Home' Trinidad and Tobago Guardian : August 20th 2015 Contents AUGUST 20 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
INTERNATIONAL | BG19
Republican US Presidential hopeful, Donald Trump,
sees "blood" everywhere. Unhappy and irritated
by a question put to him by a female Fox News
TV journalist during a debate between several
Republican aspirants for the White House, he noto-
riously said she had blood coming out of her eyes
and "wherever". Now he says that the devaluation of the Chinese
currency over the last few days will "suck the blood" out of the
Just as his remark about the female journalist is distasteful, his
comment about the devalued Chinese currency is extravagant.
While the devaluation will make US exports into China more
expensive, the blood will hardly be sucked out of the US economy.
The three major markets for US exports in 2014 were: Canada
(US$312 billion), the 28-nation European Union
(US$276.1 billion) and Mexico (US$240.2bil-
lion). China (US$123.6 billion) was fourth at
half the value of exports to Mexico.
In fact, the US imports more from China
than it exports. In 2014, the value of Chinese
goods imported by the US was US$466.7 bil-
lion. This means that a devalued Chinese cur-
rency will result in cheaper prices, benefitting the US consumer.
Given the global reach of US media, particularly its 24-hour
news networks, it would be easy to believe that the devaluation
of the Chinese currency is an issue that affects the US only. But,
the reality is that it affects almost every country in the world since
over the last 10 years particularly, China has opened vigorous
trading and investment programmes worldwide.
China undertook these initiatives when its economy was averaging
annual growth of 10 per cent, but in the last two years the growth
rate has slackened to seven per cent. For China, with its very large
population and the need to create millions of jobs annually, seven
per cent growth is absolutely necessary. The alternative is a huge
number of unemployed, dissatisfied and restless people. It has to
maintain that rate of growth.
There is wide speculation that the Beijing authorities are delib-
erately seeking a more competitive currency to pursue export-led
(rather than domestic consumption-led) growth. If that is the case
and China reduces demand for commodities, a number of countries
in Latin America will suffer.
Brazil, for instance, which has been looking forward to exporting
more manufactured goods to China, would be troubled. Mexico
would also be adversely affected though in a different way. Mexico
is Latin America's largest exporter of manufactured goods, competing
directly with China in the world market, particularly the US and
Canada. Cheaper Chinese products as a result of the devaluation
could displace Mexican products.
On the other side of the coin, Mauricio Mesquita Moreira of the
Inter-American Development Bank (IDB) has been quoted as saying
that many Latin American currencies have depreciated by much
more than the Renminbi so far this year, limiting the negative
effect. Mesquita believes that China's growth rate is more important
for Latin America than its exchange rate. According to him, "For
each percentage point of Chinese growth, Latin America grows
0.7 percentage points. Therefore, it is important that China's
economy continues to grow.
For many Caribbean countries (Antigua and Barbuda, the Bahamas,
Dominica, Guyana and Jamaica among them), the devalued Chinese
currency is good news both for the cost of imports and the repayment
of loans. Almost all Caribbean countries import more from China
than they export. The balance of trade already benefits China. The
difference now will be that Caribbean countries will require less
hard currencies to import Chinese products than before the 4.4
per cent devaluation of the Renminbi (yuan).
Further, since the majority of Chinese loans to Caribbean countries
is denominated in Renminbi, repayment of such loans will also be
easier because, again, less hard currencies will be needed.
The Chinese government, through the Peo-
ple's Bank of China (PBC), has described its
devaluation of the yuan as a "one-off step
to make the currency more responsive to
market forces". And, no less an authoritative
financial agency than the International Mon-
etary Fund (IMF) has nodded its approval of
China has been trying for years to secure qualification and
acceptability of the yuan as one of the basket of currencies used
by the IMF as its reserve assets that are known as special drawing
rights (SDRs). Should this happen in a review currently on-going
in the IMF, the yuan would join the US dollar, the euro, the Japanese
yen, and the British pound. China would achieve its goal of world
acknowledgment that the yuan has become an international cur-
If I were a betting person, my money would be on China achieving
its objective. I am encouraged in that view by the IMF statement
that: "Regarding the ongoing review of the IMF's SDR basket, the
announced change has no direct implication for the criteria used
in determining the composition of the basket. Nevertheless, a more
market-determined exchange rate would facilitate SDR operations
in case the Renminbi were included in the currency basket going
And the IMF has already said in a published statement that:
"The new mechanism for determining the central parity of the
Renminbi announced by the PBC appears as a welcome step as
it should allow market forces to have a greater role in determining
the exchange rate."
Whatever the real reason behind the decision in Beijing to devalue
the yuan, what is needed worldwide is adjustment to its reality.
Exporters to China will have to become more price competitive
as will those countries that compete with China for sales of man-
As for countries in the Caribbean whose loan costs and imports
will be cheaper, they should take advantage of it as a rare windfall
to their financial situation.
The writer is an Antigua and Barbuda diplomat, senior fellow
at the Institute of Commonwealth Studies, London University
and Massey College, Toronto University.
Of China's devalued
currency, blood, windfalls
After several months of negotiations and
more than a dozen drafts of a new wage deal,
government has finally reached an agreement
with most of the island's public sector trade
unions that will see civil servants getting a
seven per cent pay hike and increased benefits.
The majority of unions and associations bar-
gaining with the Portia Simpson-Miller adminis-
tration under the Jamaica Confederation of
Trade Unions (JCTU) umbrella have signed the
Heads of Agreement for the 2015-2017 period.
Under the new deal, public servants whose
salaries include allowances will get an additional
J$48,000 (US$410) annually, while those who
do not get any allowances, will get an increase
of J$68,000 (US$581).
Prime Minister Simpson-Miller said 12 items
from the 2012-2015 agreement with the unions
were still to be finalized, but she disclosed that
the new deal includes increases in benefits, in-
cluding meal, taxi and subsistence allowances,
death benefits and funeral grants, and a J$45
million (US$384,944) fund for tertiary education
grants for children of public sector workers.
She said the signing was "a culmination of a
process of dialogue, mutual respect, consulta-
tion and understanding" and commended the
public servants representatives for their pa-
tience and understanding of government's cur-
rent economic programme, which did not allow
for bigger increases.
President of the Jamaica Civil Service Associa-
tion O'Neil Grant said he was satisfied with the
outcomes of the negotiations.
"I think we went as far as we could go and we
got as much as we could, given the current eco-
nomic situation that the country finds itself.
There are some things that we would have
wanted a bit more on, but in the spirit of com-
promise and to able to reach an agreement, we
had to give in on some things," he said.
Among the increased allowances are an al-
most doubling of the funeral grant for perma-
nently employed public servants who die in the
line of duty or after a prolonged illness. It moves
from J$220,000 (US$1,881) to J$400,000
(US$3,421). The amount has tripled for those
who die from natural causes--- from J$100,000
(US$844) to J$300,000 (US$2,566) ---while fu-
neral grants move from J$80,000 (US$684) to
J$120,000 (US$1,026) for employees who are
part-time employees who worked a minimum of
156 days in a year.
The death benefit for public servants who die
in the line of duty also moves from J$8 million
(US$68,434) to J$10 million (US$85,543).
Grant said in addition to the increases in
salary and benefits, civil servants will get access
to cheaper loans.
"We have a lot of officers in the service who
have over committed themselves, particularly to
micro lending institutions, and the interest rates
from these agencies tend to be a little bit higher
because of the risk attached to it. So, what we
have done is ask the Ministry of Finance to as-
sist these officers . . . to redeem their high-inter-
est rate loans from micro lending agencies for
three per cent on the reducing balance payable
over two years," he said.
That provision will be implemented by No-
vember 2015. Eligible officers will have to apply
to the Finance Ministry. Caribbean360.com
servants get pay hike,
increase in benefits
under new wage deal
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