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The Government of Jamaica (GOJ) in its Letter of Intent (LOI) to the International Monetary Fund (IMF) on 15 January 2010, formally requested a 27-month Stand-By Arrangement with the IMF for SDR820.5 million (US$1.25 billion), the equivalent of 300 per cent of quota.
A LOI is a formal document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to the so-called heads of agreement. Such agreements usually aim at closing a financially large deal. In short, the LOI seeks to clarify the key points of a complex transaction for the convenience of the parties while providing safeguards in case the deal collapses during negotiation.
The Government’s letter indicated that the request was occasioned by the impact of the global economic and financial crisis on the domestic economy as well as a prolonged period of low economic growth and high public debt.
On Thursday, February 4, 2010 the Executive Board of the International Monetary Fund (IMF) approved a 27-month Stand-By Arrangement with Jamaica in the amount of SDR 820.5 million (about US$1.27 billion) to help Jamaica “cope with the consequences of the global downturn”.
Half of the package, a disbursement of SDR $414.3 million (about US$ 640 million), will become available to Jamaica immediately. Further disbursements will be contingent upon successful quarterly reviews by the IMF board to ensure targets are being met. The first tranche, US$640 million of the IMF loan was been disbursed and is now in the Bank of Jamaica’s accounts.
The Government’s Memorandum of Economic and Financial Policies (MEFP) which accompanied the Letter of Intent outlined the policies and measures that the government has agreed to implement to address economic issues.
Jamaica’s financial programme, as outlined in the MEFP, provides the broad framework for the conduct of these policies. In addition, it allows for an assessment of the performance of the economy and provides information on the available financing to the public and private sectors.
Objective
Jamaica’s medium-term economic and financial programme is designed to cover a five-year period. The overarching objectives of this programme are to put the public debt/GDP ratio on a downward trajectory, entrench fiscal discipline and accountability and significantly raise real GDP growth rates.
The programme rests on three central and interrelated pillars: (i) a fiscal consolidation strategy focused on streamlining expenditure and reforming the public sector, including the divestment of noncore public bodies; (ii) a comprehensive debt management strategy and (iii) reforms to further strengthen the financial system.
Monetary policy will aim at bringing inflation down to mid-single digit levels and maintaining it at those levels, within the context of exchange rate flexibility.
Targets The macroeconomic targets which the Government plans to pursue are highlighted in the table below: