Here to stay - Latibeaudiere says no likely shift in monetary policy

Published in the Jamaica Gleaner: Friday | September 7, 2007

Lavern Clarke, Business Editor

Any suggestion that he would be demitting office as head of the central bank as a result of pending changes to the political administration is totally without foundation and even mischievous, Bank of Jamaica Governor Derick Latibeaudiere said Wednesday.

He said, too, that the bank was unlikely to change policy direction under the new administration.

In the pre-election campaign season, rumours flew that the central banker was likely to leave the job, and that his replacement would either be a top politician or a high-profile banker.

Has four years remaining

But Latibeaudiere, in an interview with the Financial Gleaner on Wednesday, said he still had four years remaining on his current contract, and had given no thought to leaving.

He has been with the BoJ for some 33 years, and its governor for the past 12.

The incoming Jamaica Labour Party administration has promised autonomy for the central bank, saying the move would enhance investor confidence.

In its manifesto, the JLP pledged it would: "Transform the Bank of Jamaica into an independent central bank insulated from political direction and with sole responsibility for monetary policy and mandated to maintain domestic price stability."

Latibeaudiere, who has long called for autonomy, said full discussions on what he would do with that independence would be premature.

But he insisted Wednesday that he would conduct monetary policy — that is, the actions taken by a central bank to influence money and credit flows — largely in the same way.

"There isn't much scope for changing," he said, when asked if the bank would pursue the same strategies as an independent entity, adding that central banks also face scrutiny from international institutions who are concerned about the independence of central banks.

Outgoing Finance Minister Dr. Omar Davies was strong on the containment of inflation under the economic model he pursued.

In that regard, the conduct of the central bank would have been key to his policies as the managers of money supply, which underpins core inflation.

In the past, too, the BoJ has hiked interest rates to defend the dollar, angering corporate Jamaica whose cost of capital shot up alongside.

One of his most controversial interest rate decisions was the 12-point hike in rates in March 2003, from 24 per cent on the one-year open market tenor to 35.95 per cent, because of "increased speculation an instability" in the foreign exchange market.

Davies has said publicly that he feared foreign exchange risk on the external debt, and that depreciation of the currency had big implications.

A one-dollar decline, for example, would add just over $4 billion to the total debt stock in the conversion of the current US$424 billion of foreign borrowings to Jamaican currency.

The JLP, in its manifesto, suggested that the central bank, in the past, has been used "to facilitate reckless, politically expedient fiscal decisions".

But Latibeaudiere said Wednesday that his policy actions have always been free of interference from Davies.

"All of what you see coming out of the bank is me," he told the Financial Gleaner.

"All of the policies have come out in a technical way."

Noting that while monetary policy was complex to execute, Latibeaudiere said the members of his team have a strong technical grasp of their job and that the BoJ has always taken action according to the assessment of its monetary experts, gaining recognition from international agencies for its independent conduct as a result.

"Whatever we do comes out of the deepest technical analysis."

The central bank, however, has been criticised by the International Monetary Fund for being too rigid in its control of the foreign exchange market, suggesting its continued interventions, or supplies or foreign currency to dealers for trading at an agreed price, have prevented the local dollar from reflecting its true market value.

Jamaicans foreign exchange system is operated on a managed float, but at one time the Inter-American Bank had characterised the market as a 'dirty float' as a result of the number of interventions by the BoJ.

Latibeaudiere will next be advising Audley Shaw, if Prime Minister-designate Bruce Golding holds to expectations and appoints Shaw as Finance Minister.

However, there has been pre- and post-election speculation that Golding might retain the portfolio for himself, and that if he does, Shaw would be given the development portfolio, with oversight responsibility for the mega investment agency to be created.

Golding is expected to name his cabinet early next week.

lavern.clarke@gleanerjm.com