandeville (for J$125 each) and wanted them chopped to get at the meat so that she could make a coconut cake. “We need a cutliss!” she told me on Saturday morning. She knew I didn’t have one and we’d joked during the car ride that I shouldn’t think bad of my father for never having bought me one earlier in my life :-). I went to a fancy-looking ‘hardware’ store near Manor Park: they really only sell interior fixtures and tiles, but the man there told me to go to a real hardware store just down the road. I asked him where I could get a gas for our grill. He was perplexed that I had asked for ‘a bottle’, and after some head scratching realised I needed ‘a canister’. He suggested the gas station across the road; no joy, as I’d tried there already. He asked a colleague, then another; no joy. He called a friend; no joy, but he got a name and number. He called and spoke for a while, then passed the phone to me. The lady asked where I lived and when I needed the canister, then said she’d call me back. I headed off to get my cutlass. My phone rang as I entered the store. “We have our supplies in Rockfort and Portmore…” I explained that these places were a long way away and I was not going to drive to either today. She told me they would deliver. Good. She told me to call a number and ask for ‘Ramon’. I called; no answer. Voice mail. I left a message. I called again a few hours later; no answer; voice mail, again. Ramon has not called me back. It’s Saturday, maybe he went to the beach. It looks like the grill will not be firing today, but we will have coconut cake.
While in the hardware store, I noticed that they had a sign stating ‘Dear customers, we accept US dollars as payment for goods, at an exchange rate of $96.00’. I paid in local currency.
I don’t see where depreciating the exchange rate is going to help make these kind of experiences better (in the cases where something needs changing). The ‘good’ in these stories are things which I would like in most dealings; the ‘bad’ are not terrible (but I have a few of those already and will ‘deal wi dem layta’). Maybe foreign enterprises will see the Jamaican worker as truly superior and want to employ them and invest more here.
My cell phone was certainly much more expensive to buy than it would have been otherwise. My cutlass, too, though it was considerably cheaper–I could have bought 100 for the price of the phone and could have started my own bushing business. I need to see if sales of cell phones get hit by the depreciation: Jamaicans love their phones. Maybe, next time, I buy a cheapie cell phone, like I did for my father-in-law, when we passed a LIME roadside promotion in Mandeville, for the princely sum of J$1250 (including SIM and J$100 credit).
My jelly coconuts don’t seem to have gone up in price much, and drinking one of those on Friday was a good lunch. The J$300 I paid the roadside vendor for my sugarloaf pineapple seems to be money well spent judging by the absence of it in the fruit bowl 🙂 The falling J$ hasn’t affected much the price of local produce and may hopefully keep us away from all of that ‘inferior’ foreign stuff.
It’s hard to measure productivity in services, but ‘quality’ and ‘efficiency’ have to be there. Willingness to give good service is not always evident in any country–believe me when I say that it’s hard to imagine more service dysfunction than I’ve experienced in the USA. In tourism, can I see a real difference between what The Bahamas offers me at a top-end hotel such as Atlantis versus what I got in Jamaica at the Hilton in Montego Bay? Is my wife ready to back me up on this when we complete the survey about Atlantis? Good service–and often with a laugh and a joke and a nice word, not some sourpuss or phony ‘Is everything ok with your meal’-ism, quickly followed by scowls if the tip is less than 15%–is not a dead art in Jamaica, by any stretch, so for the moment. On that score, I will say I have high hopes. But, how is the exchange rate ‘flexibility’ really going to price Jamaica into a better competitive position world-wide? The question is not rhetorical.