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Dated: 1 March 2003
Although Jamaica is not likely to be directly involved in the U.S.-led war
in Iraq or supporting activities, some financial sector captains are predicting
that Jamaica could end up paying a high economic price if the war turns out
to be prolonged.
Since the war began, the financial sector has been particular concerned that
should the war continue for a prolonged period, Jamaica could be adversely affect
in the following three reasons:
First, if the United States and its allies experience a recession as a result
of higher oil prices, this will deprive Jamaica of a major market for its exports.
Second, an increase in oil prices will be a negative shock to Jamaica as well.
And thirdly, a prolonged war, and the resulting uncertainty, is almost certain
to lead to higher interest rates, which would be a serious obstacle to growth
for Jamaica, which is already so highly indebted.
In our efforts at getting a response from the financial sector, we have contacted
several persons, whom we consider to be in the know. Among those persons were
Michael Lee-Chin of National Commercial Bank, William “Bill” Clarke
of ScotiaBank, Mark Walters of Dehring Bunting & Golding, Neville Blythe
of United General Insurance Group, Althea Robinson of JMMB, Amrit Sinanan of
RBBT, Peter Moses of Citibank, Jack Shirley at First Global Bank, Ryland Campbell
of Capital & Credit Bank, and Wayne Iton of the Jamaica Stock Exchange.
Interestingly, all, but two - Ryland Campbell and Neville Blithe- asked for
a rain check, or didnít even acknowledge our request. Although we do
recognize that the short time frame given to respond may have been a contributing
factor.
Neville Blythe, who claimed it was a little too early to say what the likely
effects of a negative fall out the war would mean or Jamaica, was particularly
concerned about the interest rate.
“Before a single bomb was dropped by the U.S.-led forces on Iraq, interest
rates were already at an unacceptable high, especially at a time when we werenít
earning enough foreign exchange to compensate for this demand,” said Blithe,
who was responding through his Communications Manager, Gail Sommerville.
Capital & Credit Group managing director, Ryland Campbell, who responded
via e-mail, confirmed that a prolonged war could likely bring about a recession
in the United States that would certainly be a recipe for a multiplier effect
on all countries in the world, including Jamaica, because the U.S. both directly
and indirectly is a major consumer of the worldís oil in its domestic
market, and by their companies overseas.
“Jamaica like all other countries, who depend on foreign exchange earnings,
particularly from the U.S., and is a consumer of oil imports,” Mr. Campbell
told Businessuite, “will be impacted negatively by the reduced foreign
exchange inflows and increased import costs especially for oil. Bauxite and
alumina, as well as, other exports to the United States market would make Jamaican
products uncompetitive.”
Secondly, he felt that higher oil prices would mean a considerable burden on
the domestic cost of electricity, transportation, construction, and for the
nationís food imports. This negative shock, he believes, would naturally
lead to substantial reductions in government spending, pressure on wages and
a generally higher cost of living.
“A prolonged war is most undesirable,” Mr. Campbell said, “albeit
a path not wholesome in the first place.”
A prolonged war, he feels, would ‘breed uncertainties, namely devaluations,
price gouging and lay-offs.’ And even though interest rates would have
to be increased, he sees it having little effect, unless government slashes
its own consumption by reducing its size, creating efficiencies, improving its
revenues, and improving expenditure management.
Without the government making such preemptive strikes, Mr. Campbell, who is
hoping that there is a short war of no more than three months, says that the
“taxpayers will be the ultimate burden bearer,” despite their limited
capacity in a recession.
Opposition Spokesman on Finance, Audley Shaw, doesnít think the taxpayers
are in a position to bailout anybody anymore, not after FINSAC I. War or no
war, he believes there is FINSAC II looming on the horizon, and “anybody
gets into trouble under this FINSAC II, they are going to go down the tube,
as the state in which our fiscal account finds itself, taxpayer will not be
able bail out in another round.” With the coming budget debate due in
April, the opposition spokesman chose to be more reserved with his solution
to the countryís economic problems.
“The (Finance) Minister will have to borrow more money - but borrow money
cheaper - borrow it cheaper from non-traditional sources abroad - borrow it
from Jamaicans overseas - borrow money from the private sector in Jamaica, as
well, and say to them, we are bringing fiscal discipline to the table. Now in
exchange for that, we are asking you to accept lower interest rates on the money
that you lend us,” said Mr. Shaw, who spoke at a recent Kiwanis Club of
Kingston luncheon.
Mr. Shaw also called on the private sector to demand that the government use
an international standard of management, which will require proper accountability.
”If we donít make that demand,” he argued, “and if
the government does not respond, a social explosion awaits us from a bewildered
population who would have run out of time, who would have run out of patience,
and who keep thinking that all they are being asked it to do everyday is to
band their belly a little tighter, while the government continues in its perpetual
plundering of the public purse. The people of Jamaica are not in the mood to
accept and to take from him (the Minister of Finance, the Hon. Omar Davies)
another fool of the people budget.”
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