THE Government yesterday indicated it was making progress in talks with the International Monetary Fund on a mechanism for the IMF to police the country’s economic performance in the wake of February’s decision by the fund to end the use of Staff Monitored Programmes (SMPs) to monitor non-borrowing members.

However, it was not immediately clear whether Finance Minister Omar Davies, who just completed a round of talks in multilateral financial agencies in Washington, was negotiating a formal credit pact with the IMF.

“A range of possibilities (on a monitoring mechanism) was explored with the agreement that talks would continue over the next few weeks, which could lead to a methodology for the IMF to monitor Jamaica’s macro-economic performance,” the Government’s Jamaica Information Service (JIS) reported yesterday.

At the same time, the information agency quoted Davies as being open to proposals being developed by the Private Sector Organisation of Jamaica (PSOJ) as an alternative to the four per cent levy the Government intends to place on imports as part of an effort to close a $13-billion gap in this 2003/2004 budget.

The measure, which the Government has promoted as a credit against income tax and a move to capture tax evaders, is projected to bring in $3.4 billion. But businesses have warned it will hurt industry, undermine production and reduce the likelihood of growth.

In last night’s report, JIS said that Davies had not yet received the PSOJ’s alternative, but had been assured that it would have the “full backing” of the private sector leadership and “yield the same” as his proposed cess.

Added JIS: “The minister said that if the analysis confirmed that the new proposal implied no loss of revenue, he would have no difficulty recommending its acceptance to the Cabinet. The critical objective was to close the budget with the full support of the private sector.”

Last night, private sector sources declined to divulge the specifics of their package, saying only that it would be “a derivative of Dr Davies’ formula”.

“The minister has indicated that he needs to raise $3.4 billion and that has to be respected,” said one source. “We are still in discussion on all the issues.”

Davies has been under pressure since he revealed last December that the deficit for the fiscal year that ended March 31 was headed at 8.4 per cent of gross domestic product (GDP) — the eventual out-turn was 7.7 per cent of GDP — instead of the projected 4.2 per cent.

Rating agencies quickly changed their outlook for the Jamaican economy from stable to negative and placed the island’s debt on watch for downgrading.

In the deepening uncertainty, a private sector backlash against the import levy and a widening of the range of products now subject to the 15 per cent general consumption tax (GCT), the Jamaican dollar has been in an almost free fall against the US currency.

At the end of last week it traded at $61.80 to US$1, a more than 30 per cent decline since the start of the year and a drop of just over seven per cent so far in May.

International money managers and potential private market creditors have suggested that Jamaica, to win their confidence, would need the imprimatur of an agency like the IMF to ensure the soundness of its economic programme.

However, when the Government completed its last borrowing programme with the IMF in 1996, it vowed never to return and over the past two years relied on the fund’s staff monitored programme for an oversight of its performance.

The IMF’s board scrapped SMPs in February, saying that while they did the rigour of formal programmes they “risked being misinterpreted as carrying the fund’s seal of approval”.

JIS said that Davies had discussed the issue with IMF managing director Horst Koehler as a “possible future structured relationship” with the fund in the absence of the SMP.

Davies also had talks with acting World Bank president, Shengman Zhang, the president of the Inter-American Development Bank (IDB), Enrique Iglesias and the under-secretary for international affairs at the US Treasury, John Taylor.

The World Bank and the IDB agreed, JIS said, to explore ways “to minimise the level of counterpart funding” that the Jamaica Government would have to put up for projects financed by these institutions, given Jamaica’s current macro-economic position.

Davies was also confident of the local financial market settling down, given the support for Jamaica declared by the multilateral agencies, recent signs of recovery in the economy and, according to JIS, “the improvement in the fiscal accounts as soon as the full effects of the revenue measures take effect”.