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News : National Last Updated: Oct 18th, 2009 - 07:21:22


Get that Governor out of "Nethersole" place
By Marston Gordon
Oct 28, 2007, 03:54

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Whether it is the US Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BOE) or the Bank of Canada (BOC), the primary functions of a central bank is monetary and financial stability. Failure to attain such calls into question the relevance of the very institution or the quality of its leadership, and even for an independent bank it reflects on the government of the day.

 

Stability

Monetary stability relates primarily to the use of interest rate as a policy tool to engender confidence in the future value of money by keeping inflation low, stable and predictable. Some countries like Jamaica has adopted inflation targets as a signal for monetary policy, but others, most notably the United States use the federal funds rate to the same end. 

 

Financial stability refers to the efficient flow of money through financial institutions, financial markets and clearing houses.

 

Performance review

The Governor of the Bank of Jamaica (BOJ) Mr. Derick Latibeaudiere took the reign of the institution on April 1, 1996. He joined in 1975 and worked his way up, including stint as Deputy Governor (1988) and Senior Deputy Governor (1995) and served nine previous governors and is the longest continuous serving governor of the BOJ.

 

With all that said, what is of utmost importance is not his length but depth of service. His performance will therefore be reviewed under the following headings:

1.      Net International Reserve (NIR)

2.      Inflation

3.      Financial sector meltdown

 

-Net International Reserve

The jewel in the governor’s dunce cap and his most spoken of achievement is the build up of the NIR. It moved from US$421.3m (12 weeks of goods imports) in Dec’95 to US$2,317.6m (25 weeks of goods imports) at Dec’06.  In dollar terms the NIR increased by 450% over the period and is an indication that most of growth in the NIR was nominal as it merely doubled in real terms.

 

While it is debatable whether the country needs that many weeks of goods imports (coverage), the more substantial point regards the way in which this country’s saving is invested. Over the last two years we have made three suggestions on better ways to utilize the NIR, and had the governor heeded, the country would have reaped significant benefits. The first was in May 2005 for a portion of the NIR to be converted from US dollars to Euro; at that time the EUR/USD traded at 1.2580 and has recently hit an all time high of 1.4275. Then in October 2005, it was suggested to use 50% of the NIR to secure a year oil import (in futures) when the price per barrel was around $65 today it topped $92. Finally in April 2006 it was for some of the NIR to be invested in gold when it traded at just under $600 per troy ounce, currently at $778.

How could a prudent banker sit idly by in US dollars when the holders of the world’s largest foreign exchange reserves were diversifying away from that currency? But certainly, to borrow at a higher rate to build the NIR than which one invests in US Treasuries is without question a recipe for bankruptcy.

 

-Inflation

Any self respecting central banker would have resigned, contract or no contract had they missed the inflation target as often as did this governor.

 

 

Fiscal Years

Target

Actual

96/97

11- 15%

9.4%

97/98

1% per month

8.9%

98/99

6- 8%

5.9%

99/00

4- 6%

8.5%                          ‘X

00/01

6.0%

6.5%                          ‘X

01/02

6.0%

7.5%                          ‘X

02/03

5- 6%

6.1%                          ‘X

03/04

7- 8%

16.9%                        ‘X

04/05

8- 9%

13.1%                        ‘X

05/06

6- 7%

11.4%                        ‘X

06/07

9%

 6.6%

07/08

7%

*4.5%                         ‘?

Source: Statistical Institute of Jamaica

* August 2007

 

The inflation targets are relatively high and on three of the four occasions over the past 11 years that actual outturn was better, the targets were close to or above double digits. Over the last 4 years we have had three consecutive years of double digit inflation and last year might well have been the same had the goods basket been revised then. For fiscal 07/08 with the new basket, earlier readings have been adjusted upwards and with 5 months into the year we have taken out almost 65% of the target without feeling the full effect of oil, wheat and corn at record highs.

The Governor is incapable of achieving inflation targets and conveniently blames his inability on external factors or Acts of God. If so, can somebody tell me his purpose!

 

-Financial sector meltdown

The Jamaica Gleaner of October 26, 2007 carried this headline on its business page “Latibeaudiere wants single financial regulator”. The article goes on to say that the Governor will be pushing for full oversight to be brought under the ambit of the BOJ, implying the disbandment of the Financial Services Commission (FSC) as the investment regulatory body.

 The FSC was formed in August 2001 to strengthen the financial regulatory landscape following the experience of the financial meltdown in the early 1990s. Prior to that the BOJ had sole responsibility for the supervision of Jamaica’s financial institutions and despite the whistle blowing by Patrick Hylton at Blaise Trust in 1994 it did little to avert the avalanche spreading to Century National, Eagle Financial and most of the other indigenous financial institutions.

Mr Latibeaudiere was a Deputy Governor at the BOJ in December 1994 when the Ministry of Finance took control of Blaise Trust and Governor in July 1996 when the same fate befell Century National. As the distress intensified, he remained firmly as Governor and when the Financial Sector Adjustment Company (FINSAC) was established in 1997, one of his Deputy Brian Wynter (currently Executive Director of the FSC) acted as the banks liaison with the new body. It is therefore no surprise that he has objected to every call for a full inquiry into the financial meltdown.

 

Hack Shaw

Despite one of the worse period of monetary and financial instability this country has experienced the Governor is on record (Gleaner- September 7, 2007) as saying that he would continue to conduct monetary policy in the same way.

The Chief Financial Minister, Mr. Audley Shaw must hack this Governor forthwith. And do it properly, not a repeat of what Seymour Mullings did the to then Governor of the BOJ in 1989.

 

 

 

Source: Bank of Jamaica, Bank of Canada, US Federal Reserve, Bank of England, Ministry of Finance and Planning- Jamaica, Jamaica Gleaner


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Get that Governor out of "Nethersole" place