Jamaica: Is An Independent Central Bank Feasibile?
We are more than a little bit surprised at the seeming reticence of the central bank's governor, Mr Derrick Latibeaudiere, to the idea of a monetary policy committee, being proposed by the private sector. The suggestion forms part of the package of proposals of the so-called Partners for Progress group, who have been seeking a framework for sustained growth in the Jamaican economy. This group has not only been talking. They have been prepared to back the strength of their convictions with substantial action. Indeed, they have been attempting to convince domestic financial institutions to convert high-cost Jamaican dollar loans to other forms of debt instruments that would ease the short-term interest burden and provide an opportunity for the Government to begin to seriously address the public sector deficit. Reasonably, those who are putting together this programme want to be assured that the administration establishes the environment in which concessions made by the private sector translate into real macro- economic value. One way to help ensure this is through transparency in policy formulation. A monetary policy committee is but one instrument, so far as the partners are concerned, to add value to the idea. Mr Latibeaudiere's reservation, it seems, rests on his argument that such committees usually operate in the context of independent central banks, which are removed from direct political control and which have control over monetary policy formulation. Perhaps! Indeed, this newspaper supports the idea of an independent central bank, whose principal officers are removed from the whim of political control and have the authority, under law, to limit lending to the government. This is an ideal for which we must strive - the sooner the better. However, we do not see an independent central bank and a monetary policy committee in the context of the existing structure of the Bank of Jamaica as mutually exclusive. The truth be told, senior officials who speak of the operation of the BOJ often hail its relative independence and the creative tension which usually exists between the central bank and the finance ministry. In fact, there is a healthy bit of chest-thumping at Nethersole Place. In any event, we would have thought that in the absence of its independence, a monetary policy committee, involving key economic players, would be a development welcomed by the central bank and its top managers. Such a committee would, on the face of it, provide the central bank with some level of insulation from political controllers or politicised and over-reaching bureaucrats at the finance ministry. Indeed, the timely publication of the minutes of the meeting on which the decisions of the committee were made would provide powerful moral authority against a Government that was intent on running roughshod over the wishes of the committee. We, for instance, would like to know the thinking, and technical arguments, behind the decision in the first quarter of last year to push interest rates well beyond 30 per cent to defend the Jamaican dollar. It would be interesting to know what was the stance of the professional central bankers on offering investors such high levels of real return on their money. The fundamental argument is that better decisions are likely to be made in an environment of openness and transparency and on the basis of access to other than a narrow slate of views. Moreover, the kind of committee which is being proposed could well be a fundamental first step to an independent central bank.
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