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.
In an exclusive interview with the Business Guardian's Hema Ramkisson the country's Finance Minister explained the secret to a real turnaround.
In 2013, Jamaica’s debt to GDP ratio stood at 150 per cent. It was one of many negative macroeconomic indicators facing the country.
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.
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. “
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.”
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.
Reporter: Hema Ramkissoon