THE JAMAICA ACTION PARTY
J A P
The Nation's Economy Con'td
The huge borrowing by the government on the local market has increase the demand for loans. This means that
the government is competing with other local borrowers such as manufacturers and developers. The greater
demands for loans has forced up the interest rate thus increasing the national debt and forcing manufacturers and
other borrowers out of the market. Manufacturers were now unable to retool their factory to compete with imports or
establish a presence in the international market. As exports in all sectors declined and imports raise the shortage
of foreign exchange become more acute. The demand for foreign exchange is now greater and the supply is less.
We now have a greater amount of local currency chasing a smaller amount of foreign exchange. As with all things,
their price goes up when there is a shortage thus it will now take more local dollars to buy the same amount of
foreign exchange resulting in a devaluation. The government attempt to prevent this devaluation by decreasing
the amount of local currency available to purchase foreign exchange. This it does by putting LRS and REPO's on
the market to ‘dry up’ liquidity. In this case the BOJ will take this money on deposit at high interest rate for a specific
period of time and lock this money away to keep it out of circulation. This money does not contribute to the
development of the economy in any way. When these instruments mature, the money goes back into circulation
along with the huge amount added for interest payment. For example if one million dollars is put on deposit for one
year at 20%, one million plus two hundred thousands dollars will be put back into circulation at the end of this
period. The government then put out more instruments to keep the previous deposits plus the interest paid on
them out of circulation and the cycle keep repeating successively getting worst for the taxpayers as the interest
paid on these instruments is done from the budget. The banks and other financial institutions must compete with
the government for this deposit and must match the interest being paid by the BOJ thereby forcing up the interest
rate further as they must now lend at a higher interest rate to their borrowers in order to pay their depositors and
cover their expences. The people will find it more attractive to save their money rather than purchasing goods or
foreign exchange thus decreasing the demand for foreign exchange.
The value of the local currency is determined by the availability of foreign exchange and the demand for it. The
value of the Jamaican dollar is being held at the present level by artificial means ( REPO's, LRS, high interest rates
and borrowing) which is proving to be very expensive to the country and which we cannot sustain indefinitely. This
will eventually lead to the collapse of the country’s economy and the bankruptcy of the nation. Drying up liquidity,
high interest rate and selling foreign exchange from the NIR into the market are designed to be short term
measures to deal with a sudden ‘shock’ to the economy where it becomes necessary to cut down the demand for
foreign exchange as might be the case after a riot which could cause the foreign exchange earned from tourism to
drastically decrease.
Devaluation of a country’s currency is never the popular thing to do as it always produce inflation causing an
increase in the prices of goods and services which impact on everyone especially the poorer class. This is so as it
will now take more Jamaican dollars to buy imported goods, local goods with imported components and other cost
such as transportation and electricity. When the dollar is devalued, the increase cost of foreign goods drive down
the demand for these goods and therefore the demand for foreign exchange becomes less. At the same time it
makes Jamaican exports more attractive as buyers need less foreign exchange to buy Jamaican goods. The
country also become more attractive to tourists as they now get more local currency when they change their money
to local currency. The downside of devaluation is the increase in inflation causing a fall in the standard of living for
most of the populace who will now have to forego some of the things that they could previously afford. The upside
to devaluation is that there is now less demand for foreign exchange, more attractive exports and a more attractive
destination to tourists. This results in a more stable local dollar from which the country reap enormous benefits, as
long and short term plans can now be made based on the stable value of the currency.
Conclusions
Jamaica has 'borrowed' itsef into the position that it is now in and we cannot borrow ourselves out of it. We are
headed into bankruptcy and unless we change our path or discover oil or gold very soon the country will become
bankrupt. At some point, better sooner than later, the tough decisions must be taken so that the country can be set
on the road to recovery. It is unfair to leave this enormous amount of debt for our children, their children and
grandchildren to repay when they did not benifit from the money borrowed. The longer we wait, the more drastic
the measures that have to be taken will be. The plain fact is that we cannot continue to live off other people’s
savings forever. Most of our imports are being bought with money borowed and not with money that we earn. The
people must be told the truth of the state of the country’s economy and get them to buy into the steps which have
to be taken as it will have to be a national effort. There must be a drive to boost local production and to consume
more local products. We need to realise that the cheap foreign imports will not be so cheap anymore once our local
industries have been destroyed. A large part of the solution will be the devaluation of the dollar to a realistic, stable
and competitive value. The amount of money being borrowed must be cut drastically. This will cause hardship and
a drop in our standard of living as some of the things we now enjoyed on borrowed money will no longer be
availabe to us. There must be a cut in the government size and some of the programmes that it offers. At the same
time the wastage, theft and curruption in the government and all sector of the society must be eliminated. We must
look at and find ways to decrease the birth rate especially among teenagers.We will all benefit in the long run and
we owe it to future generations.
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