Globalization, the IMF and the Future
The Jamaican economy is heavily dependent on services, which now account for 70% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina.
The global economic slowdown, particularly after the terrorist attacks in the US on 11 September 2002, stunted economic growth; the economy rebounded moderately in 2003, with one of the best tourist seasons on record. But the economy faces serious long-term problems: high interest rates; increased foreign competition; a pressured, sometimes sliding, exchange rate; a sizable merchandise trade deficit; large-scale unemployment; and a growing internal debt, the result of government bailouts to ailing sectors of the economy.
The ratio of debt to GDP is close to 150%. Inflation, previously a bright spot, is expected to remain in the double digits. Depressed economic conditions have led to increased civil unrest, including gang violence fueled by the drug trade. In 2004, the government faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking a serious and growing crime problem that is hampering economic growth.
GDP: $10.21 billion (2003 est.)
GDP - real growth rate: 1.9% (2003 est.)
GDP - composition by sector:
. . . . . . agriculture: 6%
. . . . . . industry: 24%
. . . . . . services: 70% (2003 est.)
Population below poverty line: 19.7% (2002 est.)
Household income or consumption by percentage share:
.......lowest 10%: 2.7%
.......highest 10%: 30.3% (2000)
Inflation rate (consumer prices): 14.1% (2003 est.)
Labor force: 1.12 million (1998)
Labor force - by occupation:
.......services 60%, agriculture 21%, industry 19% (1998)
Unemployment rate: 15.9% (2003 est.)
. . . . . . revenues: $2.23 billion
. . . . . . expenditures: $2.56 billion, including capital expenditures of $236 million (FY99/00 est.)
Industries: tourism, bauxite/alumina, textiles, agro processing, wearing apparel, light manufactures, rum, cement, metal, paper, chemical products, telecommunications
Industrial production growth rate: -2% (2000 est.)
Globalization: Its Effects in Jamaica
Green Corner, May 2003
Jamaica! The name brings images of tropical beaches, palm trees, beautiful ebony people, Rastafarians, and the music of Bob Marley. But all is not well on this 146 mile long mountainous island of two and a half million, mostly descendants of African slaves, south of Cuba in the Caribbean.
Farming and industry have been in crisis. The jobless have been leaving the countryside for Kingston and other urban areas. Crime and the drug trade have led to frequent police killings. Political violence and rioting has been seen in recent years. Responsible in part for this unrest and turmoil is globalization, ensnaring the country in enormous debt arranged by the International Monetary Fund (IMF), the World Bank, and other international lending agencies at high interest rates. The debt now at $4.5 billion requires that 52 cents of every dollar earned goes for interest payments. Jamaica has already paid back 17 times the amount of money originally borrowed. Structural adjustments imposed by the IMF have driven up interest rates to industry and farmers such that they can no longer compete with the flood of subsidized or "dumped" foreign imports. These policies have driven down wages and forced the government to cut back funding for education, health care, and agricultural programs which benefit the impoverished.
On our Global Exchange study tour in March, designed and led by Hanna Appel, we interviewed farmers, businesspeople, police, human rights advocates, community development leaders, and ordinary Jamaicans to take the pulse of a country in trouble. We visited potato farmer Jerry Harrison who spoke of the difficulty of getting a farm load even at 22% interest for Spring planting. Jamaica was self sufficient in potatoes in 1982, but has since been undercut by foreign imports.
We drove to Winston Wright's now derelict banana plantation which cannot compete with cheaper bananas from Central America. Protection of the Jamaican banana crop by the European Union will cease by 2005 leaving the industry open to foreign competition. Small banana farmers have declined from 45,000 to 5000 in recent years.
We were guests of Alex and Dorothy Twyman at their 130 acre coffee plantation in the mountains of central Jamaica. The Twyman's Old Tavern Jamaican Blue Mountain coffee sells for $36 per pound to gourmands, fetching a reasonable profit. Unfortunately, theirs is the only coffee plantation in Jamaica allowed to process and market coffee. Other small growers are forced to sell the raw beans at low profit to a central processing facility, being restricted by the Jamaican government in order to maintain quality. One coffee worker we talked with made $6 per day, but a good picker during harvest time can make as much as $25 a day.
The dairy industry is in steep decline due to imports of highly subsidized foreign powdered milk. Beef and onions have met a similar fate. The poultry industry has been severely hurt by the importation of low-grade chicken parts. Sugar and bauxite (aluminum ore) have also been hit.
Tourism although nervously watching world events is the mainstay industry of Jamaica employing one of ten Jamaicans. Global tourism, however, exacts a price on Jamaica, environmentally and socially. Large all-inclusive tourist facilities at Montego Bay provide the tourist with hotel, food and entertainment. These tourists seldom come in contact with Jamaican life, being cloistered in compounds, eating food imported from abroad. Jamaicans typically work as maids and kitchen help, even as prostitutes in the tourist industry. Sewage from these facilities often empties into the ocean which along with siltation, pesticides, over-fishing, and physical destruction including anchors from cruise ships destroy coral reefs and marine life. Only a small percentage of Jamaica's original coral reefs remain.
Other environmental costs of globalization include the erosion of steep slopes caused by coffee growers and agricultural chemical runoff into surrounding waters which kills marine life and threatens the few remaining manatees by killing sea grasses. Fisherman must go far offshore to outlying Morant and Pedro banks to find fish for local markets. The rapid deforestation at 5% per year of Jamaica's remaining 5% of its original forest threatens its two endemic Amazona parrot species, the Black-billed Parrot and the Yellow-billed Parrot .
These glimpses into the Jamaican experience represent some of the effects of economic globalization. Aside from money and trade, globalization affects Jamaicans in terms of the increasing international flow of ideas, disease, plants and animals, people, technology, and culture. Americanization, drug traffic, and the imposition of multinational corporations and nations further complicate and destabilize Jamaican life. Emigration has been a safety valve for the island. Now, more Jamaicans live outside the country than within, sending yearly remittances of $1.3 B back to families. The poor economic prospects signaled by low investment levels and stagnant growth, causing severe unemployment and low wages, leading to social unrest, has spurred grassroots community development organizations to be formed.
We visited with 'Jamaicans for Justice' representative, Susan Goffe, who is promoting police accountability through legislative lobbying. Crime rates have risen since colonization to two police killings per week which breeds new violence. The riots and killings of recent years associated with political party rivalry has abated.
Kenneth Wilson told us about his August Town sports and community development group in an impoverished suburb of Kingston which promotes competitive sports for young people in rival communities, calming violence and improving youth outlook. Sergeant West at the August Town sub-precinct police station confirmed that community policing had noticeably improved police relations.
At Treasure Beach we met with BREDA, a non-profit community group established by Jason Henzell and Peace Corps volunteer Aaron Laufer, to provide education, sports, cultural heritage, and environmental awareness in the community of 3000. By their efforts they have setup a safe house for battered women at which they learn to read and make crafts to be sold for their projects. BREDA has sponsored visiting American physicians to donate their time to teach first response medical techniques.
Despite urban pockets of impoverishment, high levels of unemployment, and low wages, Jaimaicans are a resilient and proud people, taking the future in their own hands with local community groups. Reggae music is heard throughout this luxuriant tropical island and we sometimes heard workers break out in song.
IMF Jamaica Profile:
On August 7, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Jamaica.
Following the financial crisis in 1995/96, the Jamaican government adopted stabilization policies aimed at reducing inflation through a broadly stable nominal exchange rate. While the government has succeeded in bringing inflation down (the inflation has been kept in single digits since 1997/98), tight monetary policy, coupled with high fiscal deficits, led to high real interest rates and an erosion in competitiveness. The public sector debt increased sharply during the period to over 130 percent of GDP, reflecting in part the costs of the financial sector rescue. Economic recovery has been slow. In June 2000,the Jamaican authorities undertook a Staff- Monitored Program (SMP) for FY 2000/01-2001/02 designed to tackle the heavy public sector burden and restore economic growth.
Over the past fiscal year (2001/02), Jamaica 's economy was hit by a series of shocks including the outbreak of violence in July, the impact of the terrorist attacks of September 11 on tourism, and heavy floods in late November. The government responded to these shocks through steps to cushion the impact on the economy. However, partly as a result, public finances worsened significantly and the reduction in the public sector debt was much less than anticipated. Jamaica has again been hit by heavy flooding in May 2002.
After growing strongly in the first half of the fiscal year (at estimated 3% annual rate), the economy grew by about 1% in FY 2001/02 following the shocks. Inflation was around 7.5%, and the real exchange rate appreciated by 4%. Despite a weaker external current account, Net International Reserves increased by about US$650 million boosted by strong remittances and proceeds from international bond issues. Domestic interest rates generally trended downwards, although with a hiccup in the third quarter of the fiscal year. Public finances deteriorated with revenues declining sharply, reflecting weaker economic activities.
Expenditures for tourist promotion, flood relief, and wages-resulting from earlier than expected wage settlements-were higher but offset by savings elsewhere. The cash government budget deficit increased to 5.7 percent of GDP relative to the revised SMP target of 4.1 percent of GDP, and the central government primary surplus contracted by nearly 3 percentage points of GDP to 8 percent of GDP. Public debt declined modestly to 129 percent of GDP.
On structural reforms, the government has succeeded in divesting intervened financial institutions through the Financial Sector Adjustment Company (FINSAC) and has restored the liquidity and the solvency of the financial system; FINSAC will be wound up by October 2002. Steps have been taken to strengthen further the regulatory framework for the financial sector and supervisory capacity of the regulatory authority.
To build on the progress achieved so far, the government has requested a new SMP for FY 2002/03.The objectives of the program are to consolidate the gains in macroeconomic stabilization and adjustment achieved to date and to lay the foundations for sustainable, strong economic growth that would further reduce poverty. The authorities ' program for FY 2002/03 includes a renewed fiscal effort to reverse fiscal slippages in 2001/02 and maintaining single digit inflation through tight monetary policy. The budget targets a deficit of 4.4% of GDP, consistent with close to 2.5 percentage points of GDP improvement in the primary surplus. This improvement is predicated on a series of revenue measures; the government is committed to exercise restraint in expenditures, including on wages. The fiscal effort would facilitate a further reduction in the heavy public sector burden.
To lay foundations for faster economic growth, the authorities are committed to maintain macroeconomic stability, take anti-crime measures to improve the business environment and maintain social order; improve infrastructure; strengthen the competitiveness of the economy including through adopting sector-specific growth-oriented policies; continue the effort to reduce labor market rigidities; and adopt further public sector reforms.
Executive Board Assessment
The Jamaican economy suffered major negative shocks during the last fiscal year, including a decline in tourism following the September 11 terrorist attacks, wide-scale flooding, and an outbreak of domestic violence. Directors commended the Jamaican authorities for having maintained macroeconomic stability through this difficult period, as evidenced by the low inflation and positive economic growth. They also saw Jamaica 's successful borrowing in the international bond market as an encouraging sign of the credibility of the authorities ' economic policies.
Directors acknowledged the authorities ' strong fiscal efforts, as evidenced by the achievement of high primary surpluses over the last four years. Given the critical challenge to achieve a permanent reduction in the public debt burden, it was, nevertheless, a source of concern that, partly as a result of measures responding to the recent shocks, the public finances fell short of the targets in the Staff-Monitored Program (SMP)for FY 2001/ 02. Against this backdrop, directors considered that key priorities for the authorities must be to redouble their effort to reverse the fiscal slippages and to strengthen policies over the medium term to improve Jamaica 's growth performance and to achieve a faster reduction in the public debt burden.
Directors welcomed the authorities ' determination to meet their fiscal targets for FY 2002/03 in the context of a new SMP. They emphasized that this will require expeditious implementation of revenue-enhancing measures, including efforts to improve tax compliance, and rigorous restraint in expenditures, particularly on wages. Noting the budgetary impact of the central bank 's losses, they also urged early implementation of the recapitalization plan being worked out with the World Bank. Looking ahead, the authorities will need to maintain a sufficiently high primary surplus over the medium term to ensure the sustainability of public debt, and to facilitate a further reduction in real interest rates.
Directors commended the Bank of Jamaica for achieving single digit inflation for six consecutive years and supported the authorities ' objective of maintaining low and stable inflation. A number of Directors suggested that the Bank should consider acting on very short term interest rates to reduce liquidity rather than longer-term rates, and, in this context, noted the positive impact on private sector lending and growth that could result from a prudent gradual reduction in interest rates.
Most Directors considered the authorities ' approach to exchange rate management as broadly appropriate. A number of them saw scope for somewhat greater exchange rate flexibility to help boost competitiveness, without undermining disinflation efforts. A few other Directors, however, saw a trade-off between achieving competitiveness through significant depreciation and maintaining low inflation. All Directors stressed that sustained structural reform will remain key in underpinning the authorities ' efforts to strengthen external competitiveness and improve current account prospects. Directors urged the authorities to press ahead with the elimination of the foreign exchange surrender requirement, which would remove the multiple currency practice associated with this scheme.
Directors welcomed the authorities ' growth--oriented structural reforms. They urged the government to take further measures to improve public sector efficiency and governance and reduce labor market rigidities, noting that higher employment along with the government 's anti-crime initiatives will be key to promoting social stability and improving the business climate. Some Directors also suggested that stronger efforts to simplify the tax system would foster private sector investment. Directors commended the success of the Financial Sector Adjustment Company (FINSAC)in disposing of assets of the intervened institutions. They supported the authorities ' continued efforts to improve the regulatory framework and strengthen the supervision of both banks and non-bank financial institutions.
Directors welcomed the move to replace reference prices with actual prices as the basis for assessing import duties for certain agricultural products. Noting the large rise in tariff rates for these products, several Directors encouraged the authorities to adopt a timetable for their reduction, although a few acknowledged that this should be facilitated in the context of an international effort to phase out agricultural protection.
Directors welcomed the authorities ' intention to further strengthen the quality of economic statistics and their plan to participate in the General Data Dissemination System. Directors welcomed the measures being taken by the Jamaican authorities against money laundering and encouraged the authorities to continue implementing actions to combat terrorist financing in line with UN resolutions.