Wednesday, June 19, 2013
Careless words can cause financial crisesTuesday, March 06, 2012
THE Government has denied statements reported to have been made by Prime Minister Portia Simpson Miller about the Jamaica Debt Exchange (JDX) in an article published last Thursday by Bloomberg News Service.
The history of financial crises shows that while they have their origins in the long build-up of excessive credit and unsustainable debt, they are ignited by panic from an instance of misinformation. Once started, financial panic spreads like a forest fire, destroying both unsound and sound financial institutions and governments.
The misinformation can take different forms, all of which deviate from the truth. These include deliberate deceptions, eg things are better than they appear, things are worse than they appear, or a careless statement which is sufficiently ambiguous that it is open to a variety of interpretations.
Two careless statements allowed Bloomberg to misinterpret and wrongly attribute to Mrs Simpson Miller such an inaccurate report that could easily have spooked local and financial markets causing serious, if not irreparable, damage.
The first was the puerile and thoughtless statement by a Jampro official about the JDX — a highly successful transaction which has been justifiably hailed as a model of what other countries should do and how they should do it. The statement to the effect that it was not successful was simply incorrect and open to speculative interpretation.
The second faux pax was the prime minister's comment on how beneficial a Greek-style debt restructuring would be for Jamaica.
This was a mistake, because it signalled that things are worse than they appear. In addition, it is most unwise to want Jamaica to be categorised with Greece, a country with a long disreputable history of debt default and which has repeatedly demonstrated that it would rather a bail-out from its EU partners than try to help itself.
The unfortunate report was turned into a debacle when the response was left to the minister with responsibility for information. The corrective response should have come in the form of a statement from the prime minister reproducing exactly what she said and one by Finance Minister Dr Peter Phillips to calm any possible fears.
Minister Phillips' statement would point to Jamaica's impeccable record of debt servicing, the success of the JDX, the imminent commencement of formal negotiations with the International Monetary Fund, and the stability of macroeconomic fundamentals such as the exchange rate and inflation.
Instead, the Government allowed former Finance Minister Audley Shaw to get out ahead of its substantive rebuttal.
We have, in this space, repeatedly advised and warned successive governments that there should be one source of statements on Jamaica's economic situation and current and prospective economic policy. That source must be the minister of finance.
If, for any reason, that minister is unavailable, then recourse may be sought to the financial secretary, governor of the Bank of Jamaica or the director general of the Planning Institute of Jamaica.
It would also make good practice for members of the Cabinet and senior officials of Government and its agencies to pay attention to briefings on economic policy. In addition, the minister with responsibility for information must co-ordinate those who speak on behalf of the Government.
In other words, preventing fire is better than fighting fire.
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