Prime Minister Bruce Golding last night acknowledged that the world financial crisis will affect the Jamaican economy, saying that an immediate casualty will be the availability of foreign capital for budgetary financing.

Golding also said that a team of experts from the Bank of Jamaica, finance ministry, Financial Services Commission and the Planning Institute of Jamaica has been set up to monitor and analyse developments in the global financial markets daily "to determine the likely impact on Jamaica and to allow for timely and proactive policy intervention".

"The heavy reliance on the international capital markets for budgetary financing which we have built up over the past decade will be an immediate casualty as those markets have become sour," Golding told guests attending the Jamaica Manufacturers' Association (JMA) annual awards banquet at the Hilton Kingston Hotel.

He said that long before the current crisis, the Government had indicated its intention to re-engage the multilateral lending agencies, such as the IDB and World Bank, adding that while Jamaica has been building up commercial debt, "our repayments to the IDB have been exceeding new disbursements".

He said that last week he met separately with the presidents of the IDB and World Bank in Washington, D C and was pleased with their commitments to support Jamaica's development efforts. "The IDB has already committed itself to providing US$100 million to US$200 million per year over the next three years," said Golding. "I expect the World Bank to do likewise."

Hours before Golding's address, US authorities raised the prospect of direct capital injections into troubled banks, and Europe's central bank opened up an unlimited cash lifeline.

Wire services reported that stocks went into a new tailspin yesterday as panic took hold again on Wall Street, sending US indexes to fresh five-year lows. Some said short-sellers came back in force as regulators lifted a ban on the practice of betting on falling shares.

The carnage continued in early trading today with Japan's headline Nikkei-225 index falling a whopping 1,042.08 points or 11.38 per cent, and South Korea's KOSPI index sliding 7.5 per cent.

In Washington, officials revealed they were considering duplicating Britain's decision this week to inject capital in banks through special shares, in an effort to unclog credit markets.

Analysing what the global crisis will mean for Jamaica and the manufacturing sector, Golding said that the budget financing programme for 2008/09 is predicated on securing a further US$250 million from the external market.

"That market is not now in good shape," he said. "We would not have needed to source those funds until early next year. The forecast for market conditions at this stage is uncertain, given the liquidity crisis in the capital markets. But our reputation is strong. The Government is currently in discussions with external sources and I have reason to be confident that those funds will be secured."

He said the need for liquidity will impact on the appetite for emerging market debt and this could affect Jamaican bonds.
"Given the limitation on global financing it is important for us to maintain our deficit target and despite the pressures for additional expenditure to meet hurricane damage and public sector wage adjustments, we continue to exercise stringent fiscal controls," he said.

Golding also listed remittances and tourism as two areas that will be affected by the crisis and said that exports will be hit as consumer spending contracts.

Added Golding: "Our balance of payments could be adversely affected. because while the impact will be negative if there is a fall-off in exports and reduced prices for our exports because of the decline in global demand (eg alumina prices fell from US$3,400 per ton in July to US$2,300 last Friday), it could have a positive impact on the import side (eg reduced prices for imported oil)."

He also said he expected that inflation will taper off as reduced global demand drives down prices. "We are already seeing this in falling prices for oil, corn, wheat and other critical imports," he said.

He extended an invitation to meet with the JMA next week to work out strategies to help local manufacturers "survive where they are in danger and to be prosperous where they are not".

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