The real benefit of changes in the value of the Net International Reserves (NIR) is in its purchasing power.

In December 1993 Jamaica’s NIR came positive for the first time (since tracking began) and it has not looked back. What is amazing is that at that point the NIR at US$12.51M could have bought an estimated 10.27 weeks of goods import yet at the end of December 2008 the NIR at US$1,795.44M can only buy 14.38 weeks.

As depicted in the chart above, the first two years (1993- 1995) saw the weeks of goods import growing faster than dollar value, the next 8 years (1996- 2003) they moved almost together and thereafter the decline in weeks of goods import accelerated. The weeks of goods import peaked at 35.5 in March 2002 and the amount of the NIR at US$2,352.99M in November 2006.

In 2006 the cumulative growth in weeks import fell below the cumulative growth in value for the first time. Things got progressively worse as cumulative inflation eclipsed the weeks of goods import in 2007 and the dollar value in 2008.

At the end of February 2009 the NIR stood at US$1,601.85M, an estimated 12.89 weeks of goods import. This brings us perilously close to the internationally acceptable 12 weeks of goods imports and almost back to where we started in 1993. It now calls into question the ability of the Bank of Jamaica (BOJ) to continue to defend the currency with the NIR given that in February the NIR fell US$163.13M and we need only fall US$124.27M to breach the international level.

Finding its own level

Retailers’ inability to pass through price increases is an indication that the dollar would have stabilized on its own around US$1: JA$92. But the politicians could not wait on market forces to work so they intervened. By doing so, the BOJ has once again stymied the ability of the economy to adjust to movement in the exchange rate by subsidizing importers with the sale of US dollars and undermining producers (exporters) with heightened interest rates.