Keith Collister asks, “Will Lagarde give Jamaica and the Caribbean a fresh look?,” referring to Christine Lagarde’s upcoming visit to Jamaica this month. Here are excerpts:
On Monday, it was announced that IMF Managing Christine Lagarde planned to visit Jamaica on June 27th to meet with the Prime Minister and the Minister of Finance. [. . .] The visit by IMF Managing Director Christine Lagarde, in the words of the Ministry of Finance press release “underscores the Fund’s support for Jamaica’s Economic Reform Programme, and signals its commitment to assisting the wider Caribbean”.
Commenting on her trip, one of the most seasoned international economic observers of Jamaica and the wider Caribbean, Dr Carl Ross, formerly of Oppenheimer and Bear Stearns but now working as a sovereign analyst for Global fund manager GMO observed: “Jamaica’s fiscal improvement has surprised many people, and may be leading to a virtuous circle of lower debt financing costs and sustained lower fiscal deficits over time. Moreover, Jamaica’s adjustment could be an example for other neighbouring countries in the Caribbean where debt has become unsustainable. Ms LaGarde’s visit is likely aimed at recognizing this achievement, and highlighting it as an example for the region [. . .].”
[. . .] Unlike Barbados, for the past four years Jamaica has been experiencing the immense pain of a massive fiscal adjustment from a fiscal deficit at approximately where Barbados is now, to a Central government deficit of zero. Over the period, to achieve this reduction, Jamaica has endured a large nominal devaluation and restructured its domestic debt twice. While Jamaica remains extremely economically vulnerable, there is a cautious optimism (not least amongst the multilaterals) that Jamaica can turn around.
However, Jamaica, and of course the wider Caribbean, still needs some help (a lot in the case of Barbados), implied in the use of the term a fresh look. Local investors still see Jamaica as very risky, the local fixed income market is still frozen, the stock market is still falling, and the Jamaican dollar remains under pressure, with a general feeling of uncertainty, accentuated by the fact that there is general awareness that the critical Petrocaribe deal may not last much beyond the current fiscal year, at least in its current form.
To help, firstly, the IMF and other multilaterals should give Jamaica substantially more generous and upfront funding to reduce the general perception of risk in the economy, ensuring that we are fully funded with a margin to spare, as occurred in 2010. In particular, eliminating the need to go to the capital market to finance the Eurobond coming due a few months later this year, as well as making sure that it is known that the Petrocaribe financing would be replaced in the event of cutoff from Venezuela (perhaps through an oil financing insurance type policy for which one pays a premium from say the World Bank similar to the hurricane insurance facility), would help. An additional target should be to reduce significantly the current rate of devaluation of the dollar, and to cap expectations of its further decline. In short, the IMF needs to look like it is not encouraging further devaluation, whether actively or passively.
Secondly, creative programmes to unfreeze the local fixed income market are required, perhaps through various forms of debt to asset swaps to finance projects such as downtown Kingston.
Finally, critical capital expenditures could be financed through accelerated privatisation, as long as they were treated as “exceptional” items and not counted as a reduction in the primary surplus.
These and many other creative approaches are required to provide Jamaica with a fresh look.