Zacca: Jamaica heading for economic crisis without IMF deal
By CAMILO THAME Business Coordinator [email protected]
Private Sector Organisation of Jamaica (PSOJ) President Christopher Zacca says Jamaica will be diving deep into an economic crisis if the country continues to be without an International Monetary Fund (IMF) agreement.
What’s more, Zacca figures that the longer it takes to seal a deal, the closer the country will get to falling over its own fiscal cliff.
“Any person [who] suggests that a Plan B without the IMF, at this point, is a viable alternative for our country is not thinking straight,” said Zacca at a Lions Club of Kingston luncheon yesterday. “Such a train of thought risks plunging us into the abyss and significantly hurting all of us — most of all, the most vulnerable of us, the poor, the marginalised, and the aged.”
The head of Jamaica’s most powerful private sector lobby group said that the measures needed to satisfy the multilateral lending agency were the same ones needed to fix the economy, which has been mired by a massive, growing debt and decades of very little growth.
And even while he dubbed the IMF deal as a crucial first step for economic reform, Zacca said there was more at stake in the near term; chief among them being a dramatic fall in business and consumer confidence, possible loss of financing from international development partners, further reduction in the country’s foreign currency reserves needed to pay for imports, and, not least of all, a potentially steeper slide in the Jamaican dollar accompanied by higher inflation.
“Domestic nominal interest rates would obviously rise in response to the higher inflation and currency depreciation, depressing domestic production activity, reducing the growth of investment, and increasing the likelihood of job losses,” Zacca said, while speaking at the Jamaica Pegasus in Kingston. “And, finally a downward spiral of our financial system and economy would occur, leading to a widespread collapse in our economy and much increased poverty.”
The Government is already struggling to close a fiscal deficit, which is expected to come in at $53 billion (which is almost the amount needed to maintain the police force and deliver health care in Jamaica) over the 12 months ending March 31.
With public debt totalling over $1.7 trillion, every percentage point increase in the interest rate translates into another $17 billion a year that the Government will have to find to pay its creditors.
Interest rates started to move upwards towards the end of 2012, when the average yields for treasury bills rose, with the 91-day instrument seeing the rate climb as high as 1.3 percentage points over two months.
Moreover, the lack of a clear IMF agreement, or at the least a final letter of intent to be taken to the multilateral lending agency’s board, may further push up interest rates and lead to an even weaker dollar, when the Government has to find US$320 million ($30 billion) in hard currency to pay its creditors, along with a more staggering $88 billion in local currency, come February 24.
Zacca, whose organisation’s membership has criticised the Government for not disclosing more details on the “sticking points” in the IMF negotiations, charged the Cabinet with clearly presenting its plan and projected timelines after its retreat, which starts today, is completed on the weekend.
More specifically, he wants to know how public sector wages, pension and tax reforms, as well as measures targeting reduction in bureaucracy and improving the social safety net will be approached.
What comes after, is another thing.
“So, let us assume that we get an IMF agreement, and our leaders outline the plan,” said Zacca. “Politics-as-usual and its attendant divisiveness and paralysis needs to be put aside when it comes to the three or four critical issues such as our debt, crime and education.
“We need a new consensus that brings us together as Jamaicans, to stop us from following each other like lemmings over the cliff and into the abyss,” he added.
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