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In my recent Budget presentations I have deliberately focussed some attention on the international economy. This I have done for two reasons. The first is that Jamaica is integrally involved in the international economy in terms of both visible trade services, and financial flows. Hence, demand for our exports, as well as our ability to attract tourists, and investment flows are all a function of developments outside of our borders. A second and increasingly powerful reason is that the reforms of the last decade have cemented our integration into the world economy. Our mission has been to make Jamaica globally competitive, requires a clear understanding of emerging global trends and pursuing policies to meet the challenges. In terms of the developments of last year in both the commodity and financial markets, there were mixed results for Jamaica. Crude oil prices rose sharply during the year; the average movement was from US$18 per barrel in 1999 to US$28 per barrel in 2000. That is the primary cause of the deterioration in the balance of trade in 2000. At the same time, global capital markets improved, although interest rates rose in both Europe and the USA. In terms of the outlook for 2001, the world economy seemed to have peaked during 2000, with the US revising its growth projections downwards to less than 2%. This clearly could have negative repercussions as it could affect aggregate demands in the US, impacting on tourism flows. On the other hand, attempts by the major economies to improve output, could lead to reduce interest rate in the international markets, which would have clearly positive implications for us. I wish at this juncture and within the context of our accessing the international capital markets to address some comments directly to the members of the Opposition. Let me say in passing, that I for one, am quite pleased with the renewed vitality which characterizes their performance, particularly in Parliament since an event in early March. More "pep in their step". That event has certainly improved their self-confidence, in terms of the possibility of them forming the Government whenever General Elections are called. There is nothing wrong with such anticipation and confidence. However, in putting forward your case to the public, I urge that the facts and reality predominate. My urging is not only with regard to dangers of promising to the electorate that which cannot be delivered, given the fiscal reality; but perhaps even more important, my warning is within the context of the assessment of creditors, both domestic and foreign, there is need for responsible utterances and a demonstrated commitment to sound macro economic policies. There are certain facts which are beyond dispute. First, the public sector debt burden is high. Second, the only way it can be reduced, is by maintaining a tight fiscal stance, leading to a systematic reduction of the stock of debt. However, this cannot be achieved overnight, and in the interim, there is need for the country to access credit to bridge the gap between revenues, on the one hand, and vitally needed expenditure, on the other. The country and Opposition must recognize that creditors have no obligation to continue to lend to us. So if our economic direction brings into question our ability to repay, no one will put up their resources simply because we need help. Jamaica's credit assessment is no longer solely dependent on the Washington multilaterals. Although their views are important, we have gone beyond that, and we have made our mark in the private capital markets of the world. As an example, I wish to quote from a publication call - "The E Bear Sovereign", published by Bear Stearns and Company. The publication examines the major issues facing the Jamaican economy, and lists five "key credit positives. I will return to them later. On the other hand, it lists two key risk factors. The first is the overall public sector debt burden, particularly the domestic debt, and the second, is the election cycle. Obviously, we all know that the public sector debt burden is a major negative. However, I am certain that many members of this Honourable House, as well as members of the public will be surprised to know that our political stability and electoral system would also be subjected to analysis by international financial experts. In the publication, the article states - "The ruling Peoples National Party (PNP), recently lost a key by-election and the Opposition - Jamaica Labour Party (JLP) which has not been in power since 1989, is likely to pull out all the stops to regain power. At the same time, continued fiscal tightness is critical. This could threaten the PNP's chances in the election, resulting in a change of government. The good news is that the Opposition is as committed to external commitments as the current Government." A simple translation of the analysis is that, there can be no deviation from the path of tight fiscal management by any Administration or else the positives which we have built up can be eroded overnight just like that. This is not an assessment done by this Administration. This is one carried out by an external institution. Hence, to the Opposition, I issue a friendly warning. Whilst populist utterances with promises may earn applause, be careful what you say as the world is watching.
I have already outlined the out-turn in terms of the GDP for 2000. As already noted, whilst the level of growth was modest, but for the severe drought which impacted on domestic agriculture, the economy would have grown much faster. In looking at this calendar year, the continued recovery in the financial sector, in manufacturing, increased activity in bauxite/alumina and continued buoyancy in tourism provide more than ample basis for confidence, not just in accelerated growth.
MEDIUM TERM MACRO ECONOMIC INDICATORS As we have done in recent years, we present projections for the medium term. A table which has been circulated, indicates the out-turn for the last two years and the projection for fiscal year 01/02 and for 02/03. This provides for the general public, financial analysts - both local and external, with the clear context within which the Government's policies are developed. We seek to provide this framework in order to mediate the limitation of the tendency for many to single out one particular indicator for discussion. There needs to be the understanding that there are several other variables which are inextricably linked to any one selected. The Opposition Spokesman on Finance in recent times has chosen interest rates for this focus, and has suggested a collaborative approach by Government and Opposition, with the common objective of bringing about reduced rates. There is nobody in the country who would wish to have interest rates reduced more than me, as the Government is the major debtor, and hence, pays the greatest amount for interest. However, bringing about a reduction in interest rates is not an isolated activity. It has to be within the context of a cohesive macro economic framework. This is the rationale for presenting a medium term framework. So my suggestion to the Opposition Spokesman is - if he wishes to engage in a discussion on interest rates reduction, the prerequisite is to put forward a cohesive programme linking interest rates, the exchange rate, inflation rate, growth in money supply and changes in the NIR, as well as targets for the fiscal balances. || Previous | Table of Contents | Next ||
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