Beyond 2017: The IMF, the Growth Agenda and Good Economics Andre Haughton Department of Economics UWI, Mona Dr Andre Haughton1

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Introduction Jamaica’s economy very prosperous throughout 1960’s – GDP averaged greater than 5% percent per annum – Rapid industrial Expansion High public borrowing in the early 70’s IMF ($74.8 ) – Oil Price shocks in 1974 and 1978 Today, Jamaica is among the top 6 indebted nations in the world – Debt to GDP ratio 128% Depreciating currency, $128 - $1US – Jamaica’s foreign currency debt servicing requirements continue to increase. Dr Andre Haughton3

Foreign Currency Inflow and outflow in Jamaica Dr Andre Haughton4

Foreign Currency Flow and Foreign Debt Servicing Foreign currency inflows from Trade, commerce, investment and debt display a similar pattern: increasing or decreasing at the same time, sometimes with a one or two year lags – , inflow = US$355M and outflow = US$252M per month – 2001 – 2005, inflow = US$540 and outflow = US$383M up to November of Foreign debt obligations December 2005 – borrowed US$753M to service debt of US$570M – 2005 – 2008: inflow averaged US $906M Outflow averaged US$608M Global Financial Crisis of 2008 inflow to US$1.3Billion and US$1.4 billion in June and July outflow of US$750 and $784 million 2010 March: US$1.56 and $1.01 billion in February and March Service outflow of US $1.2 billion in February. What type of Foreign Currency Liquidity Management Strategy is this? Dr Andre Haughton5

Having received continuous balance of payment support from the IMF and other international lending agencies: – Can Jamaica sustainably repay its foreign debt? – What impact does foreign exchange have on the current account and the nation’s traditional exports? – How effective is the monetary policy transmission mechanism? – How should Jamaica strategize to increase economic stability to enhance its anemic economic growth, needed if the country wishes to develop. Dr Andre Haughton6

Foreign Currency debtors Dr Andre Haughton7

Foreign Debt Sustainability Analysis Foreign Currency debt can be curtailed if Jamaica – imports less – lower real interest rates – exchange rate depreciates less – Increase in domestic prices can also reduce the debt, though that would not be the preferred strategy. The results indicate that Jamaica’s foreign debt is unsustainable. However, the debt is trending downwards and might become sustainable given its trajectory since the beginning of the EFF. Dr Andre Haughton8

YearDbtActual Principal Interest %dfx DbtActual %dfx Principal %dfx DebtInterest%dfx , , , Average Dr Andre Haughton9

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Current account and fx Dr Andre Haughton12

Productivity and Price shocks Dr Andre Haughton13

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The widening gap between the lending rate and the Treasury bill rate – signaling that commercial banks, though increasing the level of pass through, are doing so at a huge mark up to the disadvantage of local investors – Commercial Banks demonstrate a collusive strategy in interest rate determination such that borrowers find it difficult to access credit to invest in the local economy. – This has been one of the greatest obstacles to growth in productive output in the country over the last 25 years. – Firms find it difficult to access investment capital even if monetary policy is expansionary. – Interest rates have been trending downwards over the last years but more needs to be done. – If the situation does not improve such that credit is offered to investors on all levels at a cheaper rate, then production on a whole might not increase and Jamaica – is bound to remain on the same anemic growth trajectory for the next forty years Dr Andre Haughton17

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Solution Aim to achieve achieve sustained stability, growth and development – guided by clear plans of action – linking short run stability and growth tactics to long run developmental strategic objectives. It has to be reiterated, ‘The Solution is Strategy’. Jamaica cannot continue on the path of four-year election winning cycles. – These are calculated and manipulated to gain votes, rather than to support the nation’s long run strategic objectives. – The country’s leaders must relieve themselves of this mentality and find a balance between narrow partisan objectives and the building of a nation. Dr Andre Haughton20