Did IMF allow Jamaica to make a great escape?


Sunday, March 30, 2014    

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IN an article nearly two weeks ago titled "Jamaica's great escape", Financial Times journalist Robin Wigglesworth likened Jamaica's performance under the IMF agreement as akin "to the greatest escape since Steve McQueen tunnelled his way out of a fictional World War Two prison camp".

Wigglesworth, who after a visit to the country had written a somewhat bearish article on Jamaica at the end of last year, started his piece by

noting, "Few countries have a history with the International Monetary Fund as long and inglorious as Jamaica, but is the Caribbean's perennial basketcase finally getting its act together? It would appear so.

"Jamaica succumbed to its umpteenth international bailout last year, but its dismal history of adhering to previous economic adjustment programmes led even many staff at the IMF, World Bank and Inter-American Development Bank — which bankrolled the latest effort — to predict another failure."

Significantly, Wigglesworth comments, "Some international officials felt it would be better to let Jamaica crash completely, and spend the bailout money picking up the pieces, rather than hope that the country would finally be able to get on the right track again."

His more positive piece followed the IMF press release of March 19th marking the successful completion of Jamaica's third review, where Nayouki Shinohara, the IMF's deputy managing director, said:

"Jamaica's program implementation under the Extended Fund Facility has remained strong. The current account has improved markedly and international reserves have increased in line with program requirements. The execution of the 2013/14 budget has remained broadly on track...

The authorities plan to restrain expenditure and to meet the 2013/14 budget targets is commendable."

This allowed the IMF to disburse another US$71.4m to Jamaica, further buoying investor sentiment. Jamaican US dollar Eurobonds have been the third best performing bonds in terms of total return in the emerging market universe this year, with a sharp decline of around one per cent in their blended average yield spread above US treasury bonds, according to the JP Morgan Emerging Market Bond Index (EMBI), from 6.5 per cent to 5.5 per cent, in sharp contrast to the general emerging market sell off.

Despite this spread compression, excluding the crisis countries of Ukraine, Argentina, and Venezuela (and the smaller stressed Caribbean credits of Belize, Grenada and Barbados), Jamaica still offers amongst the best yield available for overseas investors, at over eight per cent for some of our longer paper, although yields on shorter bonds have fallen sharply. For example, of the latter, the yield on Jamaica's international bond maturing in 2017 fell nearly 200 basis points or two per cent to 5.87 per cent, from 7.86 per cent at the start of the year.

The full IMF review of the third quarter (for the end December quarter) was released in a very timely fashion less than a week later on March 25th , in itself an encouraging sign signalling broad agreement between the IMF and our policy makers.

It revealed that all quantitative targets had been met, sometimes by wide margins, and that all structural benchmarks were completed. It provided some more detailed information on the structural benchmarks and updated quantitative targets, but did not reveal much that was not already in the public domain.

Going forward, the key concerns of the IMF were whether we could meet our revenue targets "maintaining the programmed tight fiscal stance remains a major challenge", weak growth (around one per cent) and the associated low investor confidence, balance of payments threats such as to PetroCaribe, and the need for further vigorous implementation of reforms.





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