Admittedly, like some Jamaican’s, I fell victim to the unquestionable acceptance of government statistics; this time it is the Bank of Jamaica (BOJ) in its latest release of the Net International Reserves (NIR) for April 2009.

The NIR for March and April were little changed at US$1,628.58M and US$1,623.60M respectively, yet the reserves in weeks of goods imports improved from 12.19 to 18.72. The magic in the formula is the estimated value of imports. In April of each year the base year changes to the new financial year (FY); the problem here is that the estimated value of imports for FY 2009/10 fell by 34.7% from FY 2008/09.

The average weekly imports for comparative periods Jan- Oct 2007 and 2008 were US$129,522K and US$176,386K respectively. The average price of Brent Crude in the corresponding period was US$70 and US$110 per barrel (bbl). Is the BOJ expecting the contraction in imports to come mainly from the drop in the price of crude given that it represents around 40% of the import bill? If so, the price of oil will need to average under US$70 bbl to get the average weekly imports down from US$136,036K in FY 2008/09 to US$88,868K in FY 2009/10.

The current base period used in the calculation of the reserve in weeks is subjective and inefficient. Here we are comparing actual NIR in dollars with projected imports. We are suggesting that: actual imports be used, like 12 months moving average, and the estimated weeks be restated to actual.

The other issue that arise is how best to utilize the NIR. No prudent householder sits on cash or hold money in the bank at a rate lower than rate of increase of essentials unless further reduction is anticipated.

As depicted in the chart above, oil price dropped from US$144.95 per barrel in July to US$38.12 in December 2008. Assuming that oil imports remained at 2003 level (27.1 million barrels per year), at US$40 bbl in December, it would have cost US$1,084K of the NIR to secure a years' supply when the NIR stood at US$1,772.94. Better yet, the BOJ could have bought call options at a fraction of the outlay instead of defending the currency to subsidize imports.

Countries that are serious about production of goods and services, for example China, would be happy to see their currency depreciate. China has things to sell and they want to sell (export) them cheap; Jamaica wants things to buy and they want to buy (import) them cheap.

Is it any wonder why China holds the world's largest foreign exchange reserves!