Prime Minister Bruce Golding suggested Tuesday that at least one major corporation was among those responsible for driving down the value of the Jamaican dollar, even as he cautioned those, acting out of a profit motive, not to hold on to the cash to drive the price up.

Speaking to members of Montego Bay Chamber of Commerce gathered aboard the cruise ship Liberty of the Seas on Monday, Golding reminded the resort city's business leaders that Jamaica had commitments of about US$950 million from multilateral sources.

Those funds will flow into Jamaica in phases over three or more years.

Still, tourism grew at a quarter the pace anticipated and remittances were down in the November and December monthly periods, creating concerns that sufficient cash won't be available to businesses to meet their foreign bills.

Golding said tourism grew only four per cent instead of the projected 13 per cent, according to a release from the Office of the Prime Minister.

The Planning Institute of Jamaica's assessment is 2.7 per cent growth in calendar 2008 in the 'Hotels/Restaurants' category, and a 1.3 per cent decline in the December quarter.

Jamaica, the PM said, is expected to lose $27 billion in revenue as a result of the slowdown in the global economy.

Given those indicators and as foreign flows decline, Golding indicated the Jamaican economy was expected to slip deeper into recession, saying GDP was likely to decline by 2.2 per cent in 2009.

Speculative behaviour

But again, Golding cautioned against speculative behaviour.

"If earners of foreign exchange withhold it with the hope that the rate will go up, the rate will go up," he said.

"If those who needed $100 demanded $200 in anticipation of a rate increase the rate will go up and if foreign conglomerates purchased foreign exchange in the local market to meet demands in other markets, the rate will go up."

Since last year, and up to a week ago, the Golding administration and his monetary chief, central bank governor Derick Latibeaudiere, have had to be taking extraordinary measures to steady the foreign exchange market.

Last week, the Bank of Jamaica opened anew financing window _ estimated by the Financial Gleaner at US$130 million _ for public sector companies with huge foreign exchange bills to pay, including oil refinery Petrojam, to take pressure off the local foreign exchange market.

That action followed a warning by Finance Minister Audley Shaw for public sector companies to stop hoarding cash or face consequences, saying the practice was among the factors driving the local dollar down.

The JMD is now trading between $88 and $90 to the USD.

Last year, Latibeaudiere also opened a US$300 million financing window for securities dealers some of whom, at the time, were facing daily margin calls to shore up foreign held portfolios as backing for their bonds that were losing value.

The companies took up US$168 million of that cash.

Amidst these special measures, the BOJ continues to sell foreign exchange into the market, spending US$432.1 million in the October to December period - the most 'intervention cash' disclosed in any one quarter by the central bank.

Last year, the Jamaican dollar lost 12.2 per cent of its value, almost tripling the average annual levels of depreciation in previous years.

"The Governor of the Bank of Jamaica has been in discussions with the major players in the foreign exchange market. They have agreed on certain parameters," Golding said Tuesday.

"The government will do its part. Other stakeholders must do their part. We are all in this boat together and we must navigate our way out of this crisis together. If this collaboration between the monetary authorities and the market players is sustained, we will see interest rates coming down and the exchange rate remaining stable."

Signal rates

Latibeaudiere has raised signal rates five times in defence of the dollar. The benchmark six-month Treasury bill is now at 24 per cent.

He is refusing to budge on his high interest rate policy pointing to examples of countries like Brazil, Russia, South Africa Mexico and Iceland, saying they face similar problems like Jamaica - including stock market declines, capital outflows, exchange rate depreciation, loss of reserves - saying that with the exception of Mexico, they too raised interest rates during the crisis.

The central bank chief is, however, under pressure by corporate Jamaica to reverse the policy, with the Small Business Association of Jamaica president Edward Chin-Mook going so far to say Latibeaudiere should be replaced.

"In the face of declining inflows and relatively higher demand, we demand lower interest rates and a stable exchange rate," said the Prime Minister in acknowledgement of the debate.

Biggest borrower

"It is possible but it depends not only on the actions of the monetary authorities but on the actions of those in the market who make their foreign exchange earnings available to the market, who limit their demand to what they need and who are prepared to accept moderate interest rates when they invest in order to enjoy moderate interest rates when they borrow. No one is hurt more than the government by high interest rates because the government is the biggest borrower."

Government had been forced to curtail expenditure by $9 billion and accept a higher than programmed deficit.

And government economists expect conditions to get even worse.

"The prospects for the Jamaican economy are challenging. The economy declined by 0.4 per cent last year," said the Prime Minister.

"With the continuing fallout from the global crisis, it is expected to decline by 2.2 per cent this year. That is in line with what is expected of the major economies of the world. We will do better or worse depending on the actions we take, the courage we display and the choices we are prepared to make."

Golding's assessment of economic decline was 30 basis points higher than the 1.9 per cent estimate that his chief economist and PIOJ boss Dr Wesley Hughes reported to Parliament two weeks ago.

lavern.clarke@gleanerjm.com