Finance and the Public Service Minister, Dr Nigel Clarke is sending a strong message to the foreign exchange (FX) market that the Bank of Jamaica (BOJ) will not be intervening as regular, as it used to in the past.
This strong declaration by the Minister comes amid calls from some segments of the business community for the government to do more in bringing stability to the FX market, which has seen the dollar depreciate to record levels. The Jamaican dollar is now trading at $135.48 to US$1 coming from last month’s all time high of 140.53 to US$1.
The business community, which has been reeling under the sliding dollar being unable to plan in such an unstable FX environment, is making a case for use of the country’s growing foreign reserves to smooth out the volatility in the FX market. Jamaica’s Net International Reserve at last count rose by US$71.52 million dollars last month to US$3.17 billion.
“…some are talking about using public resources to ease or smooth out the imbalances in the FX market, we can’t do that, the country cannot afford that.”– Finance and the Public Service Minister, Dr Nigel Clarke
BOJ FX intervention now at half of what it used to be
However, the Minister is hitting back advancing the point that Jamaica’s FX regime is market driven and not artificially set. Speaking at the launch of Development Bank of Jamaica redesigned Credit Enhancement Facility (CEF) yesterday; Dr Clarke disclosed that the BOJ’s intervention in the FX market is now half of what it used to be in since 2017, pointing to the improvements made to the country’s external sustainability.
He was adamant that the government will not be making any regular FX intervention placing the stability of the local currency at the feet of the private sector, which he reiterated is the country’s engine for growth. He encouraged banks and businesses not to all rush in at once in the FX market when the need arise for hard currency but to plan their entry so there is no pressure or shortage.
Addressing the large gathering of bankers, business interests and entrepreneurs, Clarke remarked, “some are talking about using public resources to ease or smooth out the imbalances in the FX market, we can’t do that, the country cannot afford that; the people who best known that are in this room. Where there are imbalances, it is best handled by the private sector.”
No compromising of external sustainability
He made the point that Jamaica has not been externally sustainable for years hence the reason for the country to engage in a borrowing relationship with the Internally Monetary Fund 16 times since Independence, representing 32 years out of the 57 years Jamaica has been a sovereign state. Declaring that Jamaica is now externally sustainable with adequate foreign reserves and a trade deficit that is covered by trade receipts and Foreign Direct Investments, Dr Clarke was quick to acknowledge that sometimes the coverage is uneven.
According to Minister Clarke, external sustainability is not something to play around with cautioning the public not to fall victim to political opportunism regarding the sliding dollar.
Dr Clarke informed the gathering of the reforms taking place such as the privatization of some government assets, the broadening of the investment options from pension funds and retirement schemes as well as greater access to credit for the Micro, Small and Medium Enterprises (MSME).
Describing the redesigned CEF as “the most revolutionary credit facility in recent history….which will make today’s MSMEs into tomorrow’s GraceKennedy,” Minister Clarke said the facility will offer MSMEs access to credit amounting to some $45 billion dollars over the next five years. Some five billion has been allocated in year one.
He stressed that the CEF is utilising an innovative approach to ensure that MSMEs have access to credit than they have never had before.