Caribbean & Central America - April 2012 (ISSN 1741-4458)

Jamaica’s People’s National Party (PNP) must be feeling pleased with itself. It returned to power in the 29 December general election after a four-year absence, winning 42 of the 63 seats on offer. It has now followed this up with a decisive victory in the 26 March local elections, winning 12 of the country’s 13 parish councils while achieving a 4-4 tie with the opposition Jamaica Labour Party (JLP) in the 13^th. Of the 228 parish council seats contested, the PNP won 150 against the JLP’s 75. All this political success has come amid a return to growth: in the last quarter of 2011, the economy grew by 1.7% year-on-year, to give overall growth for 2011 of 1.5%, the first annual advance since 2007. Remittances in 2011 were at their highest level for a decade at more than US$2bn. But despite all this, the latest International Monetary Fund (IMF) report points to strong headwinds to come for the PNP.

The IMF was in Jamaica from 8-21 March for the Article IV Consultation, and discussions with Jamaica will continue in Washington from 20-22 April. The March mission recorded that the 2011 growth figure of 1.5% resulted primarily from increases in agriculture and bauxite/alumina production. Another positive was the reduction of inflation to 6.6% year-on-year by the end of January.

However, the IMF also warned about persistently high unemployment (12.8%) and a deteriorating fiscal situation. The budget for the 2011/12 fiscal year targeted a primary fiscal surplus of 5.2% of GDP, but this eventual outcome is projected to be 3%. The public-sector deficit is expected to be 7.3%, with the country’s debt-to-GDP ratio remaining high at 140%.

The PNP is a left-leaning party, and there is little doubt that its success in December was based in part on the manifesto’s focus on the need to foster economic growth, with the emphasis on job creation. The PNP also made much of the JLP’s poor record on growth. As the PNP emphasized during the December election, GDP growth when the PNP was last in power, in 2006/7, was 3.2%; the debt-to-GDP ratio was 108%; and unemployment was 9.6%. The JLP, by contrast, presided over a contraction of 1.3% in 2010; a debt-to-GDP ratio that is now pushing 140%; while unemployment is estimated to have been 12.6% in 2011, slightly up from 12.4% in 2010.

While the PNP did not overtly campaign on an anti-IMF platform, it did clearly suggest that the new agreement with the IMF should be more growth-oriented. And it was supported in this by an April 2011 report from the Washington-based Centre for Economic and Policy Research (CEPR) which was strongly critical of the IMF’s Jamaica programme on the grounds that it was too “pro-cyclical”.

But nothing emerging from the IMF’s March visit to Jamaica suggests much room for manoeuvre. In addition to the edging up debt ratio, the IMF is projecting an increase in the external current account deficit to over 10% of GDP and it has highlighted a decline in net international reserves at end-February to U$1.8bn. Also, in the banking system, the non-performing loan ratio rose to 9%.

The IMF does pay lip service to the need for boosting growth and maintaining social cohesion. It notes “significant challenges” in attaining “higher and sustainable rates of economic growth, while reducing macro-economic risks, including high public debt and high unemployment”. And it points to the need for action on three fronts, namely creating a growth-oriented environment with improved productivity; strong macroeconomic policies through “significantly higher” primary fiscal surpluses, fiscal, and financial reforms”; and creating a framework to ensure social cohesion.

Yet, there is little to indicate that the IMF has any innovative ideas up its sleeve, certainly none that are likely to answer the CEPR’s criticisms or help Prime Minister Portia Simpson Miller deliver on the promises held out by her dual election victory. On the contrary, the IMF warns about the difficulties immediately ahead, saying: “The recovery is fragile and there are strong downside risks. Growth in FY2012/13 is projected to remain low at about 1% and, on present trends, the public sector and external current account deficits are projected to widen and the public debt to rise. On the external side, risks to external stability and growth can arise from volatile commodity import prices (including oil) and a slowdown in global growth, in particular in the United States.”

The problem for the PNP is that the electorate has put considerable trust in it and will be looking for results not excuses. As one PNP politician boasted after the local election results were known: “We run things now: central government, local government…”

• IDB report

This warning of unhelpful external factors was echoed by the Inter-American Development Bank (IDB) in its 2012 Macroeconomic Report. However, rather than pointing to the US, it expressed concerns about a faster-than-expected deceleration of China’s economy and deepening economic problems in Europe.