Beyond the local to the global

Martin Henry, Contributor

This weekend the Jamaica Labour Party is in conference with both itself and the Government it now forms mired in difficulties. The Coke extradition/Manatt, Phelps, Phillips matter refuses to go away. Indeed, the belatedly announced commission of enquiry by the prime minister and party leader has unleashed fresh storms of controversy.

 The governing party, with its razor-thin majority, has "lost" the South East St Ann constituency by judicial ruling in the long-running dual-citizenship saga.

A minister of government is now facing serious allegations of criminal conduct. And, of course the economy is flat. Crime, though dented, remains highly visible and vigorous. And corruption remains the backdrop of governance, with fresh scandalous incidents breaking out ever so often. The Tufton/Chang/Foote contest for the leadership of the Area Four Council of the party, highlighted again, how entrenched violence and intimidation are in our political process, even within a single party.

Jamaica distracted

The events of the last year has distracted the Government, the prime minister told the G2K arm of the party, from pursuing its critical objectives. The whole country has been distracted. And our media have performed exceptionally well in feeding that distraction. The consonance - and parochialism of topics up for "analysis" among the plethora of talk shows is remarkable.

There is a big world out there. And what happens in it is far more likely to determine the Jamaican future than anything that governments, however corrupt and inept, might do here.

While we were distracted by our extradition/Manatt gorilla in our little room, the world was passing through the most severe recession in some eight decades. Interestingly, Jamaica has fared better than many a far richer and more powerful country. The Government was far too distracted, and, in any case, too impotent to be the real cause of our holding our head above the water. I have a sneaky suspicion, which our economic analysts can look into, that the generally ramshackle state of the national economy with a weak, untradeable currency and a vibrant informal sector, and, therefore, a relatively weak integration into the global economy, may have done more to save us than any clever manoeuvre of a government that many have said did not even grasp the magnitude of the problem. Many countries which apparently understood the problem better have fared worse than we have.

The recession had its roots in a global financial crisis. And that crisis of money won't be going anywhere anytime soon.

Absolutely, the biggest event of the last couple of weeks was the G20 Summit in Seoul, South Korea. How much news and analysis, or mentions by our government have you seen on this major world event which will affect our future far more than Golding's resignation ever could? A relatively minor leadership race in the JLP, which was conducted fairly smoothly, despite the threats by political hooligans, consumed massive amounts of our media time and space - and our attention.

If the winner Christopher Tufton, now minister of agriculture, becomes prime minister tomorrow morning, Jamaican bananas would still be off the world market, and sugar would still be on its way off. Both these commodities, historically pillars of the Jamaican economy, ironically, are being forced off the international market by free-trade rules engineered by the World Trade Organisation. But the global economy is in danger of reverting to protectionism.

The 11-year-old G20, which has added the big developing countries like China, Brazil and India to the old G7 plus Russia industrialised-developed countries generate 85 per cent of the world's economic. In that scheme of things, Jamaica, population-wise the size of a medium-sized city and a poor one at that in any of those countries, simply does not matter. If this country fell out of the world economy, there wouldn't be a ripple.

The fundamental issues dividing the G20 going into the summit divided them coming out: currency values and trade, with both tied together. The Financial Gleaner carried two telling headlines last Friday (for stories posted by the Associated Press, nothing local): "Pessimism spreads as G20 leaders show sharp split", and "Leaders struggle to find common ground on currency, trade disputes".

And among the outpouring of commentary in the press of English G20 member countries is this piece from Robert Reich a former United States (US) Secretary of Labour and now a university professor, "G20 failure moves global economy to the brink of protectionism".

Protectionism

By the way, protectionism is something which Chris Tufton favours for Jamaican domestic agriculture and which manufacturers here have always wanted but which is enormously dangerous to world trade. Outgoing Brazilian president, the inimitable Lula (Luiz Inacio Lula da Silva) neatly pinned down the issue at the Summit. "If the rich countries are not consuming and want to grow their economy on exports, the world goes bankrupt because there is no one to buy. Everybody would like to sell." And the world, for a number of reasons, is closer to bankruptcy than it has ever been for a while.

Money has become itself an intangible tradeable commodity, the biggest and fastest moving in the world, with trillions of units traded on any given day. Speculative messing with money was at the heart of the global financial crisis which precipitated the global recession. To drag their economy out of recession, every country wants to export more and import less. Currency devaluation makes goods cheaper for export. And importing less can be assisted by "protecting" the domestic market with trade barriers which keep other countries' goods out.

This is at the heart of the clash between the world's biggest consumer (the United States) and the world's biggest exporter (China).

In a letter to fellow G20 leaders, President Obama wrote that the US could not remain the world's consumer supporting others' economies by borrowing and spending. "The foundation for a strong and durable recovery will not materialise if American households stop saving and go back to spending based on borrowing," the president said.

The US is adamant that the Chinese yuan is artificially undervalued to boost their exports. In his letter, Obama argued for exchange rates determined by the market and no more "undervaluing currencies for competitive purposes". At the same time, the US Federal Reserve is seeking to pump another $600 billion of new money (essentially printed money) into the sluggish economy. This will effectively devalue the dollar - artificially.

The dispute, another foreign-based news report says, is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession. The Brazilian finance minister is reported as saying the possibility of a currency war "absolutely" remains.

Financial analysts are warning that the move by the US to "to grow our own economy", in Obama's words, by pumping in $600 billion of printed money could push an inflow of cash in search of higher returns into the financial markets of developing nations. This would raise the value of their currencies, making their exports more expensive, and create bubbles in stocks and other assets. Remember the currency trade is the biggest trade in the world.

When the Government of Jamaica moved to push down interest rates on Government investment instruments through the Jamaica Debt Exchange Programme (JDX) and wants commercial banks to follow, this not only reduces the debt burden but makes the country less attractive to speculative hot money in search of investment with the sorts of economic consequences we have just noted.

The JDX is, quite simply, the most strategically important economic move that this administration has yet made as a minuscule player in a global economy where the events of Seoul are far more important than the manoeuvres of Kingston.

Critical mistakes

With money now only bits of paper, plastic, or electronic signals, with nothing really behind it except the confidence of users, governments everywhere can manipulate money supply at will, and with potentially far more damaging results than can be caused by private speculators, however, powerful. It really is only a matter of time before critical mistakes are made in an integrated global economy, miscalculations which will rapidly ripple through the system causing it to buckle.

More and more, people sense the problem of 'money', and that critical confidence factor is on the line. One manifestation of the unease, with which we Jamaicans can readily identify, is the significant rise in gold prices, gold historically being a tangible asset and store of wealth. This is driving the gold trade in our economy, linked to the global demand. The big economies of the world used to peg their paper money to a gold standard, the paper bills being nothing more than promissory notes.

To offset these clear and present dangers to the global economy, which nation states themselves seem unable to resolve if the Seoul Summit is anything to go by, there will, inevitably, be a push for a global economic manager believed to have the clout required to fix the system and to get players to play by the rules the manager sets.

Martin Henry is a communications consultant. Feedback may be sent to medhen@gmail.com or columns@gleanerjm.com