Friday, March 01, 2013

Devaluation not good for Jamaica

Over recent weeks there have been utterances from several quarters - including economists, analysts, and technocrats – about the benefits of devaluation for the country.

The argument being made, is based on the theory that if we were to devalue the J$ in relation to the US$ then our exports would get relatively cheaper and this would lead to a greater demand for Jamaican exports. This is a strategy that countries like the US, Europe, and China are well aware of, and it seems as if there is a constant currency value war between these countries. The US for example is constantly complaining that China’s currency is undervalued, which leads to China’s goods being cheaper than the US gods, resulting in the massive trade deficit the US has with China.

If this argument holds true then the position being put forward by those in favour of the Jamaican dollar being devalued, and as some put in finding its true value, should be correct then.

The question is, if this argument is true then why has the J$ moved from a position in the 70s where it was stronger than the US$, to where it is today (approaching 100) and it seems as if our economy is getting worse, and more importantly our trade deficit is expanding. Shouldn’t the massive devaluations we have seen (over average $2.50 per year since the 70s) result in an improved trade deficit.

This is where those who propose devaluation fall short in their argument, as the assumptions they make is incomplete.

The fact is that devaluation can only help a country’s currency IF and only IF the country’s currency being devalued has the productive capacity to replace the imports. So in Jamaica’s case where 45% of our imports are oil (35%) and food (10%), the question to be asked is do we have the productive capacity to replace the imports. So as expensive as oil gets can we substitute it with locally produced energy sources? Or can we replace our food imports with locally produced foods?

The answer to these questions is no. So therefore irrespective of how much the dollar is devalued, we will still need to import oil and food, because we have not put the energy policy in place to grow for example renewable energy generation to replace foreign oil. And in the case of food, praedial larceny, lack of proper roads, and using farm lands for construction inhibits local food production.

The other argument for imports that we can substitute with local production, is that 70% of our export content is from imported raw materials, as labour costs (unlike China) are a very small percentage of inputs. So it follows that as the dollar devalues the cost of exports increase also because more money has to be found for the imported content.

Therefore, my conclusion, as was the same for Seaga and Davies, is that the only thing devaluation does is cause inflation and erodes spending power. The only way to solve the problem is to fix the structural issues of crime, energy, and bureaucracy.

63 comments:

Anonymous said...

Mr. Chung, I would also argue that the devaluation argument contains a logical fallacy:

Just because someone's goods are cheaper does NOT mean that consumers are more likely to buy it. The consumers have to want it first. And consumer wants are dictated by price and quality. People will pay a lot of money for German vehicles because they want the vehicles and are assured of a high quality product. But offer someone the choice between a cheap 1980s Toyota and an even cheaper 1980s Lada and many persons are more likely to buy the Toyota because the quality is perceived to be better. And Jamaica definitely has a problem in this regard because some (note I said some, not all) of our industries are antiquated and inefficient and thereby produce goods of lower quality than our international competitors. (a good example is the local printing industry which had the JMA as an advocate in recent times even though a JMA representative admitted (on television no less) that locally made books are more expensive but of lower quality than books produced elsewhere such as in the USA, Trinidad and China).

The arguments put forward by "devaluationists" is in essence related to Say's Law for the macroeconomy (as outlined by Wilberne Persaud in his article entitled "Devaluation Solution Persists Despite Contrary Evidence" for the Financial Gleaner on March 1, 2013). It essentially rests on the supply-side economics idea that "supply creates its own demand". But this is a dangerous argument on which to rest the fate of the spending power of thousands of people.

For the devaluation argument to work people must want to buy the goods available from a country simply because the goods already exist. And they must be more willing to buy them (and willing to buy more of them) as a result of the devaluation. But if they don't wish to buy the goods or prefer to choose better quality but more expensive goods or competing goods of similar quality but lower (sustainable) prices from countries which can actually benefit from devaluation then the entire argument for devaluation of the Jamaican dollar falls down.

I can't imagine that it helps any little bit that some (if not most) of Jamaica's exports are priced in US dollars (as any sensible exporter is going to prefer to price their goods in US dollars). So unless the US dollar price of the exports drop in line with the devaluation (for example, good A used to cost J$90 and was priced as US$1 when the exchange rate was 90:1 but now still costs J$90 but is priced as US$0.93 when the rate is 97:1) then the only benefit from devaluation would be that exporters see their earnings go up without having to raise their prices to clients. And exporters would be disinclined from dropping the price quoted in US dollars because the increased profit they get from the devaluation would be useful to offset the inflation and erosion of spending power caused by the inflation.

Anonymous said...

Continuing,

It would be nice if the BOJ and GOJ could take the opportunity afford by the current trend to fix the dollar when it reaches a rate of 100:1 and then either keep that rate, or revalue the currency to a rate of 2:1 (so J$50 old dollars would be equal to J$1 of the revalued currency (with a new currency code to replace the old JMD code, perhaps JMR with the R being used for "revalued"). Money could then be saved by declaring all old coins to be of the same value in the revalued currency and then just reissue some new $50 and $100 bills maybe with Sam Sharpe and Nanny on them to ensure all the national heroes are on the money). Perhaps it might even be possible to institute something similar to the 1948 currency reform in Germany where the old currency (the Reichsmark and Rentenmark) were exchanged for the new currency (the Deutsche Mark) at a rate of DM 1 = RM 1 for the essential currency such as wages, payment of rents etc., and DM 1 = RM 10 for the remainder in private non-bank credit balances, with half frozen (large amounts though were exchanged for RM 10 to 65 Pfennig) and where each person received a per capita allowance of DM 60 in two parts, the first being DM 40 (on the day of the currency reform, Sunday June 20, 1948) and the second DM 20 (one month later).

Anonymous said...

I pay a quick visit daily a few sites and websites to read posts, except this blog gives feature based writing.


Feel free to visit my web-site; http://puregarciniacambogias.com

Anonymous said...

Hey there! I know this is kinda off topic but I was
wondering if you knew where I could locate a captcha plugin for my comment form?
I'm using the same blog platform as yours and I'm having problems finding one?

Thanks a lot!

Also visit my webpage: http://supremegarciniacambogia.org

Anonymous said...

Useful information. Fortunate me I found your site by accident,
and I am surprised why this accident didn't came about earlier! I bookmarked it.

My webpage ... Waist to Height ratio Ranges

Anonymous said...

First off I would like to say great blog! I had a quick question that I'd like to ask if you do not mind. I was curious to find out how you center yourself and clear your head before writing. I've had difficulty clearing my mind in getting my thoughts out.
I do enjoy writing however it just seems like the first 10 to 15 minutes tend to be wasted simply
just trying to figure out how to begin. Any recommendations or hints?
Appreciate it!

Also visit my blog; weight loss calculator

Anonymous said...

Hello to every one, it's truly a good for me to pay a visit this web site, it contains important Information.

Here is my web page: diet plan for women

Anonymous said...

Very nice post. I definitely appreciate this website.

Thanks!

Also visit my page - healthy diet plans for women

Anonymous said...

constantly i used to read smaller articles that also clear their motive, and that
is also happening with this article which I am reading
at this time.

Also visit my web-site :: bankruptcy laws in florida

Anonymous said...

Hi there! This post could not be written any better! Reading through
this post reminds me of my previous room mate! He always kept talking about this.
I will forward this write-up to him. Pretty
sure he will have a good read. Thank you for sharing!


My web site ... fastest way to lose weight

Anonymous said...

Greate post. Keep posting such kind of information on your page.

Im really impressed by it.
Hi there, You have done an incredible job. I will certainly
digg it and in my view suggest to my friends. I am
confident they'll be benefited from this site.

Feel free to visit my page Razberri Ketone Slim Reviews

Anonymous said...

Good day! This is my first visit to your blog! We are a group
of volunteers and starting a new project in a community in the same niche.

Your blog provided us beneficial information to work on. You
have done a wonderful job!

My page crash diets that work

Anonymous said...

What's up, always i used to check webpage posts here in the early hours in the dawn, for the reason that i like to learn more and more.

Feel free to surf to my web-site diet plans that work

Anonymous said...

What's up friends, how is the whole thing, and what you desire to say regarding this piece of writing, in my view its truly amazing in support of me.

Feel free to visit my website :: Airplane Flying Games

Anonymous said...

Peculiar article, totally what I was looking for.

my blog: airplane game

Anonymous said...

I have read so many articles or reviews regarding
the blogger lovers except this article is genuinely a nice post, keep it up.


Check out my web-site ... www.christkorner.com

Anonymous said...

Great article! This is the kind of information that should be shared across the web.
Disgrace on the seek engines for no longer positioning this submit upper!
Come on over and discuss with my web site .
Thank you =)

Also visit my website :: Walking Calculator

Anonymous said...

I feel that is among the so much significant info for me.

And i'm happy studying your article. However should commentary on some basic things, The site taste is wonderful, the articles is in point of fact nice : D. Just right task, cheers

My webpage - how to lose weight fast

Anonymous said...

Hello mates, nice paragraph and nice urging commented at this place, I am in fact enjoying by these.


Also visit my blog post - diet plan for women

Anonymous said...

An impressive share! I've just forwarded this onto a coworker who was doing a little homework on this. And he in fact ordered me lunch simply because I found it for him... lol. So let me reword this.... Thank YOU for the meal!! But yeah, thanx for spending time to talk about this issue here on your website.

My site :: waist to height calculator

Anonymous said...

Hurrah! In the end I got a weblog from where I be able
to in fact get helpful information concerning my study and knowledge.


Look at my web site ... waist to hip ratio calculator

Anonymous said...

Wonderful goods from you, man. I have bear in mind your stuff previous to and you are just too wonderful.
I actually like what you've obtained here, certainly like what you're
stating and the way in which during which you say it.
You're making it entertaining and you still care for to keep it sensible. I can't wait to learn far more from you.
This is really a tremendous site.

Have a look at my page Bmr calculator To Lose weight

Anonymous said...

Heya i'm for the first time here. I found this board and I find It really useful & it helped me out a lot. I hope to give something back and aid others like you aided me.

my weblog ... rheumatoid arthritis pregnancy

Anonymous said...

Awesome post.

Feel free to visit my web page ... healthy diet plan

Anonymous said...

My partner and I stumbled over here by a different website and thought I may as well check things out.
I like what I see so now i am following you. Look forward
to looking at your web page yet again.

Take a look at my web page - Diets That Work For Women

Anonymous said...

What's up, I would like to subscribe for this weblog to take hottest updates, therefore where can i do it please assist.

Here is my weblog; hip waist ratio

Anonymous said...

Hey I am so excited I found your weblog, I really found you by mistake, while I
was searching on Bing for something else, Anyways I am here now and would just like
to say thank you for a remarkable post and a all round enjoyable
blog (I also love the theme/design), I don't have time to read through it all at the moment but I have bookmarked it and also included your RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the superb work.

Look at my web blog :: diets that work Fast

Anonymous said...

Hi there, of course this paragraph is truly fastidious and I have learned lot of
things from it on the topic of blogging. thanks.

My weblog raspberry ketones reviews

Anonymous said...

Admiring the time and energy you put into your blog and detailed information you offer.
It's awesome to come across a blog every once in a while that isn't the same out of date rehashed information.
Wonderful read! I've saved your site and I'm adding your RSS feeds to my Google account.


Feel free to surf to my web site; healthy diet plans

Anonymous said...

Way cool! Some extremely valid points! I appreciate you writing this article plus the rest
of the site is extremely good.

My page graduate certificates online

Anonymous said...

It's really very complicated in this busy life to listen news on Television, so I only use world wide web for that purpose, and take the most up-to-date news.

Here is my blog ... ketone Diet

Anonymous said...

If some one desires to be updated with most up-to-date technologies therefore he must be go to see this
site and be up to date every day.

Stop by my web-site bmi calculator for men

Anonymous said...

I am sure this paragraph has touched all the internet visitors, its really really pleasant paragraph on building up new web
site.

Also visit my website; What Should I Weigh

Anonymous said...

This is very interesting, You're a very skilled blogger. I've
joined your feed and look forward to in quest of more of your fantastic post.
Also, I've shared your web site in my social networks

my website diet plans that work

Anonymous said...

Hello, yes this paragraph is really good and I have learned lot of things from it concerning blogging.
thanks.

Review my blog post ... Razberri Ketone SLim

Anonymous said...

Hi there, everything is going fine here and ofcourse every one is sharing facts, that's really good, keep up writing.

Visit my homepage - online marketing

Anonymous said...

Thanks in support of sharing such a pleasant idea, article is fastidious, thats
why i have read it entirely

Also visit my site :: acai ultralean

Anonymous said...

Aw, this was a very nice post. Finding the time and actual effort to produce a good
article… but what can I say… I procrastinate
a lot and don't manage to get anything done.

Check out my web page :: http://dietgreencoffeereview.com

Anonymous said...

This paragraph presents clear idea designed for the new visitors of blogging, that genuinely how to do blogging.


Feel free to surf to my website :: diet plans for women to lose weight

Anonymous said...

Remarkable things here. I am very glad to see your post. Thank you so much
and I'm looking ahead to contact you. Will you please drop me a e-mail?

Here is my homepage: Saffron Extract

Anonymous said...

Can you tell us more about this? I'd care to find out some additional information.

My weblog ... http://rosannecash.com

Anonymous said...

Can I simply just say what a comfort to uncover someone that really
knows what they're discussing on the internet. You certainly understand how to bring an issue to light and make it important. A lot more people really need to look at this and understand this side of the story. I was surprised that you aren't more popular given that
you most certainly have the gift.

Also visit my site: expert appliance repair Odessa Florida area

Anonymous said...

Ahaa, its good discussion regarding this piece of writing at this place at
this website, I have read all that, so at this time me also commenting at this place.


Feel free to surf to my blog post: appliance repair Dunedin FL contractors FL

Anonymous said...

When someone writes an paragraph he/she retains the
image of a user in his/her brain that how a user can know
it. So that's why this piece of writing is amazing. Thanks!

my weblog: free estimate for appliance repair Safety Harbor FL

Anonymous said...

I'd like to find out more? I'd want to find out
some additional information.

my web-site :: Weight Loss Diet Patch

Anonymous said...

Thanks designed for sharing such a pleasant thought,
post is good, thats why i have read it fully

Feel free to surf to my weblog ... raspberry ketones

Anonymous said...

What's up, I would like to subscribe for this blog to take most up-to-date updates, so where can i do it please help.

Feel free to visit my website - Batman Games Online

Anonymous said...

Thanks for finally writing about > "Devaluation not good for Jamaica" < Liked it!

my blog - insurance medical
private

Anonymous said...

It had been a while since I visited web site with
such quality information. Thansk lots for the useful information

my site :: having trouble getting pregnant at 40

Anonymous said...

What i don't realize is in fact how you're now not really much more well-liked than you may be now.
You are very intelligent. You recognize therefore significantly in terms of this matter, made me individually consider it from so many various angles.

Its like men and women aren't interested until it is something to accomplish with Girl gaga! Your own stuffs outstanding. At all times care for it up!

Here is my website :: what should i weigh

Anonymous said...

Good day! I know this is kinda off topic but I was wondering if you knew where I could locate a captcha plugin for my comment form?
I'm using the same blog platform as yours and I'm having difficulty
finding one? Thanks a lot!

my site :: what should i weigh for my height

Anonymous said...

Get into a conversation with him will want to know that you can say to their Will I
Ever Get A Girlfriend or the woman they desire.
That's a pretty easy adjustment to make, and embrace them whole heartedly. How you moveProve to them that you've got a perfect control
over everything within your life. That is way, too 90's!

Here is my web blog: how do you get a Girlfriend

Anonymous said...

Past car insurance total loss claims filed by the driver helps him
pay for the reasonable and necessary care/expenses that is not high on the list of those that represent a greater possibility of accidents happening.
There is also no need to prove fault or to adjudicate any claims - they can simply be submitted for reimbursement to auto
insurers. Don't get the jazzed up sports car if you experience theft or damage.

Feel free to visit my homepage :: continue reading this..

Anonymous said...

This piece of writing is actually a pleasant one
it assists new the web viewers, who are wishing for blogging.


my web blog ... Slim Lipo Plus

Anonymous said...

It's actually a great and helpful piece of info. I am satisfied that you simply shared this helpful information with us. Please stay us up to date like this. Thank you for sharing.

My web site ... buy raspberry ketone

Anonymous said...

Hey! This post could not be written any
better! Reading this post reminds me of my old room
mate! He always kept talking about this. I will forward this page to him.
Pretty sure he will have a good read. Thank you for sharing!


My web site :: Slim Helper Review

Anonymous said...

Heya i'm for the primary time here. I found this board and I in finding It truly useful & it helped me out a lot. I'm hoping to provide something again and aid others
such as you aided me.

My weblog :: Diet Patches

Anonymous said...

3 Choice of providers - When it comes to car insurance 90
days. You are likely to discover that you can obtain online will
require absolutely no personal information when requested.
However, if you did agree to place your business
elsewhere. We will automatically quote our
customers the state requirements it is always better
to take a policy from your existing insurance provider or get one from foreign car
insurance 90 days providers. Maybe you haven't been in an accident that you were the cause of and are then sued by the family.

Visit my weblog cheap auto insurance

Anonymous said...

You need to understand that although you feel like maybe your boyfriend or how to attract beautiful women
is among the guests. Women want a guy who treats women with respect, not like one of her pass times that appeals to you
too. So you must do as described, you accept him for exactly who he is
so that she feels that way about you, she most
definitely doesn't want to join them, it's her loss. Getting your
ex how to attract beautiful women so long as you are suddenly more successful
with women.

Anonymous said...

If you want to increase your experience just keep visiting
this web site and be updated with the newest information posted here.



Also visit my web page: zubzero refrigerator Wesley Chapel

Anonymous said...

This information is priceless. How can I find out more?


Also visit my web page; Plumbers Melbourne; ,

5689 said...

zzzzz2018.8.4
coach outlet
vibram fivefingers
maillot football pas cher
off white clothing brand
coach outlet
nike blazer
manolo blahnik
nike shoes
super dry
ugg boots

Anonymous said...

supreme outlet
hermes
nike off white
goyard
golden goose outlet
hermes
bape shirt
jordan 1
palm angels
kd 14