A member of the Jamaican Parliament during the 1990s, Mr Karl Blythe, confessed this week that the PNP government Made a mistake by holding to a high interest rate policy for over a decade. These statements were given in response to statements from the Former Prime Minister and the Former Minister of Finance about the financial meltdown in the 1990s. The former Prime Minister, PJ Patterson, Blamed the Banks for a Meltdown. The former Minister of Finance, Omar Davis, said that the enquiry about the financial meltdown were filled with Half Truths and Full Blown Lies.
Mr. Blythe’s statements put pressure on the PNP opposition party in which Omar Davis is the current spokesman on Finance. The PNP responded to Mr Blyte, calling his statements Unfortunate. In the run up to the 2012 election, the PNP would have us believe that businesses should be demonised. They essentially suggest that a policy of 18% to 25% interest rates sustained for more than a decade was appropriate. I fail to understand how this environment was friendly to business or economic health of the country.
Most undergraduate business majors know that business cannot thrive in a high interest rate regime. This is especially so for capital intensive sectors such as manufacturing. The average profit margin on companies trading on the New York Stock Exchange is under 20 percent. Simple analysis could show that the 18% to 25% regime Jamaica had in the 1990s would kill any economy. The businesses that could survive such an environment include those who did not need to borrow, Drug Traffickers, and Money Launderers. The evidence is there to show that businesses closed and major job loses resulted.
If you look at the FINSAC rolls you will find a host of manufacturing companies such as thermo plastics. Others, such as Grace Kennedy, moved off-shore or closed down. Business can survive a short period of high interest rates but not the decade long period imposed on Jamaica by the PNP government. If you look around you see evidence that some businesses were propped up by money laundering. Job losses were replaced by a high crime environment and a larger emigration exodus than in the 1970s.
Talk as they might about a strategy to control the Jamaican Dollar exchange rate, in the back of the comrades minds was a method to use the capital system to invoke a large transfer of wealth from the middle class to the poor. What they succeeded in doing is to bring Jamaica to the brink of failed state status. Were it not for remittances, I shudder to think where we would be today. Portia, Omar, and the PNP cannot admit their mistake. To do so would be political suicide.