In my address to the nation on November 23, I spoke of the impact of the current unprecedented global financial turmoil on the local economy as well as the policy actions that have been taken to preserve financial stability. I also reviewed the outlook for the Jamaican economy.
Today, I will go further in explaining the challenges and opportunities that exist for Jamaica arising out of this global financial crisis.
BackgroundFirst, let me remind you that this crisis originated outside of Jamaica. Since the middle of last year, many developed nations have been confronted by the financial turbulence originating from the sub-prime mortgage meltdown in the United States. This situation created substantial losses for many financial institutions both in the United States and in Europe and triggered a significant reduction in the pool of funds available for lending.
In this calendar year alone, the world has witnessed the demise of several longstanding financial institutions. Some have been merged with other institutions and some have been “bailed out” by their respective governments. Institutions such as Bear Stearns, Lehman brothers, Merrill Lynch and Citigroup are certainly the names of institutions associated with financial creativity, security and success. These institutions, like so many others worldwide, have been subject to declaring bankruptcy, or mergers/acquisitions or being ‘bailed out’. We have even seen the collapse of the banking sector of one country – Iceland, causing their prime minister to warn that country is at risk for “national bankruptcy”.
I will reiterate that this global crisis has lead to a significant decline in the availability of credit to both developed and developing nations. Businesses have found it increasingly difficult to borrow funds to meet their needs. They are also grappling with the decreased demand for products internationally. This has resulted in reputable businesses such as circuit city, either closing their doors or scaling down their operations. This has further resulted in marked increases in unemployment particularly in the United States and the United Kingdom, and consequently a worldwide economic slowdown.
Analysts are forecasting that the global economy is headed into a global recession. Already, Germany and Japan are officially in a state of recession, and it was announced only Monday that the US has been in a recession since December last year. This poses significant challenges for the Jamaican economy in vital areas such as remittance flows, tourist arrivals, exports, balance of payments and foreign direct investments.
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