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Dollar Slide Battering Workers
Published: Wednesday | June 25, 20140 Comments
Robert Dabdoub, Guest Columnist
The Jamaican dollar has devalued from $89 to $111 to US$1 since 2012 in a continuous sliding motion. Many within the financial circles inform us there is an agreement/understanding with the IMF to take it to $120. The devaluation so far is 25%, and if it continues to $120, this will mean almost 35% devaluation. When one considers that under the previous Government we devalued from $69 to $89, again another almost 30%, the cumulative effect is now starting to take its toll.
Here are some of the effects of this devaluation:
1 While there may have been an argument for some degree of devaluation, the extent of the devaluation is now having, and will increasingly continue to have, a counterproductive effect.
It has begun to disrupt in a devastating manner the capacity to cope and militate against the ability to meet basic needs of a large sector of our workforce. Most are struggling to pay for water, light and school fees.
2 It is especially unfair to the participants in the memorandum of understanding who entered in contract to freeze salaries - no one anticipated this type of devaluation, and at best, it can be considered a breach of faith and at worst, deception. This is hardly the type of motivation needed for our workforce.
3 When we speak about the effect on workers in an abstract manner, we sometimes will not appreciate how significant this problem is. The practical case of a real worker, C. Williams, might demonstrate more clearly the problem. This worker earns $21,000 per fortnight after tax. She lives a few miles outside of Linstead in Mountain Pass, St Catherine, but works in Kingston. Her bus fare for the fortnight (12 working days) is $9,600 ($800 per day). Then she pays approximately $4,800 per fortnight for lunch and drinks.
Therefore, she ends up spending almost two-thirds of her salary just to get to work and sustain herself while at work. If she decides to supply her own lunch and saves half of her food costs, she still cannot meet her other basic needs which have also been soaring, such as providing food for other meals, and paying rent and for electricity. She will not be able to sustain her basic needs much less contribute to the economy with spending power in other areas. Bear in mind she earns above the minimum wage.
4 With 47% of our national debt being in foreign currency, it is estimated that every 1% devaluation will cause an increase of the national debt of approximately $9.5 billion.
This will certainly make the burden on the economy even more prohibitive and pressuring successive governments to increase more taxes. The level of these taxes has long since been damaging to the middle and lower strata of the society, especially PAYE workers. The danger is that a feeling of hopelessness and futility will have major counterproductive influences on the society and the economy.
SOLUTIONS
1. LONG TERM
There are many long-term solutions that need to be addressed. Foremost among them are the high cost of energy, the imbalance of trade, the underperformance of our agricultural sector, the lack of vision and initiative of our private sector, the improvement of the bureaucratic system of Govern-ment, and perhaps, most impor-tant, the lack of accountability and integrity in too many areas of the society.
Naturally, the correction of these problems will take time. There seems to be some recognition of what needs to be done, but a more concerted and national effort by all is required to produce better results.
2. SHORT TERM
The Government's ability to negotiate with the IMF seems weak for two reasons. First, successive Jamaican governments have failed to manage and negotiate with the IMF and the World Bank in a manner that has proven beneficial in the long term in either growth in the economy or reduction of the debt (the private sector, too, has contributed to this failure by our lack of vision and sluggish performance).
Second, the policy of the IMF and the World Bank is for a less intrusive government and for the private sector to become the engine of growth. Therefore, the suggestion is for various private-sector organisations that recognise the problem to form a joint committee to approach the Government, and eventually the IMF through the Government, to present their findings and recommendations regarding devaluation.
It's important to recognise that the above-suggested short-term solution is not recommended as a fix for our economic ills, but rather as a preventative measure.
Robert Dabdoub is a businessman and racehorse breeder. Email feedback to [email protected] and [email protected].
Published: Wednesday | June 25, 20140 Comments
Robert Dabdoub, Guest Columnist
The Jamaican dollar has devalued from $89 to $111 to US$1 since 2012 in a continuous sliding motion. Many within the financial circles inform us there is an agreement/understanding with the IMF to take it to $120. The devaluation so far is 25%, and if it continues to $120, this will mean almost 35% devaluation. When one considers that under the previous Government we devalued from $69 to $89, again another almost 30%, the cumulative effect is now starting to take its toll.
Here are some of the effects of this devaluation:
1 While there may have been an argument for some degree of devaluation, the extent of the devaluation is now having, and will increasingly continue to have, a counterproductive effect.
It has begun to disrupt in a devastating manner the capacity to cope and militate against the ability to meet basic needs of a large sector of our workforce. Most are struggling to pay for water, light and school fees.
2 It is especially unfair to the participants in the memorandum of understanding who entered in contract to freeze salaries - no one anticipated this type of devaluation, and at best, it can be considered a breach of faith and at worst, deception. This is hardly the type of motivation needed for our workforce.
3 When we speak about the effect on workers in an abstract manner, we sometimes will not appreciate how significant this problem is. The practical case of a real worker, C. Williams, might demonstrate more clearly the problem. This worker earns $21,000 per fortnight after tax. She lives a few miles outside of Linstead in Mountain Pass, St Catherine, but works in Kingston. Her bus fare for the fortnight (12 working days) is $9,600 ($800 per day). Then she pays approximately $4,800 per fortnight for lunch and drinks.
Therefore, she ends up spending almost two-thirds of her salary just to get to work and sustain herself while at work. If she decides to supply her own lunch and saves half of her food costs, she still cannot meet her other basic needs which have also been soaring, such as providing food for other meals, and paying rent and for electricity. She will not be able to sustain her basic needs much less contribute to the economy with spending power in other areas. Bear in mind she earns above the minimum wage.
4 With 47% of our national debt being in foreign currency, it is estimated that every 1% devaluation will cause an increase of the national debt of approximately $9.5 billion.
This will certainly make the burden on the economy even more prohibitive and pressuring successive governments to increase more taxes. The level of these taxes has long since been damaging to the middle and lower strata of the society, especially PAYE workers. The danger is that a feeling of hopelessness and futility will have major counterproductive influences on the society and the economy.
SOLUTIONS
1. LONG TERM
There are many long-term solutions that need to be addressed. Foremost among them are the high cost of energy, the imbalance of trade, the underperformance of our agricultural sector, the lack of vision and initiative of our private sector, the improvement of the bureaucratic system of Govern-ment, and perhaps, most impor-tant, the lack of accountability and integrity in too many areas of the society.
Naturally, the correction of these problems will take time. There seems to be some recognition of what needs to be done, but a more concerted and national effort by all is required to produce better results.
2. SHORT TERM
The Government's ability to negotiate with the IMF seems weak for two reasons. First, successive Jamaican governments have failed to manage and negotiate with the IMF and the World Bank in a manner that has proven beneficial in the long term in either growth in the economy or reduction of the debt (the private sector, too, has contributed to this failure by our lack of vision and sluggish performance).
Second, the policy of the IMF and the World Bank is for a less intrusive government and for the private sector to become the engine of growth. Therefore, the suggestion is for various private-sector organisations that recognise the problem to form a joint committee to approach the Government, and eventually the IMF through the Government, to present their findings and recommendations regarding devaluation.
It's important to recognise that the above-suggested short-term solution is not recommended as a fix for our economic ills, but rather as a preventative measure.
Robert Dabdoub is a businessman and racehorse breeder. Email feedback to [email protected] and [email protected].
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