Patterson. we are weathering the storm

PRIME Minister P J Patterson has conceded that this has been a tough economic year for Jamaica, but said that the country is weathering the storm and suggested that a resurgent tourism industry is poised to drive substantial economic growth.

Patterson also endorsed a new initiative, now under way, involving both the private sector and trade unions, that could lead to a social partnership agreement.
The prime minister's prognosis on the state of the Jamaican economy was delivered on Saturday at a luncheon in Montego Bay hosted by the management committee of Region Six - largely western Jamaica - of his governing People's National Party (PNP).

"It is no secret that we have had to pass through a very tight fiscal year but we are weathering the storm and we have been servicing our debts," Patterson told party officials and their guests.
Faced with the budget deficit of 7.7 per cent of gross domestic product (GDP) and an undertaking to slash it by nearly three percentage points this year, the government imposed a $14-billion tax package at budget time.

Yet, while revenues have grown, it has not been at the projected rate and spending has moved faster than projected. At the same, with rating agencies downgrading Jamaica's debt rating, international money markets have largely been hesitant about overtures from Finance Minister Omar Davies until a recent loan of US$100 million from the Bank of Nova Scotia Canada.
The upshot is that halfway into the financial year the deficit targets were not being met, forcing the administration to slash the capital budget by a third and tell public sector bosses to rein in other spending.

Until the Canadian loan, Davies, who had intended to raise US$250 million on the international market this year to help meet local bills and roll over existing debt, has been making debt payments from the central bank reserves and US dollar loans raised on the domestic market.
But Patterson suggested that the worst of the short-term problems may be behind his government, given the strong prospects for the current winter tourist season.

"We are looking forward to a very good tourism season," he said. "We know that tourism is not just the life of the west but the catalyst that will cause economic growth to move fastly in Jamaica."
Tourism officials project that this fiscal year stop-over tourism arrivals will reach 1.36 million, up about seven per cent on last year, and continue the recovery after the fall-off that was triggered by the 9/11 terrorist attacks in the US in 2001. Cruise ship arrivals are expected to reach 1.1 million, an increase of 27 per cent on last year.

Over all, the tourism industry is projected to gross US$1.35 billion, a jump of US$150 million on the last fiscal year.
With new properties to be opened next year and several on the drawing boards by Spanish hotel chains, officials are expecting substantial growth in the industry over the next several years.

But while the government is looking towards these longer term prospects, Davies is hoping that private sector initiatives now being drawn up and the likelihood of wage restraint from unions will provide a cushion for the administration.
More than 60 per cent of the government's budget goes to service the country's more than $650-billion debt, a situation which analysts say is unsustainable.

One plan now being discussed by private sector interests - as part of an initiative to a social partnership agreement - is the possibility of converting some high interest government instruments into US dollar indexed bonds or some other zero coupon instrument, to give the government short to medium room space on interest payments and provide an opportunity for a lowering of rates.
Such an agreement would carry with it a good behaviour clause for the government to adhere to.

According to Observer sources, an initial tranche of $25 billion of high interest Jamaican dollar has been considered for conversion.
At the same time, Davies has been talking with trade unions, telling them that government revenues cannot sustain the average annual rise in the wage bill of around 15 per cent and asking for concessions. The wage bill now stands at around $55 billion or 21 per cent of the budget, but more than half when debt servicing is excluded.

Some trade unions have suggested that they may not be adverse to a slow down in wage hikes, including extending the time-frame for their wages to reach 80 per cent of their counterparts in the private sector.
In his speech Saturday, Patterson, whose efforts in the mid-1990s to fashion partnership arrangement faltered on trade union disagreements, praised what was now taking place in discussions with the government.

"At present, we are seeing the private sector and the trade unions coming together to see what contributions they can make in the process of national development and we want to applaud them warmly," said Patterson. ". I want to take this opportunity to say to the private sector and the trade unions that we note with great pleasure and great satisfaction what you are trying to do to help us to build a partnership for growth and for national prosperity."

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