Currency Stability requires collaborative effort

Deputy Group President of Capital & Credit Financial Group and Chairman of the Jamaica Stock Exchange, Curtis Martin, says the next twelve months will demand intense cooperation among Jamaica’s Central Bank, Government, Bankers and Manufacturers to mitigate any dramatic depreciation in the local currency. 

Mr. Martin said if the reduction in remittance flow continues and Jamaica is unable to access foreign currency from the International Capital Market, the Net International Reserves (NIR) could come under additional pressure.

Mr. Martin was addressing Members of the Rotary Club of Liguanea Plains last Thursday in Kingston, based on the topic, ‘The Impact of the Global Financial Market on Jamaica’.
“Financial players will have to demonstrate greater confidence in the value of the Jamaican currency, limiting demand for foreign currency for portfolio conversion, so that limited foreign currency resources can be utilised mainly for purchases of essential goods and services,” says Mr. Martin.

“The real sector, manufacturers and others, will have to exercise discipline in not pre-purchasing foreign currency for long dated liabilities, but limit such purchase to immediate and pressing obligations,” continued Mr. Martin, pointing out that the pressure in the foreign currency market was largely influenced by the loss of credit facilities from international entities, the payout of margin call liabilities and a slow down in tourism and remittance flows. 

According to Mr. Martin, the Jamaican currency depreciated by approximately 22 per cent in absolute terms against its US counterpart, arising from an average exchange rate of J$72.24 to $US1.00 in September 2008, to an average rate of J$88.46 per US$ in March 2009.

Similarly, there was a parallel downward movement of the NIR which stood at US$1.6 Billion in March 2009, down from the US$2.2 Billion it was in September 2008.  This provides minimal coverage for the Government’s debt servicing obligation of US$1.2 Billion for the next twelve months.

Mr. Martin told Rotarians that the greatest threat to currency stability comes from Jamaica’s inability
to access the International Capital Market. Going forward, he recommends that the Government or the Central Bank avoid any further downgrade to a “CCC” rating by rating agencies, as it could have disastrous consequences on the Jamaican economy.

“The failure on the part of sectoral interests to work together for the coming year, will result in a self defeating cycle of higher debt, rising interest rate, depreciating dollar and eventually further downgrade from the international rating agency,” explained Mr. Martin.

“Central Government’s fiscal policy must compliment the Central’s Bank’s tight monetary stance, by constraining the fiscal deficit and hence, reducing the supply of Jamaican dollar to chase scarce supply of foreign currency and provide the impetus for further increase in interest rate,” he added, while  outlining that all sectors of the society would have to make a sacrifice.

Mr. Martin said, “Years of fiscal indiscretion has finally caught up with Jamaica, as its international credit card has been cancelled.”