Jamaica's Hurdles to Growth Pt 3 : Problems
Jamaica is currently under an IMF contract arranged by the Truthfully ‘passing tests’ sounds lovely but if you ask a somebody for a loan out of desparation, and in return they demand total control of your personal life then they will naturally run your life in terms their best interest and not yours.
Imagine a wealthy and notorious neighbour choosing the quality of your spouse, car, house, box lunch, clothes, down to your toothpaste, all according to what suits THEM and not YOU! You would probably have a monkey instead of a spouse, wear leaves, live in a hut, drive a handcart with grass and stones to eat.
“Not a raas!” you would say but every time we ‘pass a test’ it’s another ‘good monkey’ gesture from IMF. Let’s examine how this is so.
The IMF only uses contractionary fiscal policy in the countries they ‘assist’. This means actions are taken to cut consumption eg. Tax increases and cuts in government spending (subsidies, salaries, etc). Examples of this approach range from West African States, India and counties in the Latin America and the Caribbean.
The Finance Minister says we have no other option and that this is the true path to growth. Let us look at what currency devaluation and contractionary policy does to developing countries:
•False ‘competitiveness’: The local currency is devalued on the basis of making exports cheaper so foreigners will buy more of our goods on the market. It sounds good in theory but the reality is that price isn’t the only factor that makes consumers buy goods.
Perception of quality, product image, availability of substitutes and performance also greatly influence what people buy. Therefore lowering the price of a product doesn’t automatically increase sales, which was proven by a fall in Jamaican export earnings in 2014 even though the dollar has been reduced in value continuously since 2012.
Currency devaluation only helps countries that have a lot of capital and strong market presence in production like Japan.
Japan’s yen is relatively cheap but it benefits them because their technological aptitude is high and can easily correct any shortfalls created by devaluation eg. Making their already loved Toyota, Honda, Nissan, Nintendo and Sony goods cheaper makes them more attractive on the market.
This will boost demand and sales thus increasing growth and foreign currency earnings. We don’t have the capital and brand loyalty (in producing goods) to benefit from that strategy. Is that really competitive?
• An unstable currency results in fast and frequent inflation. If producing goods is like hill climbing, then inflation is every time a stone or mud slides in your face. You have to exert more effort to get the same results, which is inefficient.
Even the best hill climber cannot beat a classic mudslide. Boom! Our inflation rate from December 2013 to August 2014 is 5% according to the Statistical Institute of Jamaica.1 to 2% in a YEAR is worrying but 5% in 9 months is outrageous! Now, is that really competitive?
• A widening income distribution gap is a condition of the rich getting richer while the poor gets poorer. It’s no mystery every reggae says it! This means that every person earning US dollars (mostly investors) will get richer as the Jamaican dollar weakens while the masses (earning Jamaican dollars) will have less purchasing power. This increases the amount of people who fall below the poverty line. Is that truly competitive?
• Higher energy costs will occur as most of our energy is imported from oil products. This makes Jamaican production costs too high, so by the time our firms pay JPS it’s already more expensive than the foreign substitute. This is prevents growth because the margin is too small, thus making investment difficult. Less business growth means less employment. Is that truly competitive?
• Cutting Education, healthcare and defense are a part of the IMF’s famed ‘bitter medicine’. However, in order for a country to successfully develop economically and socially it must invest heavily in education, technology, energy, healthcare and defense.
A) If a country can’t defend itself then wealthier territories can run over the military and take their resources aka the main story of how countries are conquered.
B)If a country has poor healthcare then the population will be unproductive and have higher mortality rates. This will scar the quality of life and make the nation more desparate.
C) If a country has a poor education system then it will turn out inefficient workers. The workers will do inefficient work which will lead to a plethora of troubles like lack of innovation, low skilled labour and brain drain as people will migrate to get better options.
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