FX needs stability, say business stakeholders
Proven Management Limited CEO Chris Williams (left) makes a point at Observer’s Monday Exchange held at the newspaper’s headquarters in Kingston, on Monday. Looking on are: Omar Azan, president of the Jamaica Manufacturers’ Association (second left) and Mayberry Investments’ chairman, Chris Berry. (Photo: Junior Napthali)
Business and manufacturing stakeholders yesterday appealed to the Government to stabilise the local currency in order to fillip exports following the drop in local sales due to the recession.
The revaluation has made local goods more expensive to sell overseas thereby jeopardising growth for the ailing economy, argued Omar Azan president of the Jamaica Manufacturers’ Association (JMA) speaking at the Observer Monday Exchange at the newspaper’s head offices in Kingston which focused on the economy.
“Recently when the domestic market started squeezing down, a lot of manufacturers went overseas to try to get back some volumes,” he said of the sector before referring to his own firm, Boss Furniture. “We have seven containers leaving Friday for the Eastern Caribbean because we went out aggressively due to the slowdown in the domestic market. But the revaluation will really probably hit us hard. I would really like stability.”
The strengthening of the dollar has resulted in falling food prices and reduced interest cost payment for the Government on its US denominated debt. But Christopher Williams CEO of Proven Management Limited noted that the cost may be more than the saving to the nation.
“Its a double-edged sword clearly there are some saving on the debt side but you run the risk of reducing your earnings on the US dollar side as a result of the same revaluation, as it relates to tax income on tourism and income at the ports. It also threatens export earnings,” Williams told the Monday Exchange. “You have to balance it and the Central Bank has already set the signal that they don’t want the pace of the revaluation (to increase). We have seen the reduction of repo rates and the intervention on the bank so it looks like this is it. Stability is the order of the day.”
The dollar had stabilised last week following the reduction of the average treasury bill yields to 9.26 per cent for 182 days to the lowest in some 28 years. However yesterday the revaluation resumed shaving another eight cents against the US counterpart to close at an average selling price of $85.79 on Monday. Over the past three months, the Jamaican dollar clawed back nearly $4 dollars against the US dollar: It appreciated by 4.3 per cent against the US dollar, 1.26 per cent against the Canadian and 1.7 per cent against the Pound Sterling.
Wisynco Group Limited manufacturers and distributors of some 100 premium brands in Jamaica two weeks ago announced a three per cent roll back on its prices.
“The roll back was strictly due to the revaluation,” William Mahfood managing director of Wisynco told Monday Exchange. Last week Jamaica Broilers announced a roll back of chicken prices, poultry products and Hi Pro animal feeds due also to the strengthening of the dollar.
The Jamaican dollar lost a quarter of its value against the greenback between September 2008 to February 2009 before stabilising around 89.50 in 2010. Additionally, over 12 months ending March 2010, the Jamaican dollar lost 41 per cent of its value against Australian dollar and 30.6 per cent against the Real. All movements were compiled utilising Bank of Jamaica data. The BOJ governor Brian Wynter last month stated in his quarterly press briefing that “most of appreciation” was “influenced by net private and official capital inflows and, to a lesser extent, tourism receipts”.
Since February, the Jamaican economy had been infused with funds geared at increasing the stability of its currency and accounts. It secured a US$1.2 billion ($107.4 billion) stand-by arrangement with the International Monetary Fund (IMF), and an additional US$800 million ($71.6 billion) worth of multilateral loans — US$200 million from the World Bank US$200 million and US$600 million from the Inter-American Development Bank (IDB). A measure of the increased confidence was the stability of the dollar and the 330 basis point dip in the yield curve on Government of Jamaica Global Bonds so far in 2010.
In mid February, rating agency Fitch upgraded Jamaica’s long-term foreign and local currency ratings to “B-” from “CCC” and “C” respectively, with a stable outlook. Rating agency, Standard & Poors followed a week later, hiking its long-term foreign and local currency sovereign credit rating on Jamaica to “B-” from “SD” or “Selective Default” with a stable outlook.
Then in March, rating agency Moody’s upgraded Jamaica’s local and foreign currency bond ratings to B3 from Caa1 on foreign currency and Caa2 on local currency, which it said reflected “diminished credit risks following the domestic debt exchange completed in February”. Jamaica had executed a voluntary debt swap, reached as a conditionality of the IMF agreement.
The debt swap registered a participation rate of more than 99 per cent and will result in Government saving some $40 billion on interest cost payments in its first year — due to a reduction in interest rates and extension of debt maturities.