Delroy ChuckDAILY, MORE Jamaicans struggle to survive economically even while a few get richer. Opinion polls show unemployment has become the major public concern even though Jamaica's murder rate is the highest ever. The economy is not expanding and certainly not providing the means of production for our people to sustain themselves. One gets a feeling of déja vu, have we not been through this scenario before, when the government and its sidekicks tell the country we are on the right track in spite of the economic dislocations, growing unemployment, social instability and evident policy failures.
How many of us will soon forget the period of euphoria in the early to mid-nineties, when banks and financial institutions were making massive profits even while their customers were struggling to survive. Bankers such as Delroy Lindsay, Don Crawford, Paul Chen Young, Henry Fullerton and many others were extolling the virtues of government policies and using bank funds to engage in productive and expansionary activities. It wasn't long before the same government policies forced the whole banking sector into a tailspin and total collapse save and except for a few foreign-owned banks that kept to core banking business. With that experience to learn from, why should any bank do other than to act prudently and invest their customers' funds safely?
MASSIVE PROFITS
Every financial institution or business enterprise can make massive profits from investing in government paper, so why do otherwise? When I hear government ministers and other apologists preaching and scolding investors and bankers to invest in productive activities instead of government paper, I simply smirk, because I wonder if they think the money brokers, money traders and moneymen are really stupid. Did the government set aside 98 billion dollars to pay interest alone this year, even after paying out nearly 90 billion dollars last year? With that amount of money available why shouldn't the banking and commercial enterprises scramble to get a part of it?
Just imagine, nowhere has government set aside even 10 billion dollars for productive activities and to create jobs; instead, it has provided in this year's budget for over 230 billion dollars in government paper for the so-called money hawks to share. Ten years ago, when the budget was one-tenth the size of this year's budget actually it was under 30 billion dollars this column warned that the high interest rate policy is backward and asinine. Then, as now, we are told that the high interest rate is the only remaining monetary tool to protect the value of the currency. I warned then, as I do now, that devaluation was/is inevitable.
In fact, when the dollar was less than 35 to 1, I predicted that it was only a matter of time before it would reach 50 to 1, in spite of the massive amount of money being spent to protect it. Similarly, we will spend many billions to keep the currency close to 60 to 1 but it won't be long before 62 to 1 is ancient history. Naturally, the government supporters and stooges in the media will lambaste me for talking down the currency but they can do the reverse, talk it up and threaten speculators with revaluation.
Prudent men of business are thinkers, not believers. They act with common sense and take good risks. Appeals to faith, charity and the national interests are the tools of preachers and politicians but they do not move prudent investors. Whether they are investing their own money or other people's money, investors are motivated primarily by the real returns and safety of their investment. Now, for the economic dunce, the money brokers will not invest in government paper if the real returns are unattractive and, with taxation and inflation, under 16 per cent on long-term government paper is just not fiscally prudent or enticing.
LOWER INTEREST RATE
Actually, we want lower interest rate to make it unattractive to invest in government paper. I would urge the government to continue to lower interest rate steadfastly, to single digit if possible, which would force investors to seek other forms of prudent investment. The real drawback is that the currency will slide but, as I argue, that is inevitable anyway. The sooner we face the reality that the high interest rate policy has not worked to protect the currency, then a sustained policy of low interest rate and a managed devaluation may well be the stimulus to revive the economy.
Interestingly, it is a recommendation I made 8 years ago but, not surprisingly, was ignored, as it will be, again. Then, as now, we will have the devaluation, at a very high cost, which, again, will neither be managed nor controlled by the high interest rate policy - the more things change, the more they remain the same.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at Delchuck@hotmail.com.
