Waking Jamaica's industrial sector

...with a successful end to the financial crisis on the horizon and increased confidence from the business sector, Jamaica's Finance Minister, Dr Omar Davis prepares the economy for global competition.

As the political flagship of the Caribbean Basin, much of what Caricom and the grouping of ACP countries have achieved in its quest to influence economic and foreign policies around the world, have been done under the leadership or strong advocacy initiatives of Jamaica.

Considered by residents to be the pride of the Caribbean, Jamaica has traditionally distinguished itself by its economic and cultural diversity, but this pride has made it one of the most difficult economies and societies to manage.

And, although it is one of the largest economies in the Caribbean Basin, the country's dependence on tourism, agricultural cash crops and mining, has made it increasingly vulnerable to changes in the international commodities markets.

Lower prices for exports of sugar cane, bauxite and aluminium, the United States challenge of the European Union's Banana Regime and the collapse of Far East economies in the mid 1990's, have made it even more difficult to finance the country's economic restructuring programme.

This has made the decade of the 1990's extremely difficult as the country braced for a unique combination of economic problems, including hyper-inflation, a crisis in the financial sector, unstable exchange rates, low or negative growth rates and an erosion of much of the economic gains that was achieved since independence from Great Britain.

Every strategy proposed, seemed to have a cure that was tougher to take than the country's economic ills. Yet, everyone agreed that something needed to be done.

No one agreed more than university lecturer, former Director of the Planning Institute of Jamaica, and current Finance Minister, Hon. Dr Omar Davis.

Unlike other critics, Davis had a plan, and as the conductor of a complicated orchestra of economic players, he has seen more than his share of disappointments as he stuck to proven strategies for restructuring the country's floundering economy.

And, after six years at the helm, his work is beginning to bear fruit. There are clear signs that the country's economic fortunes are turning, and his hard-nosed plan to get the economy into shape is beginning to reap rewards.

With a consistent policy of maintaining a tight fiscal and money supply regime, the economy has started to stabilize with significant reductions in inflation. The budget deficit has also been reduced from 7.5% of GDP in 1998 to 4.5% in 1999. For the present fiscal year the target is a balanced budget, with small surpluses of 1.0% of GDP in 2001 and 2.0% in 2002 respectively.

"The relatively modest surpluses for the last 2 years of our medium-term plans have been included because the capital budget has suffered greatly in order for us to achieve our fiscal targets," says Davis.

"This was true in the 1999/2000 fiscal period and it will be equally so this fiscal year. If we are to retain the confidence of creditors both at home and abroad, we have no option but to maintain our fiscal restraint," he adds.

Easy access to foreign loans in the past have contributed to the Jamaica's high debt problems, and he sees controlling debt servicing obligations as a key factor in turning around the economy. Since 1995, significant strides have been made to stabilize and slow the growth of the national debt.

At the end of fiscal year 1989/1990, external debt was 142% of GDP. At the end of fiscal year 1999/2000 this was reduced to 48% of GDP. In terms of priorities, the major challenge facing the Administration is to continue this trend. In the medium-term Government will resist the urge to borrow from the domestic market and it has carved out a strategy to substantially reduce its external debt servicing.

This year, no significant increase to the debt stock is anticipated from Central Government operations and the Administration plans to approach the domestic market for J$28 billion less than the previous financial year.

This reduction in the Government's participation in the domestic market should also have a positive impact on interest rates.

Davis said he would approach the external capital market for US$400 million to rollover the current debt and meet servicing requirements so the economy could have some breathing space to grow.

And growth is what he is preparing for the economy, as he sees stagflation and a lack of confidence in an economic future as the main problems for the country to overcome.

"Despite all that we have been through, there is good reason for confidence," he says, "the sharp turn-around in the financial sector in 1999 was an important signal of opportunities for the future. Additionally, the attainment of the fiscal target for 1999/2000 and the explicit commitment to a balanced budget in this fiscal year, provide strong reasons for confidence amongst creditors both at home and abroad."