WHERE TO START IN CHANGING THE ECONOMIC MODEL – THE EXCHANGE RATE REGIME?
The high expectations of consumers will increase the political pressure to go for growth, while simultaneously putting pressure on the budget to allocate resources to improving social services in Jamaica. The adoption of a fixed exchange rate has been put forward as a means whereby Jamaica might escape from our fiscal straitjacket. The logic of the proposal is that, by reducing the interest rate premium investors require to compensate for exchange rate risk, it would allow interest rates to fall. Thus, lower interest rates would result in a reduction in the enormous cost of servicing Government debt, while simultaneously encouraging economic growth and at the same time allowing room in the budget for additional social expenditure. ONE SIZE ‘EXCHANGE RATE REGIME’ DOES NOT FIT ALL Jamaica has in fact tried most, although not all of the available exchange rate regimes, which range from a ‘free float’ to the ultimate ‘hard peg’ as represented by dollarisation, whereby the Jamaican dollar i
