Tweet
Davies outlines challenges facing new gov't
By Julian Richardson
Sunday, October 21, 2007
Former finance minister, Dr Omar Davies, has said that a confluence of macroeconomic variables will pose serious challenges to the new Government's effort to effectively grow the economy, and has criticised the recently-elected administration of making an abundance of "promises" while not openly addressing these critical issues.
Dr Davies, who was the keynote speaker at the City of Kingston (COK) Co-operative Credit Union's Annual Public Forum, held at the Hilton Kingston Hotel on Thursday, listed five contributing macroeconomic elements which he said are already proving to be a major problem for the Jamaica Labour Party (JLP) led government since it took office in September: exchange rates; inflation; interest rates; debt and the fiscal accounts.
Highlighting that the Jamaican dollar has depreciated significantly over the last two months against its already globally-weakened US counterpart, Dr Davies said, given Jamaica's high level of import content, this would have the adverse impact of significantly driving prices up and enhancing the already strenuous external debt.
"In terms of our exchange rate, the numbers are there," noted Dr Davies. "Over the last month, there has been a deterioration of about a J$1.30 versus the US dollar and the deterioration against other currencies has been greater given that the US dollar itself is moving negatively against those other currencies.
"Therefore, this means that the Jamaican dollar has been depreciating against all the major trading partners and there are clear implications in terms of prices and increasing the size of our external debt in Jamaican dollars and as far as debt servicing," said the former minister.
Dr Davies added that the deplorable weather conditions will negatively impact the inflation rates, thus putting it off target. Indeed, since the new government entered office, the island have experienced some adverse weather conditions, which comes closely on the heels of the wrath of Hurricane Dean which battered the island just prior to the administration's arrival.
"In addition to the inflation related to the depreciation, the weather conditions over the last two months means that there will be an impact on food prices and a whole range of things," said Dr Davies. "Therefore the inflation rate which we were comfortably moving along of between five and six per cent, seven on the outside, won't be met for this year."
Speaking on interest rates, which has inched up to above 14 per cent over the last two months, Dr Davies said that all indicators point to the fact that it may not go down any time soon. He said that the casualty, due to the implications it will have on debt servicing, may be up to one per cent of Gross Domestic Product (GDP).
"It took us over a year and a half to move from 14 per cent to 12 per cent and the impact was just felt throughout the system in terms of the reduction in rates," said Dr Davies. "The movement (currently) of 200 basis points in one day is not a good signal .... .if you take the variable rates instruments out there, you will have an implication of perhaps one per cent of GDP increase in the debt servicing because of the movement in interest rate."
Dr Davies, elaborating on the debt issue, described as "trivial", recent debates in parliament on the topic and the government's plan to address the problem. The member of parliament used the platform to remind the new government that Jamaica was not qualified to get free handouts from developing nations, and hence it should not be one of their solutions.
"I note that my successors are presently in Washington," said Dr Davies to laughter from the audience. "The reality is that Jamaica does not qualify in any of the measures of poverty internationally and hence there is nobody waiting there to assist.
"You have to be dealing with interest rates which reflects both your fiscal situation as well as your indicators," he added. "So there is a major issue in terms of the already adverse debt department as well as being faced with debts that will be increasing at a faster rate given the devaluation, and the debt servicing will be increasing because of the high interest rate."
Dr Davies, who said that a new Memorandum of Understanding is needed, summarised his address, by pointing to the fact that the effective management of these variables are critical in improving the lives of everyone, but in particular those who are more deprived economically.
"I am interested in macroeconomic stability and economic growth so far as it can improve the lot of those at the bottom of the economic ladder," said Dr Davies. "That is the reason why I am in public life and the reason why many of us would be natural allies in pursuing policies aimed at improving the lives of those at the bottom...macro-economic stability has its ability in that everyone operates best within a system of certainty and predictability."
The former finance minister said that the first step the new government should take in tackling these critical issues is by making a public statement acknowledging them.
"These are challenging times but the job of leadership is to manage through challenging times," Dr Davies noted. "The first step that should be taken is that somebody has to acknowledge that these challenges exist and it wont go away with (talk) of the past or promises that will come back to haunt you.
"There has to be a co-ordinated statement of what they are going to do in that context," he added. "Silence helps nobody and various utterances from a variety of persons that are seemingly uninformed helps no one."
http://www.jamaicaobserver.com/magazines...G_NEW_GOV_T.asp
By Julian Richardson
Sunday, October 21, 2007
Former finance minister, Dr Omar Davies, has said that a confluence of macroeconomic variables will pose serious challenges to the new Government's effort to effectively grow the economy, and has criticised the recently-elected administration of making an abundance of "promises" while not openly addressing these critical issues.
Dr Davies, who was the keynote speaker at the City of Kingston (COK) Co-operative Credit Union's Annual Public Forum, held at the Hilton Kingston Hotel on Thursday, listed five contributing macroeconomic elements which he said are already proving to be a major problem for the Jamaica Labour Party (JLP) led government since it took office in September: exchange rates; inflation; interest rates; debt and the fiscal accounts.
Highlighting that the Jamaican dollar has depreciated significantly over the last two months against its already globally-weakened US counterpart, Dr Davies said, given Jamaica's high level of import content, this would have the adverse impact of significantly driving prices up and enhancing the already strenuous external debt.
"In terms of our exchange rate, the numbers are there," noted Dr Davies. "Over the last month, there has been a deterioration of about a J$1.30 versus the US dollar and the deterioration against other currencies has been greater given that the US dollar itself is moving negatively against those other currencies.
"Therefore, this means that the Jamaican dollar has been depreciating against all the major trading partners and there are clear implications in terms of prices and increasing the size of our external debt in Jamaican dollars and as far as debt servicing," said the former minister.
Dr Davies added that the deplorable weather conditions will negatively impact the inflation rates, thus putting it off target. Indeed, since the new government entered office, the island have experienced some adverse weather conditions, which comes closely on the heels of the wrath of Hurricane Dean which battered the island just prior to the administration's arrival.
"In addition to the inflation related to the depreciation, the weather conditions over the last two months means that there will be an impact on food prices and a whole range of things," said Dr Davies. "Therefore the inflation rate which we were comfortably moving along of between five and six per cent, seven on the outside, won't be met for this year."
Speaking on interest rates, which has inched up to above 14 per cent over the last two months, Dr Davies said that all indicators point to the fact that it may not go down any time soon. He said that the casualty, due to the implications it will have on debt servicing, may be up to one per cent of Gross Domestic Product (GDP).
"It took us over a year and a half to move from 14 per cent to 12 per cent and the impact was just felt throughout the system in terms of the reduction in rates," said Dr Davies. "The movement (currently) of 200 basis points in one day is not a good signal .... .if you take the variable rates instruments out there, you will have an implication of perhaps one per cent of GDP increase in the debt servicing because of the movement in interest rate."
Dr Davies, elaborating on the debt issue, described as "trivial", recent debates in parliament on the topic and the government's plan to address the problem. The member of parliament used the platform to remind the new government that Jamaica was not qualified to get free handouts from developing nations, and hence it should not be one of their solutions.
"I note that my successors are presently in Washington," said Dr Davies to laughter from the audience. "The reality is that Jamaica does not qualify in any of the measures of poverty internationally and hence there is nobody waiting there to assist.
"You have to be dealing with interest rates which reflects both your fiscal situation as well as your indicators," he added. "So there is a major issue in terms of the already adverse debt department as well as being faced with debts that will be increasing at a faster rate given the devaluation, and the debt servicing will be increasing because of the high interest rate."
Dr Davies, who said that a new Memorandum of Understanding is needed, summarised his address, by pointing to the fact that the effective management of these variables are critical in improving the lives of everyone, but in particular those who are more deprived economically.
"I am interested in macroeconomic stability and economic growth so far as it can improve the lot of those at the bottom of the economic ladder," said Dr Davies. "That is the reason why I am in public life and the reason why many of us would be natural allies in pursuing policies aimed at improving the lives of those at the bottom...macro-economic stability has its ability in that everyone operates best within a system of certainty and predictability."
The former finance minister said that the first step the new government should take in tackling these critical issues is by making a public statement acknowledging them.
"These are challenging times but the job of leadership is to manage through challenging times," Dr Davies noted. "The first step that should be taken is that somebody has to acknowledge that these challenges exist and it wont go away with (talk) of the past or promises that will come back to haunt you.
"There has to be a co-ordinated statement of what they are going to do in that context," he added. "Silence helps nobody and various utterances from a variety of persons that are seemingly uninformed helps no one."
http://www.jamaicaobserver.com/magazines...G_NEW_GOV_T.asp