Ad hoc international money fix: hidden lessons for Jamaica

Merely two years ago, it was perfectly routine and effortless to park funds in United States dollars, sterling or euros almost anywhere and feel comfortable.

Sovereign debt of newer European Union member countries was good investment.

If not exactly prized, their bonds certainly were never shunned.

Things have since gone awry. Bretton Woods 1944 International Monetary Fund (IMF) has been overtaken by a techno-enhanced globalised international monetary system which today is muddled, with no generalised fix in sight.

Wall Street's meltdown and growing unease with fiscal perfor-mance of Portugal, Ireland, Italy, Greece and Spain (PIIGS) have for months led to speculation concerning the stability and long-run viability of the euro.

Tardy action by Europe's strong economies, partly a response to unpopularity of rescue measures among their populations, made a bad situation worse.

Across the Channel, Britain's multiple billion-pound fiscal deficit, primarily the result of bank bailouts, led Bank of England Governor Mervyn King to suggest, in an interview with US economist David Hale, that "tough" budgetary measures would be required, regardless of which party won the upcoming election.

The governor actually thought the severity of the measures would, once the fix was accomplished, effectively keep the victor "out of power for a whole generation".

Hale, an economist who operates a private consultancy, made this claim on Australian TV, the BBC reported.

The timing of Hale's revelation, just before the impending vote, makes one wonder as to motive. The Bank of England, although confirming its governor did meet with Hale, declined comment on the matter.

clear and present danger

The Bank of England governor is meant to be above party political fray. His alleged revealed thinking was, therefore, based on likely outcomes indicated by real numbers he knew well.

The heart of the immediate problem was the anticipated stampede from downgraded Greek sovereign debt by the private market.

Although the other PIIGS cohort all have better debt-to-GDP numbers, the potential for contagion was real - clear and present.

In light of this, after a marathon 11-plus hours of negotiations, European leaders and finance ministers agreed close to a US$1-trillion (US$957 billion really) rescue package. The flight from Greek sovereign debt threatened to engulf Europe and spread to the rest of the world. They had to act.

Indeed, it has been suggested that US President Barack Obama telephoned Germany's Angela Merkel and France's Nicolas Sarkozy encouraging the move with the US's blessing.

Spanish Finance Minister Elena Salgado broke news of the deal, which included an IMF commitment of a US$321-billion contribution to keep Humpty Dumpty whole.

This was not all. The European Central Bank revealed its intention to intervene in the government bond market to shore up liquidity should it become necessary. Stock markets from Asia to the US responded with positive surge.

The anticipated political backlash was immediate: Germany's Merkel lost a regional election last Sunday even though a condition of these measures is that Greece put its fiscal house in order.

We might consider several issues from these developments. The first, as already implied, is the need for compre-hensive reform of the inter-national monetary system.

Brazil, China and India must be invited to the banquet and not merely welcomed in the anteroom. The time has come for implementation of the rejected Keynes world currency - his 1944 'Bancor plan' - to be seriously considered, if capitalism is to continue on paths of growth we have come to expect.

talk of reformation

There will be haggling over who has what level of influence. Yet, that should turn out a much better thing to quarrel about than the disarray and inevitable rows over exchange rates, job export, protectionism in its diverse forms and the like.

Along with this, Wall Street's allow-able behaviours will have to be reformed.

But in Europe, the crux of the matter is that the PIIGS group is essentially uncompetitive with its northern neighbours. Possibilities for growing themselves out of burdensome debt is not merely a matter of financing government expenditures.

Austerity alone has rarely created conditions for growth.

Finally, these developments, if they were at all needed, should concentrate the minds of our policymakers to focus on the giant challenges we face.

The cost of doing business in Jamaica is enormously bloated by corruption and criminality. Reports of gangs taking control of more and more urban neighbourhoods suggest that normal economic activity and ordinary life are becoming increasingly difficult to live.

Depending heavily on tourism, do we wish to contemplate a future purely of all-inclusives and heavily armed, gated communities becoming the absolute norm?

Should the Chinese buy into and restart our bauxite operations, should sugar operations be successfully privatised and should we find oil and natural gas, none of these developments can ever be a guarantee of a better life for the mass of our population without significant change in the attitudes of our people.

These attitudes shall not change from the so-called grass roots or among the urban poor and unemployed. They will have to start closer to the top!

The notion of 'players by the rules being shafted', 'knowing someone who can fix things', 'contracts and jobs for the connected', 'tax evasion as normal', 'ubiquitous rogue cops and security guards' - all of these have to be shed, dumped by the wayside.

These requirements for necessary change cannot be easily achieved, little short of a revolution in the way in which we conduct ourselves.

It is by no means clear how we shall achieve this. It must, though, require commitment to building the nation on the basis of good governance, effective socio-economic and education programmes and the rule of law.

Essential though they are, JDX, number crunching and economic modelling will not be enough.

wilbe65@yahoo.com