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Some months ago in this series, I discussed the projected outcome of the Brexit; the impact on the EU and Britain, and possible fallout on Jamaica. I also projected the Trump victory and pointed to external reactions to his victory. It is sufficient to say that we are living in the aftermath of these generally unexpected results.

The results have created problems for some, and opportunities for others. Therefore I outlined the global possibilities and suggested that a possible unexpected attempt to end the global hegemony of the United States, Britain and the EU could be a reality. I also related two historical events that have made dissent a strong possibility. The two are the Breton Woods Agreement, and the creation of the Petro-dollar.

Breton Woods saw a new monetary regime that moved away from currencies backed by Gold Reserves (Gold Standard), to a currency convertibility of an unbacked nature.

This developed into a strategy of the USA (solidified by Richard Nixon and Henry Kissinger) which allowed their dollar to become the currency through which trade in oil and its derivatives were settled. This increased the demand for US dollars, which further allowed the USA to increase its printing of more dollars to meet the external demand. This allowed the USA to increase its own asset values and wealth on the back of a currency not backed by gold reserves.

To be truthful this synopsis will not try to go behind the concepts of an alliance with Saudi Arabia; behind the scenes of war in Iraq and Afghanistan; but the intrigue demands a close scrutiny by you. All I will say here is that an opportunity presents itself for an alternative to the Petro-dollar and its replacement by another currency or currencies.

The game has already started and the success or failure will possibly have severe effects on the US economy (currently the largest in the world). Russia, China, Iran, and North Korea have already voiced their dissatisfaction with the US dollar remaining as the Petro-dollar.

Russia and China have already commenced some oil trade in both Euro’s and the Renminbi. To be absolutely clear, this is not a new initiative, however the timing and prospect of success seems more feasible due to Brexit and Donald Trump. Their plan seems to include a mechanism that is guaranteed by gold (as in the pre-Breton Woods era).

Will this affect Jamaica in any substantial way? Currently our Net Reserves do not have any gold in that portfolio and any change in the relative value of the US dollar could be devastating for us as we have all our eggs in that basket. Therefore it is important that we understand the scenario in order to be prepared for all eventualities. In this regard very few living persons in Jamaica would remember international oil trading prior to 1948. In fact that was the sole purview of the British Empire and above the pay grade of even regional Colonial Governments.

Although we have not discovered viable oil reserves of our own, our usage for energy generation and transportation represents the greatest portion of our import bill, and instability in the world oil supplies and pricing must affect our Balance of Payments. This in turn affects inflation, the cost of living, the value of our dollar, and also propels us towards greater appetites for loans. So there are consequences locally.

Perhaps the outcome will indicate that the discovery of gold or an increased appetite for gold in our NIR portfolio may be part of the strategy for protecting our vulnerable economy. Empires do not last forever, and there is a distinct possibility that the USA Empire may be in its rapid decline. Every archer knows that having more than one arrow is a good strategy for survival in a hazardous environment, (even if you are Robin Hood).

“The only new thing in the world is the history you do not know”: President of the USA Harry Truman. How true this is in the face of a generation who do not know about why things happened. The Petro-dollar; gold reserves; alliances of power with Saudi Arabia; wars in furtherance of the hegemony of the US dollar; and the emergence of particular “axis of evil” designations, and the “invention” of weapons of mass destruction.

My recommendation to academics, students, financial advisors, business persons, and politicians is to study these historical events and to devise alternatives that can be implemented as the need arises. Prior to and immediately after Independence, Jamaica was accustomed to trading in multiple currencies through our banking system.

This flexibility has been lost and we have three generations who only know the “safety” of the US dollar, and for whom “arbitrage” is only a theoretical word in a textbook. There is no safety in ignorance.

James Moss- Solomon
Executive in Residence
Mona School of Business and Management

November 7, 2017

This has been an unprecedented 2 weeks in our Region. Three major hurricanes reaching Category 4 and 5; two major earthquakes at over 7.1 on the Richter Scale; do not represent any previous fortnight ever, and unfortunately may hereafter represent a new standard of perils. We are entering a time of that is unusual and climatic conditions that may have reached the “Tipping Point” of no return.

Natural disasters have four focal points of interest namely: scientific research and discovery; preparations for surviving; immediate human response; and the process of rebuilding. The first two are combinations of academia and government control and regulation. The third is a wide response planning for relief efforts that reduce the duration of human suffering, and the fourth is a strategic plan and a way of ensuring progress.

Having dealt with the third point in several articles and speeches (as published in, I will turn my thoughts to the fourth which I will call “jumping into the future at one go”. As a historical reference I will remind us of three Jamaican events that had different outcomes.

The 1692 earthquake that devastated Port Royal (then one of the centres of world trade and transshipment at that time) actually finished that city as a comparatively large and thriving location for all time. The worldwide influence was lost forever. This allowed for the growth of the previously less important ports on the East Coast of the USA (a situation that has not been reversed).

The Great Earthquake of 1907 destroyed Kingston by the combination of the tremor itself, and the subsequent fires that consumed much of the city. In fact, there are many references to the insurance lawsuits that argued if the destruction was attributable to the earthquake or the fires, which coverage (if any) would be borne by the insurance companies. That is a story for the Faculty of Law to illuminate. It is sufficient to say that the grid system of Kingston and the re-building of the city in a more modern way was a developmental outcome that served well for the following 100 years. This needs to be revisited.

The 1988 Hurricane Gilbert produced widespread damage and subsequent insurance claims that required external adjustors helping the local industry to speed up the processing of claims. This process also heralded landmark lawsuits and some notable ones went all the way to the Privy Council. However the inflows of insurance monies from overseas provided an unprecedented opportunity to make better investments.

No commercial entities replaced their old machinery with similar redundant investments, and many were “forced” to re-enter the industry at the cutting edge. In one go, we were propelled into a rapid industrial revolution, and those firms who failed to do so chose to fail, and many persons today cannot even recall their names.

Therefore the unintended outcome was a sudden increase in machine efficiencies. The figures show that we really did not capitalize on that “windfall or breeze blow” and our productivity continued to fall. This may have been due to low labour productivity, and poor management who failed to perform and motivate employees.

The point for us to note at this time is the factors of recovery and the accompanying re-investment that will either boost or reduce the productivity of those countries that were seriously damaged. They have the choice to abandon historical procedures that are no longer relevant, and step into the future.

Another point of historical reference has been the rebound of technology and efficiency in Germany after the First and Second World Wars. After the First World War (1914-18) a destroyed Germany re-tooled sufficiently to take on the military might of Europe by 1939 with some vastly improved war machines. Again they were largely destroyed in 1945 and yet have returned to technological superiority today.

So after these series of disasters we should expect that the affected nations will recover and emerge as better equipped competitors in the global marketplace. This will be done as new inflows support their recovery efforts. I will offer a few predictions.

St. Maarten will rebuild more durable structures, and even larger places designed to capture a greater share of the Cruise ship dollar. Previously crowded and cramped spaces can be re-designed to offer a greater variety of cool and attractive in-bond stores and attractions.

Barbuda will be re-built as an up-market version of Providenciales and Paradise Island, but with a better methodology for evacuation.

Puerto Rico will emerge from bankruptcy with the huge inflows of insurance money and other capital flows attracted by new Greenfield sites that have become available through the destruction of the old.

Dominica will get an adequate airport runway and will at least have an opportunity to triple tourism earnings while rebuilding the rustic in a more durable but appealing setting. Their cachet will expand from enjoying nature to a destination for the” green” travel markets of Europe.

These are just a few examples, but for SIDS (Small Island Developing States) there are real possibilities to abandon the negative permanently, and to develop the ultra-modern money earners that can transform their economies.

Jamaican entrepreneurs, construction companies, tourism interests, all have a great opportunity to partner in the development and in the joint ventures that will become available in the process. If this is pursued vigorously, we could even find that the current construction industry could be doing overseas jobs. New hospitals, airports, airlines, hotels, restaurants, maintenance, and logistics are merely a few ideas that come easily to mind.

These are the chances for a win-win negotiation, but we need to build confidence at the third stage in order to be considered for the stage four described briefly in this paper. I recommend proactivity not lethargy, if not we will find ourselves far outside of the ballpark again.

James Moss- Solomon
Executive in Residence
Mona School of Business and Management

September 22, 2017

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