Jamaica lacks viable economic strategy as deadline for IMF aid nears

2013-03-18 05:46:18 GMT2013-03-18 13:46:18(Beijing Time)  Xinhua English

By John R. Myers Jr. and Zhu Qingxiang

KINGSTON, March 17 (Xinhua) -- When Jamaica's first female Prime Minister Portia Simpson Miller and her People's National Party took power in January 2012, they promised to deliver an improved Jamaican economy.

Since then, the island country has been courting the support of the International Monetary Fund (IMF), widely considered as the government's lifeline to fulfill its promise.

However, this journey proves harder than anticipated.

After more than a year's negotiation, the IMF approved Jamaica's demand at staff level in February this year, yet the embattled economy has to meet a number of stiff conditions before the fund's executive board could draw the final conclusion at the end of March.

The result will be based on "the timely completion of prior actions to be taken by the Jamaican government and obtaining necessary financing assurances," said the IMF's mission chief to Jamaica.

To meet the demand, the government initiated a slate of austerity measures, among which are a 16-billion-Jamaican-dollar (165 million U.S. dollars) emergency tax package, a national debt exchange program that could save 17 billion Jamaican dollars (175 million USD) in interest payments on domestic loans, and a wage freeze for public servants.

Key business sector groups in the country promptly pushed back at the government's move to raise taxes and cut discretionary waivers, warning it could result in enterprise shutdowns and job losses.

The Private Sector Organization of Jamaica (PSOJ) urged the government to review new taxes on the importation of raw inputs, along with new restrictions placed on waivers given to businesses.

"Unless modified, this proposed tax treatment will likely force the shutdown of critical Jamaican industries and cause thousands of Jamaican workers to lose their jobs," the PSOJ said.

As for the debt exchange scheme, a main step to cut the national debt from currently 140 percent of gross domestic product (GDP) to 95 percent over the next seven years, the government could finally conclude it on the last day of February with a considerate support rate after a week-long extension.

Though approved by Fitch and S&P, two international rating agencies which upgraded the country's credit rating a week later, the debt swapping program sacrificing bondholders' interests obviously did not satisfy others.

Moody's downgraded Jamaica's government debt from B3 to Caa3 on the same day as Fitch's and S&P's upgrade "since the announced restructuring did not impose any principal haircuts; at a projected 119 percent of GDP and 470 percent of revenues, Jamaica's 2013 debt metrics are among the highest of all rated sovereigns."

Moody's also said the debt exchange could result in more than 10 percent of net present value losses for investors.

To reduce spending on public servants' wages, which accounts for some 10.9 percent of GDP, the government promises the IMF to cut the figure to 9 percent by March 2016.

To soothe the anger of those whose wages have to be cut, the government announced recently that the state-owned National Housing Trust would offer low-cost loans and housing solutions to working Jamaicans who had agreed to a three-year wage freeze.

A majority of public work force, except police and nurses, have agreed to the wage restraint.

However, even if Jamaica secures an economic support agreement with the IMF, economists warn that the economic woes facing the country will not be solved without adopting a viable economic strategy.

"Irrespective of how much money we get to borrow from multilaterals, and no matter how much tax we put on the people of Jamaica, and no matter how many public sector workers we lay off or how many wage freezes we have, the fact is that if we continue to make these changes within the context of an environment that is not competitive or productive, it really is nothing more than an exercise in frustration," said Dennis Chung, vice president of the Institute of Chartered Accountants of Jamaica.

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