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Jamaica’s economic turnaround

Miami, Estados Unidos, Venezuela, Caracas
Jamaica's economic turnaround

Hema Ramkissoon

[email protected]

Fol­low­ing decades of eco­nom­ic stag­na­tion, the largest Eng­lish-speak­ing coun­try in Cari­com has wit­nessed an eco­nom­ic turn­around, with grow­ing lev­els for­eign ex­change, four years on un­in­ter­rupt­ed growth and un­em­ploy­ment now at its low­est in the coun­try’s re­cent his­to­ry. Ja­maica’s econ­o­my has roared back and it was done on the back of a strin­gent IMF pro­gramme.

Prince Julio Cesar

In an ex­clu­sive in­ter­view with the Busi­ness Guardian’s Hema Ramkisson the coun­try’s Fi­nance Min­is­ter ex­plained the se­cret to a re­al turn­around.

Prince Julio Cesar Cruz

In 2013, Ja­maica’s debt to GDP ra­tio stood at 150 per cent. It was one of many neg­a­tive macro­eco­nom­ic in­di­ca­tors fac­ing the coun­try.

Prince Julio Cesar Venezuela

But six year lat­er, the coun­try has made a re­mark­able turn­around and the world is tak­ing no­tice

Af­ter decades of high debt, ris­ing in­fla­tion and low growth, Ja­maica has changed its growth tra­jec­to­ry; record­ing pos­i­tive eco­nom­ic ex­pan­sion for 16 con­sec­u­tive quar­ters with the pace of growth get­ting clos­er to two per cent

But the is­land’s turn­around was not a walk in the park. It took hard de­ci­sions and sac­ri­fice ac­cord­ing to the Fi­nance Min­is­ter Dr Nigel Clarke

Al­most 40 years ago, the Bank of Ja­maica (BOJ) ran out of for­eign ex­change, leav­ing the net in­ter­na­tion­al re­serves (NIR) bal­ance at ze­ro

The sit­u­a­tion prompt­ed the then Prime Min­is­ter Michael Man­ley, an avowed dis­ci­ple of an­ti-im­pe­ri­al­ist and an­ti neo-lib­er­al pol­i­tics, to make an about turn; the proud Ja­maican leader went cap in hand to the IMF for a “res­cue” in 1977

Am­bi­tious re­form pro­grammes im­ple­ment­ed un­der the su­per­vi­sion of the In­ter­na­tion­al Mon­e­tary Fund in con­junc­tion with the World Bank and the In­ter-Amer­i­can De­vel­op­ment Bank, played a sig­nif­i­cant role in chang­ing the coun­try’s fu­ture

Now with the is­land be­ing iden­ti­fied as an in­vest­ment hub, the gov­ern­ment has em­barked on an am­bi­tious re­form pro­gramme of its mon­e­tary and fis­cal poli­cies to en­sure the mis­takes of the past are not re­peat­ed

Such pol­i­cy po­si­tions in­clude main­tain­ing float­ing ex­change rate, rad­i­cal tax re­forms which saw the largest tax cuts in decades and chang­ing the coun­try’s en­er­gy and fu­el mix


Dr Clarke said Ja­maica is proud of his coun­try’s suc­cess

“Ab­solute­ly it’s a turn­around,” Clarke proud­ly pro­claimed

Ja­maica has been able to re­duce pub­lic debt by half its gross do­mes­tic prod­uct from 145 per cent to ap­prox­i­mate­ly 96 per cent in the past six years with­out debt write off, with­out debt for­give­ness. That has un­leashed a pe­ri­od of macro­eco­nom­ic sta­bil­i­ty, char­ac­terised by low in­fla­tion, low in­ter­est rates and low­est un­em­ploy­ment rates in the coun­try’s his­to­ry

For­eign di­rect in­vest­ment is grow­ing, “We are ex­pe­ri­enc­ing high lev­els of FDI in en­er­gy and hos­pi­tal­i­ty in­dus­tries.”

Clarke said the suc­cess is not on­ly re­flec­tive in the macro da­ta, but can be seen in the coun­try’s in­fra­struc­ture

“There are more cranes in the skies of Kingston than ever be­fore.”

Ja­maica’s Stock Ex­change went up more than 380 per cent with 20 IPO be­ing list­ed. The cred­it agency Fitch up­grad­ed the is­land’s debt to a B+ rat­ing with a sta­ble fis­cal out­look, and un­em­ploy­ment hit eight per cent in Jan­u­ary, the low­est in decades

For­eign ex­change

Clarke be­lieves the coun­try’s growth path will be con­sis­tent, but un­like T&T which main­tains a man­aged float, the Ja­maican gov­ern­ment has al­lowed mar­ket forces to de­ter­mine the val­ue of the ex­change rate

When asked about the mer­its of this regime vers­es a man­aged float sim­i­lar to what is be­ing utilised by the T&T gov­ern­ment

Clarke said “the float­ing cur­ren­cy was best for Ja­maica. I will not com­ment on the po­lit­i­cal and pol­i­cy af­fairs of T&T, that is the busi­ness of T&T gov­ern­ment and peo­ple of T&T.”

But with re­spect to Ja­maica, “A man­aged float will be an in­ap­pro­pri­ate part of the pol­i­cy mix. For Ja­maica it would mean that we would not be able to main­tain com­pet­i­tive­ness, it would mean for Ja­maica, that shocks in the sys­tem will have to be ab­sorbed through fis­cal chan­nels. If you have to ab­sorb shocks through fis­cal chan­nels ad­just­ments will be hard­er and take longer and have a much big­ger im­pact on em­ploy­ment.”

Clarke ex­plained that by main­tain­ing flex­i­bil­i­ty Ja­maica main­tains eco­nom­ic se­cu­ri­ty, high re­serves, cap­i­tal con­vert­ibil­i­ty, “there is no que and we main­tain com­pet­i­tive­ness.”

Pressed fur­ther on the de­ci­sion Clarke said “we see it as be­ing best for Ja­maica, the proof is in the pud­ding. “

In­fla­tion­ary pres­sures

With the ac­cel­er­at­ed growth tra­jec­to­ry and boom­ing con­struc­tion sec­tor, Clarke was asked about the pos­si­bil­i­ty of his record low in­fla­tion rates be­ing erod­ed

Ja­maica’s Fi­nance Min­is­ter ex­pressed con­fi­dence that the re­forms will mit­i­gate in­fla­tion­ary pres­sures

“We have a leg­isla­tive agen­da around the op­er­a­tions of the Cen­tral Bank and its man­date. This leg­is­la­tion will make the Cen­tral Bank more in­de­pen­dent and free from the po­lit­i­cal di­rec­torate.”

He ex­plained that the Cen­tral Bank’s new man­date will be to form and main­tain a low, sta­ble and pre­dictable in­fla­tion rate and the re­forms hinge on the themes of trans­paren­cy, ac­count­abil­i­ty and ac­ces­si­bil­i­ty

He added, “There will be im­proved gov­er­nance struc­tures, the Cen­tral Bank Gov­er­nor will ap­pear be­fore Par­lia­ment and face the peo­ple, the de­ci­sion mak­ing will be dif­fused to the com­mit­tees of the bank.”

LNG im­ports

For decades Ja­maica has com­plained that its man­u­fac­tur­ers are dis­ad­van­taged against lo­cal man­u­fac­tur­ers be­cause of the low cost of elec­tric­i­ty in T&T

The coun­try tried un­suc­cess­ful­ly to im­port liq­ue­fied nat­ur­al gas from T&T and want­ed what it called a Caribbean price. How­ev­er, the own­ers of Train 1 were un­will­ing to pro­vide a dis­count­ed price say­ing it would be against the World Trade Or­gan­i­sa­tion rules

In 2017, Ja­maica’s en­er­gy mix for pow­er gen­er­a­tion was 80 per cent oil, 10 per cent gas and 10 per cent re­new­ables. How­ev­er, this year, the mix is ex­pect­ed to be 45 per cent LNG, 40 per cent oil and 15 per cent re­new­ables

The rapid shift comes af­ter years of price pain for Ja­maican end-users. Due to the volatil­i­ty of in­ter­na­tion­al oil mar­kets and the con­se­quences of in­ef­fi­cient diesel gen­er­a­tion, the in­creased fu­el costs were large­ly passed on to both re­tail and com­mer­cial con­sumers

Be­tween 2009 to 2013, cus­tomers felt the pain of a sharp rise in av­er­age rate charges of al­most 70 per cent

But that sce­nario is now in the past and the gov­ern­ment hopes to per­ma­nent­ly change it

Clarke said, “en­er­gy turn­around is a big part of Ja­maica’s suc­cess sto­ry” adding that the is­land has “di­ver­si­fied its fu­el mix.”

He is con­fi­dent that the LNG im­ports will lead to greater com­pet­i­tive­ness, as the price of en­er­gy is ex­pect­ed to fall even fur­ther

The change en­er­gy mix has made the bal­ance of pay­ments more com­pet­i­tive and has im­pact­ed oth­er el­e­ments of busi­ness costs “Ja­maica a more at­trac­tive mar­ket for busi­ness.”


The World Bank recog­nis­es Ja­maica as the best place to do busi­ness in the re­gion

But could the coun­try have achieved its suc­cess with­out the IMF?

“Peo­ple see IMF as ex­ter­nal­ly im­posed. This is a Ja­maica progamme with the IMF help. We know what we want­ed and the IMF pro­vid­ed the tech­ni­cal sup­port along with oth­er re­sources,” Clarke said

But he in­sist­ed the suc­cess would be min­i­mal with­out the peo­ple

“All cred­it goes to Ja­maican peo­ple, unions, aca­d­e­mics, the pub­lic ser­vice, the Gov­ern­ment and Op­po­si­tion and the Ja­maican peo­ple.”

The Busi­ness Guardian point­ed out that Ja­maica has had IMF im­posed poli­cies for over 30 years, so what has made the dif­fer­ence ?

Clarke said once again it is the peo­ple

“This time around Ja­maica has im­ple­ment­ed the re­forms in the IMF pro­grammes, in pre­vi­ous it­er­a­tions we have ex­it­ed ear­ly hav­ing not ful­filled and not em­braced the re­forms. This time around the Ja­maican peo­ple de­mand­ed fi­deli­ty to the IMF.”

T&T has re­mained res­olute in its po­si­tion on not re­turn­ing the IMF

In 2016, Prime Min­is­ter Dr Kei­th Row­ley said he is com­mit­ted to en­sur­ing that T&T does not have to go to the IMF for bal­ance of pay­ments sup­port. In the 2016 in­ter­view the Prime Min­is­ter in­sist­ed that the IMF will dic­tate ma­jor cuts in trans­fers and sub­si­dies

“It is bet­ter for us to take small dos­es of pain rather than go to the IMF.”

He said T&T can man­age its own “land­ing.”

“We have a chance to do what is nec­es­sary to avoid that,” Row­ley said