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Madam Speaker: I wish to inform members of the House that the Government and the International Monetary Fund (IMF) have concluded the Article IV review of the economy. The review culminated on January 10, 2000 with discussions by the Fund’s Executive Board on the Government’s economic strategy. Members should note that under Article IV of its Articles of Agreement, the IMF conducts a regular review, usually on an annual basis, of economic developments in its member states. With respect to Jamaica, the most recent review began last October with a visit by Fund Staff to assess developments since 1998. The findings are contained in a Staff Report which formed the basis of the discussions by the Fund’s Executive Board. I wish to highlight the context in which the review took place. Since 1995, the Government has been challenged by a very difficult economic environment, and despite this has achieved some successes. This is a fact which has been acknowledged by the Fund. Among the successes is the reduction of inflation, which for calendar year to November1999 was 6.3%. Although we do not yet have the data for December, the out-turn for 1999 will be single digit, which would represent the third consecutive year in which single digit inflation has been recorded. This would be the first time in over 30 years that this has been achieved. The Fund has also recognized our efforts in managing the financial sector crisis. In particular, the work which has taken place in restructuring the sector and strengthening the prudential and supervisory framework has been commended. The Government’s fiscal efforts over the past two years have also been highlighted, even though the results in this area have been affected by the large interest payments, particularly for domestic debt. The accelerated pace in the divestment of the assets acquired through intervention in the financial sector was also highlighted by the Fund. It is important to establish this context, Madam Speaker, because sometimes there appears to be very little recognition of our success in these areas identified by the IMF. In addition, when we consider the challenges which we face, we must not forget that many resulted from the actions which we have had to take - actions for which we are now being commended by the Fund. For example, our intervention in the financial sector, and the subsequent stability which has resulted, required a great deal of resources. The decision to save certain industries which are critical to the country’s social and economic stability also had budgetary implications. And I must remind members of this House that these gains were achieved with very limited support from the multilateral agencies. They were achieved in a context in which many persons predicted that there was imminent collapse. Many experts, both local and foreign, questioned our ability to achieve these targets. In their discussions, the Executive Directors identified the following as the core problems facing the economy: the heavy public debt burden, high real interest rates, and a large fiscal deficit. The Government agrees with this diagnosis. In fact, I wish to inform the House that, for the first time within recent years, there is a growing convergence of views between the Government and the Fund on the macro-economic challenges ahead. However, where we differ is with respect to the pace of adjustment which should be pursued. The Fund advocates a more aggressive pace to achieve the objectives which both sides agree are necessary. This would be translated into a drastic reduction in Government expenditure and/or increased revenue measures and a greater flexibility to the exchange rate, an expression for accelerated devaluation. The Government, on the other hand, has opted for a more gradual approach, which would lessen the impact on the most vulnerable in the society and avoid further social dislocation. More importantly, we believe that the maintenance of policy credibility is essential. The wage settlements which we have been able to conclude in the recent past, come from the recognition by the Unions that the Government is serious about protecting workers from the ravages of inflation. Furthermore, while the Government recognizes that there is need to improve the competitiveness of domestic firms, we believe that the situation goes beyond the issue of exchange rate and must address structural problems in the productive sector. The IMF in its report has highlighted the need to reduce real interest rates in order to stimulate increased economic activity. Obviously, this is not a novel position as it has been identified domestically by the private sector, the Opposition and by the Administration itself. This represents one of the major objectives of the economic programme for fiscal year 2000/01, as well as for the medium term. The concrete steps, which are being taken to achieve this desired reduction, include: As regards this latter step, over the past 18 months the cash reserve ratio has been reduced from 25% to 16%, resulting in an additional sum of $8.5 billion being released to the deposit taking institutions. Furthermore, there is a commitment for another percentage point decrease before the end of this fiscal year, that is before March 31. This will release another $900 million to the institutions. However, for fiscal year 2000/01, there is a commitment to reduce the ratio even further to take us closer to that which obtains internationally. I intend to consult with the banking sector to devise a methodology whereby these future reductions will have the greatest impact on the interest rates available to the productive sector. Madam Speaker, we are confident that these series of measures will contribute to the reduction in interest rates, which we all agree is necessary to support expanded economic activity. Furthermore, the explicit commitment to stick to the fiscal targets represents an unambiguous signal to both the domestic and foreign capital markets of the Administration’s intention to bring the domestic debt problem under control. Despite the remaining areas of difference between the Fund and the Administration, the Article IV review represents a turning point in our recent relationship. I believe that this has only been possible because we have demonstrated the resolve to take difficult action, and the capacity to develop and adhere to a consistent macro-economic programme. We will continue to maintain close links to the Fund, even though we will not be entering into a borrowing relationship. The Fund has significant technical resources from which we continue to benefit. In addition, it plays a critical role in providing advice to multilateral and bilateral sources which might be considering financing projects in Jamaica. In this regard, I wish to note that the Fund recently gave a positive opinion to the European Union in support of an adjustment programme for Jamaica within the framework of the Lome Convention. This support will result in additional inflow of EURO 34 million (approximately US$35 million) of grant funds during fiscal year 2000/01. Consistent with its commitment to increase transparency, the GOJ has authorized publication by the IMF of the Staff Report and the Board’s deliberations on its web site. This will disseminate the Fund’s views on Jamaica to a worldwide audience. At the same time, the GOJ is releasing the presentation made to the IMF Board by the Canadian Executive Director, Mr. Tom Bernes, who represents Jamaica. The IMF’s website is http://www.imf.org I am told that the documents will be available within the next few days. In closing, Madam Speaker, I wish to state that we have taken full note of the recommendations from the Staff Report and the comments by the Executive Directors. Even as we note increased convergence of our views on the management of the economy, we recall when we were criticized locally for daring to express our differences with the prescriptions of the multilaterals. Increasingly, there is growing international recognition that there is no one path which leads to the ultimate goal of sustained economic development and growth. Every option has risks. Those associated with our strategy are clear, as we ourselves have often voiced them. There are also risks associated with the Fund’s recommended option, even though they have not been fully articulated in the Report. Madam Speaker, Mr. Joseph Stiglitz, up until recently Chief Economist at the World Bank, and former Chief of the US President’s Council of Economic Advisors goes to the heart of the issue in a recent article in which he states: "We should not pretend that there is more certainty about the policies being advocated than the evidence warrants........ If we believe in the democratic process, countries must make the decisions themselves, and the responsibility of economic advisers is only to appraise them of prevailing views concerning those consequences."
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