Devaluation is not the answer
It's probably about time I join the debate which I have refrained from, but since it is turning into a brawl let me attempt to bring a neutral perspective to the issue at hand.
Devaluation of a currency is essence ,intentionally making it more expensive for a country citizens to import goods and services from the country against which the country is devalued. Since the international trade currency is USD that is the currency we talk about.
Economic theory implies that a country that has resorted to devaluation of currency will eventually be better off is the more expensive foreign imports will be substituted for local production of goods and services. The problem exists when local production is dependent on the exchange rate, That is the issue with Jamaican manufacturing, most firms import their raw materials and then assemble them locally or have to battle the high oil prices and electricity costs, driving up the unit costs of their products.
The reality is that, the instability of the Forex market has created an unstable environment for Jamaican businesses to operate in. This uncertainty has made it difficult for businesses to thrive, and thus have to take preventative steps to cushion against the impact of currency fluctuations, such as downsizing operations, laying off workers and moving certain productions to cheaper markets. \
Devaluation cannot be the answer to create an environment for manufacturers to thrive in, the solution however requires work from both sides. Infant-Industry and protectionist measures have proved to be futile in East Asia, however a form of targeted protectionism and taxes on finished goods classifications by government may help local manufacturers.
What we as economists sometimes must realize is that economic theory is not always an overarching precedent, to the problems that arise. We must also understand that importing is not the only answer to problems that we face, and it is important to create an environment for private sector businesses to thrive.
Devaluation of a currency is essence ,intentionally making it more expensive for a country citizens to import goods and services from the country against which the country is devalued. Since the international trade currency is USD that is the currency we talk about.
Economic theory implies that a country that has resorted to devaluation of currency will eventually be better off is the more expensive foreign imports will be substituted for local production of goods and services. The problem exists when local production is dependent on the exchange rate, That is the issue with Jamaican manufacturing, most firms import their raw materials and then assemble them locally or have to battle the high oil prices and electricity costs, driving up the unit costs of their products.
The reality is that, the instability of the Forex market has created an unstable environment for Jamaican businesses to operate in. This uncertainty has made it difficult for businesses to thrive, and thus have to take preventative steps to cushion against the impact of currency fluctuations, such as downsizing operations, laying off workers and moving certain productions to cheaper markets. \
Devaluation cannot be the answer to create an environment for manufacturers to thrive in, the solution however requires work from both sides. Infant-Industry and protectionist measures have proved to be futile in East Asia, however a form of targeted protectionism and taxes on finished goods classifications by government may help local manufacturers.
What we as economists sometimes must realize is that economic theory is not always an overarching precedent, to the problems that arise. We must also understand that importing is not the only answer to problems that we face, and it is important to create an environment for private sector businesses to thrive.
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