“Surviving the current economic environment through sound strategic planning” is a profound statement of fact. It applies to the process and business of governance as much it applies to the conduct of private enterprise.
For our part, with or without financial support from the International Monetary Fund and our multilateral partners, there are hard choices to be made. Choices that must underpin good governance; choices that make sense; choices that for too long have been sacrificed on the alter of avarice and expediency; but choices that must be made in order to position the economy once and for all on the path of sustainable growth and development.
The adjustment will not be without pain, and the truth is that the country and our people have gone through several episodes of painful adjustment. Often after the medicine of adjustment there is nothing to show for it but fatigue and frustration and the fear of greater pain.not to mention the mountain of expensive debt and a culture of slovenliness, waste and corruption. This time, let us ensure that with the pain of adjustment, there will be tangible and lasting gain for the country and its people.
Ever since taking office two years ago, the Government has focussed on ensuring: . A sound predictable macro-economic policy framework;. Disciplined and strong fiscal management of the economy; . A tax system that is simple and competitive;. A modernised labour market geared toward high levels of productivity;. A simplified business-friendly bureaucracy;. Effective measures to prevent corruption and fight crime; and. Supportive infrastructure.
The global financial crisis must now give momentum to these efforts.
The crisis has served to underscore the country’s vulnerability to the external economic challenges. The country faces the up-hill challenge of maintaining domestic stability while restoring the conditions that can support recovery and sustainable growth into the medium-term.
Jamaica’s return to a borrowing relationship with the International Monetary Fund (IMF) must be seen as a positive development. Not only will the IMF agreement assist in stabilizing external pressures but it will address the process of structural reforms in a fundamental and sustainable manner.
In its latest Quarterly Monetary Policy Report the Bank of Jamaica emphasized that the fundamentals of our economy have not been deteriorating despite the many near-term challenges. Most of the economic indicators are pointing in the right direction . improvement over the medium term. Inflation and inflationary expectations have been trending down and are expected to remain subdued. The twelve-month point-to-point inflation is 8.9 per cent, much lower than previously projected.
The exchange rate has remained relatively stable while the current account of the Balance of Payments is projected to improve dramatically, from a deficit of 21 percent in FY2008/9 to a deficit of 12 percent in FY2009/10. In addition, interest rates have been trending downwards shedding some 250 basis points over the past few weeks.
We are all aware that prompt attention to questions of fiscal sustainability is particularly critical to the achievement of financial stability and lasting economic growth. The government is committed to addressing the country’s fiscal problems. However, this will require difficult choices.
Postponing those choices will only make them more difficult. Therefore, if we can agree on a sustainable long-run fiscal path now, this could yield considerable economic benefits in the form of lower interest rates, debt reduction and increased consumer and business confidence over the medium term.
In the context of the continued weakness in the global economy, international commodity prices are expected to decline while the international capital markets are not expected to re-open to Jamaica until 2010. Against this background, the domestic economy will be adversely affected by a decline in exports, particularly bauxite/alumina, and a reduction in capital inflows.
The technical analysis by GOJ officials supported by the IMF staff in their Article IV discussions with us is that unless there is this influx of new capital, Jamaica’s ability to remain current on its international obligations will deteriorate sharply this year. Also, without the assurance that these resources offer, the improvement in investor confidence that is necessary to underpin a reduction in interest rates will not occur. Maintaining order in the foreign exchange market and reducing borrowing costs are both crucial elements in building a stable environment that is friendly to investment, job creation and growth.
Even as the discussions continue for Jamaica to resume a borrowing relationship with the IMF the way has been cleared for the country to get approximately US$320 million (J$28.5 billion) from the fund by early next month. This represents a non-refundable allocation as an entitlement to deserving countries in good standing.
News out of the Fund states that its board of governors has ratified a general allocation of Special Drawing Rights equivalent to US$250 billion to provide liquidity support to the global economic system by supplementing the foreign-exchange reserves of member countries, including Jamaica.
The money is scheduled to be paid to Jamaica and other IMF member states on September 9 will go a far way in augmenting the country’s foreign exchange reserves.
The money which we expect under the Special Drawing Rights is a key plank in the government’s immediate efforts to increase the resources available to the Bank of Jamaica.
Meanwhile preparations continue for Jamaica to request US$1.2 billion (J$106 billion) from the IMF under a stand-by agreement for submission before the annual IMF/World Bank meeting in October.
What can companies and enterprises do in the short to medium term to remain viable, ride out the storm and remain fit top embrace emerging opportunities?
I offer the following suggestions:. Reduce costs through energy conservation and the strategic deployment of all available resources. Engage everyone in the adjustment process. Pass on cost savings to the consumer, listen to your customers and provide them with value for money. Communicate with your staff about your strategies and ensure that they understand why certain actions are being taken. . Increase the productivity of everyone in the company, setting clear targets, and where possible, access training opportunities. . Lastly and most importantly, remember that wherever there are challenges, there are also opportunities. Markets do rebound and you should be in a position to take advantage of that when it happens.
I close with the assurance that the Government continues to be committed to the aggressive promotion and facilitation of increased private sector investment in agriculture and agro-processing, information technology industries, energy and the expansion of financial services including the establishment of the international financial centre in downtown Kingston. The Government will also ensure that dedicated resources are provide for critical infrastructure projects such as road building and maintenance, expansion of water supplies, the provision of affordable houses and housing solutions, the continued expansion of our ports
And despite the fear and apprehension associated with IMF programmes, the government will not abandon its commitment to provide an appropriate social safety net and programmes designed to protect the more vulnerable.
Finally as in the case of other small open economies, the speed of recovery of the Jamaican economy is contingent on the pace at which the global economy improves. Many analysts are of the view that the global recession is at its point of inflexion as there are increasing signs that a number of economies and financial markets have responded positively to the aggressive fiscal and monetary stimuli of the past few months. The projection is for moderate growth in the world economy in 2010. The stability in the Jamaican economy in the past several months indicates the importance of co-operation in the face of severe resource constraints. In this regard, I must thank the Cambio Dealers’ Association for your spirit of cooperation in helping to stabilize the exchange rate.
I thank you
