Your Economy on Ganja: Jamaica Seeks IMF Help

♠ Posted by Emmanuel in ,, at 1/12/2010 12:48:00 PM
Cloud nine--ah--where you find me
Some boy wan' reach cloud ninety
We're smokin' like a genie
The skunky and the greenie

Jamaica is a colourful place full of colourful people. It brought the world the ganja-smoking Rastafarian reggae idol Bob Marley--a massive influence on contemporary pop culture despite passing away many years ago. Indeed, his offspring urge us to board the "ganja bus" (I'll take the Venga bus, thank you.) It's also the home country of exceptional athletes like the fastest man on Earth, Usain Bolt. (As an aside, the Jamaican track and field team will be using my alma mater, the University of Birmingham, as training grounds in preparation for the 2012 London Olympics.)

Unfortunately, this sort of colourful behaviour from our Jamaican friends extends to realms where being staid and boring is of great benefit--economic management. A few months ago, Forbes lumped Jamaica in with the ten economies hardest hit by financial crises, with a national debt at 113% of GDP and a CCC+ credit rating. As we shall see, the country's troubles far predate the current crisis. It's reminiscent of the same sad story that ails any number of developing economies. Jamaica has not had much luck in diversifying away from primary commodities--in their case, bananas. In classic underdevelopment alleviation fashion, the Jamaican government has urged the country to move up the value-added ladder as far as bananas are concerned. From the Miami Herald:
The global financial crisis, which has battered Caribbean economies, is forcing Jamaica and other countries in the region to rethink how they do business. Although most Caribbean nations continue to wrestle with how to avert financial meltdown, Jamaica is mounting an aggressive campaign to help diversify its economy.

The banana plantation in Annotto Bay, about 22 miles north of Kingston, is at the forefront of how Jamaica is reinventing itself from a country that once shipped fresh bananas and other produce to one that now processes and packages them.

``This year we have an export business that we didn't have last year,'' said Rolf Simmonds, commercial director for Jamaica Producers Tropical Foods, a division of Jamaica Producers Group, which revamped its business model in November. ``We were exporting bananas. This year we are exporting banana chips and doing well at it. We are building a business slowly but surely.''

No longer should shipping ackee, cocoa, Scotch Bonnet peppers or banana in its raw form be good enough, farmers are being told. Can it, box it -- add value to it, government officials are demanding. ``We are having to deal with two significant challenges at the same time,'' Prime Minister Bruce Golding said in a recent interview with The Miami Herald. ``One is how to charter our way out of this global storm, but secondly how to address long-standing structural deficiencies in our economy . . . and how to do that in the midst of the global storm.''
These measures have, to date, not been enough to improve foreign exchange earnings. Aside from a failure to diversify from primary product exports, Jamaica has also been beset during the financial crisis by dwindling remittance earnings from its overseas workers and falling prices commanded on world markets for bauxite:
``The Jamaican economy has relied too much on too narrow a range of industries over the years,'' Finance Minister Audley Shaw said. ``We've relied on bauxite, we've relied on tourism and we've had limited manufacturing that has gotten worse and it got worse not just because of the implosion. Jamaica had its own implosion long before the world implosion.''

Even before the recession blew a $1.3 billion, or 20 percent, hole through Jamaica's budget, the country's economy was already on shaky ground: External debt of almost $6.2 billion, years of anemic economic growth, the removal of guaranteed markets and prices for sugar and bananas, and the 1995 collapse of more than 40 banks.

Now, Jamaica finds itself in even more dire straits after believing it would be insulated from the recession. In the past year, remittances have fallen by 16 percent or $300 million; tourism [visitor arrivals, I guess] is up, but earnings are down by $100 million; and the closing of three out of the country's four bauxite plants that produce aluminium ore at a loss of $900 million.
The endgame is predictable here: a holla for help from the IMF. Like other borrowers, the IMF has prescribed some belt-tightening for Jamaica in order to get it in better shape to repay a forthcoming $1.3 billion loan. However, social unrest in the wake of IMF conditionalities have predictably arisen, and Jamaican Prime Minister Bruce Golding has had to backtrack on tax increases on basic necessities such as vegetables, bread, sardines, animal meal and fishing gear. Nevertheless, he also emphasizes that new sources of public revenue need to be found.

All this government wrangling has come at a price of a delayed letter of intent (LOI) for Jamaica to request a standby agreement from the IMF. However, we receive news today [1, 2] that the government will send the LOI off to the powers-that-be in Washington soon as it has already been completed. The IMF will review Jamaica's application on January 27.

Note that the current government was partly elected on a platform of curbing previous excesses of the previous government. Moreover, the refrain here remains a familiar one of the IMF being an unwelcome but necessary guest. Here's an op-ed from Kevin O'Brien Chang in the Jamaica Gleaner:
In all probability, the raft of tax increases announced by finance minister Audley Shaw on Thursday was largely dictated by International Monetary Fund (IMF) conditionalities. We can weep and wail and gnash our teeth and abuse the heartless IMF to 'kingdom come', but deep down we all know Jamaica is reaping the bitter fruits of decades of borrow-and-spend government, and the chickens have now come home to roost.

Beggars can't be choosers, and borrowers can't dictate terms from lenders. It's not like the IMF is an invading army holding guns to our heads and saying, "Take this money or else!" We are the ones pleading for a loan. The IMF is merely saying, as all bankers do, "You want money to borrow? Well here are my conditions. Take it or leave it." And given the gigantic hole in the budget right now and the fact that nobody else will lend us any more money, Jamaica has two choices - negotiate an IMF agreement, or declare national bankruptcy.

So, in domino terms, Golding is basically matching his doubles as the game unfolds and cussing the lousy hand in front of him. Anyone who can add and subtract knows Jamaica is presently stuck in a deep hole dug by Omar Davies and Derick Latibeaudiere, under whose stewardship Jamaica averaged less than one per cent economic growth and over 10 per cent inflation from 1994 to 2007. Has any other finance minister and central bank governor pairing, with such a dismal record, ever been given such an extended run?

Yet Golding knew what he was getting into when he begged Jamaicans to vote for him in September 2007. True, no one predicted the current global financial crisis. After all, the Bear Sterns' folks who used to advise our government on global financial matters were so ignorant about what was coming that their company went totally bankrupt.

Indeed, many Jamaicans elected Bruce Golding and the Jamaica Labour Party (JLP) in 2007 precisely because he convinced them that the People's National Party (PNP) had Jamaica on an unsustainable path, and that he could set the country straight. So yes, we understand things are tougher than you figured, Bruce. But it's time to stop whining about what the PNP did and show us that you are the 'big-time driver' you claimed to be and not some learner who bought his license.
Whatever happened to the kinder, gentler IMF? Still, I like the current PM's notion of being a 'big-time driver'. I just hope that the vehicle he's helming isn't--you guessed it--the ganja bus. I'm tellin' you the truth, mon!