Bank of Jamaica paves the way for central bank independence in the Caribbean
Central banks in the Caribbean are beginning to gain real independence from local governments, led by Barbados and Jamaica.
As a result of the Bank of Jamaica (BOJ) Act, which entered into force on April 16, the central bank now has full independence to create its own monetary policy.
“Jamaica’s experience with an economic program oversight committee has yielded excellent results and the transition to independent fiscal councils is a step in the right direction,” Carlos Applewhaite, head of research at the United States, told BNamericas. Jamaica Promotion Corporation trade and investment agency.
The BOJ has already started to focus on monetary policy with an anti-inflationary drive. The central bank has set an inflation target of between 4% and 6%.
Additionally, BOJ Governor Richard Byles (pictured) has already revealed that the central bank will create two new committees; a monetary policy and a financial regulation committee.
“These are measures that can ensure good governance and responsible spending on the part of any administration that assumes government,” Applewhaite added.
The committees will be made up of people outside the BOJ with the aim of injecting more independence into the institution and into policy making. They will be working with the bank’s senior executives, but it highlights an abandonment of anything that is mandated by the governor.
Meeting minutes will be posted to demystify the policy development process. As an extension of this process, the central bank will now respond to parliament, and not to the finance minister as in the past.
Discussions on monetary policy will take place in parliament for the first time in 59 years.
“These are pretty big changes at the board level, and the members will not go through the political cycle and cannot all be changed in one political cycle,” said Finance Minister Dr Nigel Clarke. , in a local Jamaica newspaper. Gleaner.
Jamaica suffered the third worst economic crisis in history in 1997, fueled by poor regulatory control and a collapsing real estate market. It cost the country 44% of its GDP.
Further shocks during the 2008-10 global financial crisis heightened the urgency of reform, but it took years to accumulate surpluses and reduce public debt from 2012-13 levels, as shown in the graph below. below.
A series of reforms in the intervening years culminated in the Bank of Jamaica Act. Although the commercial banking system is considered strong due to its traditional ties to CIBC and the Bank of Nova Scotia and, before that, UK groups like Barclays, parts of the banking system needed to be stronger.
This is especially needed in a region of the world prone to internal and external shocks such as the recent eruption of the La Soufrière volcano in Saint-Vincent and the ongoing COVID-19 pandemic, which has hit tourism-dependent economies particularly hard.
Barbados could be next on the list after Jamaica to institute an independent central bank, with legislation being drafted in parliament.
Observers who have called for greater central bank independence in the region are pleased with the developments, including the Inter-American Development Bank (IDB), which has recommended this as a way to improve financial resilience in the region.
“They [BOJ] have already implemented an explicit inflation targeting policy. It is a wise thing to do and the change in the law will not affect it now, ”Diether Beuermann, IDB Senior Economist for the Caribbean, told BNamericas.
“But the law makes the central bank more independent from the government. Something that makes it a more solid institution, without long-term political interference, ”Beuermann added.
Photo courtesy of Bank of Jamaica