IMF says JMD more competitive after depreciation
Published:Wednesday | April 24, 2013 | 12:00 AM
The value of the Jamaican currency has fallen by more than seven dollars year to date.
This will help stimulate exports and regain lost competitiveness, International Monetary Fund (IMF) director Gian Maria Miles-Ferretti argued last week.
The official did not say whether the depreciation which has the JMD trading above J$99 per USD was an IMF conditionality.
Jamaica is now more attractive to tourists and productive enterprise, argued Miles-Ferretti, IMF deputy director of the Western Hemisphere department at a Washington press briefing last week.
"So, for a number of years, Jamaica had become more expensive relative to its trading partners," argued Miles-Ferretti in the transcript of the briefing obtained by Wednesday Business.
"What has happened in the past few months is some reversal, some depreciation of the exchange rate that has reversed some of that - you can call it loss in competitiveness that Jamaica had experienced during the past few years."
Strong appreciation
Miles-Ferretti indicated that over the last few years, the Jamaican economy experienced a "strong" appreciation of the Jamaican dollar in real terms based on the slow slide while maintaining higher inflation relative to the USD.
He sympathised with locals who are facing higher prices based on the current depreciation but argued that it allows for the realignment of production.
"Now, of course, whenever an exchange rate depreciates in a country that has relatively high level of imports, undoubtedly, people notice it because import prices go up. At the same time, again, this is a little bit of a payback for a period during which the high inflation rate in Jamaica would - and its import prices in dollars - have helped in the other direction," he argued.
"However, it is very important for the Jamaican economy to increase domestic production and exports. If you look at what has happened in Jamaica last year, you see very little growth and yet a very large current account deficit, and we think that this depreciation of the exchange rate is going to help stimulate exports," he said.
The dollar dipped 12 per cent over 12 months, ending at $99.48 on Tuesday, having peaked at J$99.81 on April 12. The local currency usually depreciates about five per cent per year, making this current round higher than usual, or roughly the ninth-largest dip in 30 years, according to Wednesday Business analysis of Bank of Jamaica data.
The IMF deal delay and its impact on confidence are factored as contributing to the dip.
"Tourists look at their costs when deciding where to go, and would at the same time would encourage a shift towards domestic production and away from imports and, through those channels, help both the growth rate of Jamaica, you get more domestic production, as well as a narrowing of the current account," Miles-Ferretti concluded.
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