Shaw: Make this the 'comeback' year

Sunday, May 01, 2011

DESCRIBING 2010 as a 'make or break' year, Finance Minister Audley Shaw last Thursday invited Jamaicans to make 2011 a 'comeback' year for the country by building on the economic stability that the Government has created in its pursuit of growth.

"There is no time to waste. We must muster the courage to resurrect ourselves, like the phoenix, from the ravages of the past, from missed opportunity, and from untapped potential. Let us make it the year that we all — men, women, and students — seize this unique moment created from economic stabilisation," Shaw said in his address to open the 2011/12 Budget debate in Parliament.

He threw out a special challenge to the private sector to retool, refinance, retrain and refurbish and encouraged businesses to develop new products, seek new markets and develop an export programme.

Shaw prefaced his charge to the country with an analysis of the state of the economy when his Jamaica Labour Party won the 2007 general elections, ending just over 18 years of the People's National Party's control of the Government.

"We inherited an economy on the border of collapse," Shaw said. "The only option for survival was for us to make significant game-changing decisions. Top of the list was negotiating an IMF (International Monetary Fund) agreement with the most bearable terms possible, given the weak hand we held."

That IMF agreement, he said, "unlocked unprecedented levels of funding from three other multilateral partners — the World Bank, the IDB (Inter-American Development Bank), and the Caribbean Development Bank."

But that, he said, was only the first step on a long journey to mapping out a plan for Jamaica to regain economic health.

He said that although the Jamaica Debt Exchange (JDX) surpassed expectations in terms of investor support, the reaction of a post-JDX market remained to be seen.

The JDX — a voluntary programme under which holders of Government bonds accepted lower interest rates and longer maturities — was critical to the IMF signing the deal and was expected to save the administration $40 billion in interest expenditure on domestic debt over the last financial year.

On Thursday, Shaw, who titled his address 'From Stabilisation to Growth', said that the JDX was largely responsible for the stable, but delicate, macro-economic environment.

"Much of the genesis of this stability is due to the Jamaica Debt Exchange — the most successful debt swap in history," he said. "The debt exchange has — without question — been a major pillar on which our entire recovery plan has been constructed."

The JDX, he added, "has become a symbol of the courage and spirit of undiluted patriotism that we represent as a people".

Explaining his use of the word delicate, Shaw said that while the economy had stabilised, the administration was fully aware of the factors that could threaten the country's push for growth.

"I speak of rising oil and commodity prices such as the price of grain. I also speak of Jamaica's vulnerability to natural disasters," he said.

"But we cannot afford to focus on the negatives. We must recognise that the waves have calmed; and the thick fog that had descended upon us from inherited and global conditions is beginning to clear. The Ship of State is stable now, and it is time for us to power up and set sail into the wide open sea again," said the finance minister.

Addressing the sore issue of interest rates, Shaw said that in the context of improved market confidence, the Bank of Jamaica (BOJ) reduced the interest rate on 30-day Certificates of Deposit (CDs) over fiscal year 2010/11 by a total of 375 basis points to 6.75 per cent (from 10 per cent in March 2010).

"The easing of the bank's policy stance created the basis for further declines in market rates," he pointed out. "In particular, the 90-day and 180-day Government of Jamaica Treasury Bill yields declined to a historic low of 6.46 per cent and 6.63 per cent, respectively, at end-March 2011 from 10.18 per cent and 10.49 per cent at end-March 2010. In addition, yields on GOJ (Government of Jamaica) Global bonds declined by 50 basis points over the fiscal year."

He said that in addition to effecting rate reductions, the BOJ lowered the cash reserve requirement and the liquid asset requirement against Jamaica dollar liabilities of the deposit-taking financial institutions to 12.0 per cent from 14.0 per cent, respectively. "This action was in an effort to promote an easing in domestic credit conditions and enhance the pool of loanable funds within the commercial banks by $4.5 billion," Shaw added.

He also announced that the inflation rate for the fiscal year 2010/11 was 7.8 per cent, "well within the target range of 7.5 per cent to 9.5 per cent". However, he noted that this was largely influenced by adverse weather conditions and rising international commodity prices.

The finance minister also said that the prolonged drought conditions from June 2009 to May 2010 and the impact of Tropical Storm Nicole in September 2010 resulted in a shortage iof some agricultural crops in the first three quarters of the last fiscal year and contributed notably to price increases in food and non-alcoholic beverages.

"On the global market, crude oil prices rose by 17.9 per cent to an average of US$83.38 per barrel for the fiscal year and higher prices of grains such as wheat, corn and rice were influenced by supply conditions such as droughts and fires, as well as increased demand for biofuel," he noted.

"In addition to these factors, there were a number of administrative cost adjustments related to bus fare and wage increases which contributed significantly to domestic inflation during the review period," Shaw said. "However, inflationary impulses were restrained by the appreciation of 4.4 per cent in the value of the Jamaica dollar against the US dollar and strong recovery in domestic agricultural supply since the start of 2011. The reduced inflation pressures in the fiscal year were also aided by a consistent decline in inflation expectations."

According to Shaw, this year marks the first in over a decade that any Jamaican Government has been able to achieve its projections, despite the very unstable domestic and global environment that, he said, made it extremely difficult to project accurately.

However, he said that despite the debt burden, natural disasters and the hostile global economic environment, interest rates are trending down, the foreign exchange market and the NIR are stable, the rate of decline in the economy has slowed, showing new signs of growth, and inflation has been moderated.

"The Jamaican economy has shown signs of stability, setting the stage for new investment and growth," he said, adding that the Government's primary objective is to balance spending with revenue "from now until 2015/16 when we hope to achieve the dream of a balanced budget" that will "allow us to attain the dreams of Independence".

Said Shaw: "Let us all challenge ourselves to think big again... I urge you: take an educated 'leap of faith' and let us work together to kick-start growth in a big way, and to get this train called Jamaica rolling again."

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Shaw: Make this the 'comeback' year