US economist says IMF won't solve Jamaica's economic problems
Published:Friday | May 2, 2014 | 12:00 AM
Chad Bryan, Gleaner Writer
Steve Hanke, professor of applied economics at the Johns Hopkins University in Baltimore, Maryland, is recommending the creation of a currency board and the adoption of the United States dollar as solutions to Jamaica's economic concerns.
Last week, Jamaica was ranked fifth most miserable on a list of 90 countries with a score of 42.3. The list was determined on the basis of data from the Economic Intelligence Unit in Baltimore and Hanke's calculations.
The formula used to compile the list was developed by adding the unemployment rate to the lending and inflation rates, minus percentage change in gross domestic product per capita to arrive at a score.
The index revealed that the nation's main cause of misery was its high interest rates.
"The interest rates are very high because the Jamaican dollar is very weak. To try to stabilise the dollar to keep it from sinking any lower would be bad because there would be more inflation," said Hanke. He pointed out that he had predicted 10-15 years ago that the Jamaican dollar would be weak, interest rates would be high and an attempt to stabilise the dollar would cut off growth.
SCRAP JA DOLLAR
As a solution, Hanke proposes that the Jamaican dollar be scrapped and the country turn to utilising a currency board and the United States dollar.
"This would lower the interest rate immediately and then the misery index score would get a lot better. One way to solve this is to get rid of the Jamaican dollar completely and substitute it with the US dollar," he said.
"Having a currency board would be tied to the US dollar; a fixed exchanged rate and would be freely convertible and backed 100 per cent by the United States reserves. In this case, the Jamaican dollar would be a kind of clone of the US dollar," he continued.
In his opinion, there is no other solution.
When asked if Jamaica's current arrangement under the International Monetary Fund (IMF) would help in putting Jamaica on the right economic path, Hanke expressed pessimism.
"No, no! You have had many agreements with the IMF and none has ever worked. This one won't work; none will work. Until you change the currency regime, nothing is going to work in Jamaica, period - end of story. We have enough experience with the IMF and they always end in failure," he concluded.