Same way In, Same Way Out: Let Jamaica Spend Itself Out Of Trouble – Joe Issa

Former commercial bank director, businessman Joe Issa, suggests that the same way Jamaica spent itself into trouble, is the same way it can get out of its woes.

Issa was reacting to news that Japan central bank has adopted a negative interest rate policy that penalizes commercial banks that leave cash in its vaults, rather than lend it out to increase spending in the economy and spur economic recovery.

“Although Japan and Jamaica are at opposite ends of the inflation spectrum – they want more of it while we want less of it – the overall impact of the policy – reducing the cost of loans to the public, increasing spending and spurring economic growth suit both countries at this time.

“Both countries are beginning to show growth, which needs to be encouraged through greater levels of spending so as to increase its prospects for further growth,” says Issa, noting that “there is a direct relationship between the level of spending and economic growth.”

Issa says “the good thing about the policy is that it can be kept for as long as is necessary,” adding that for Jamaica, “it would mean until inflation starts to climb again because of the direct relationship between increased spending and rising prices due to increased demand for goods and services. It is hoped that in the short-medium term we will gave generated sufficient spending in the economy to aid its recovery.”

“In my opinion, what we need is a policy that forces financial institutions to lend their cash rather that keep them at the Bank of Jamaica, because what the economy needs to grow is more spending, just like a plant needs water; otherwise it dies.”

According to the recent report, “Tokyo’s central bank hopes that by imposing a 0.1% fee on selected current account deposits – effectively a negative interest rate – commercial banks will be encouraged to make more loans and so stimulate economic growth,” noting that “Japan’s economy is forecast to grow just 1.1% in 2015 and 1.7% in 2016”.

Japan’s benchmark Nikkei 225 stock index is said to have leapt higher on the news, ending trading up 2.8% at 17,518.30. China’s Shanghai composite also advanced by 3.1% to 2,737.60. The Japanese yen which initially slid after the announcement, recovered to rise 1.7% against the dollar to 120.79.

The central bank says it is ready to “cut rates further into negative territory in order to push borrowing costs even lower,” stating that it would do so for “as long as needed to achieve an inflation target of 2%,” after experiencing “widespread deflation, or falling prices, for decades. By lowering borrowing costs, the central bank is hoping that consumers will spend more and stimulate inflation, or rising prices.”

Other central banks with negative interest rates are: the European Central Bank (ECB), -0.3%; Sweden, -0.35%; Switzerland, -0.75%; and Denmark, -0.65%.