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Financial News

Feb 2009 Financial News

Dollar dilemma - Government of Jamaica seeks to rein in galloping devaluation - Exchange rate closes in on J$90 to US$1

Feb 11, 2009

A number of important new policy initiatives are currently being vigorously pursued to halt the rapid slide in the value of the Jamaican dollar, Prime Minister Bruce Golding announced yesterday.

A nine per cent decline in the value of the local currency since the start of the year has sent jitters through the foreign-exchange market, as speculation increases about the Government's ability to arrest the slide. It is now costing almost J$90 to purchase US$1.

During yesterday's sitting of the House of Representatives, the prime minister disclosed that the Government would today sign an agreement with its Chinese counterpart for a US$100-million line of credit to be routed through the Export-Import Bank (Ex-Im).

This is part of Ex-Im measures being introduced to help stabilise the dollar.

"There are a number of other initiatives, which I am having discussion with both the minister (Audley Shaw) and the governor of the Bank of Jamaica about. There is information, which the governor has assured me will be ready and available to us by 9 o'clock tomorrow (Wednesday) based on the discussion we had on Friday," he said.

The prime minister did not provide a specific timeline for a return to normality in the foreign-exchange market, but gave the assurance that the new initiatives would produce early results.

Golding was responding to questions from Central Kingston Member of Parliament Ronald Thwaites.

In December last year, the Bank of Jamaica (BOJ) moved to stop the devaluing dollar by establishing new rates for its short-term instruments. The six-month Treasury bill rate stood at 24.45 per cent while the bank's 180-day signal rate was 21.5 per cent. This prompted commercial banks to increase their lending rates.

Yesterday, the prime minister revealed that central bank Governor Derick Latibeaudiere held talks earlier this week with two critical players in the foreign-exchange market in an effort to address the problem.

"Some understandings have been arrived at, some assurances have been given, because in this market situation it requires leadership, it requires the appropriate policy leadership, but it also requires responsible participation on the part of those who have to access that market and who are dominant players in the market," Golding explained.

Government's debt obligations, which became due on Monday, have also been paid.

According to Golding, the €200- million bond, with interest payment of $70 million and other miscellaneous costs amounting to $27 million, was settled.

"We had to pay out $297 million as part of our debt-service obligations. I confirmed with the minister and the governor of the bank this morning (Tuesday) that the payment was made yesterday (Monday)," he added.

The euro bond was partially funded through a loan from Scotiabank, valued at US$100 million (J$8.8 billion).

Scotiabank said the money would also provide budgetary support to the Government.

President and CEO of the bank, Bruce Bowen, said the loan demonstrated the bank's confidence and commitment to the country.

Financial analyst Anne Shirley told The Gleaner yesterday that the Government was now battling a confidence issue in relation to the dollar.

She suggested that the Government should have introduced a combi-nation of measures to curtail the sliding dollar late last year.

"There should have been fiscal policy as well as interest-rate policy," she said.

Edmond Campbell, Senior Staff Reporter
Jamaica Gleaner
Wednesday February 11, 2009