BANK of Jamaica (BOJ) Governor Brian Wynter says reducing Government’s appetite for borrowing and lowering inflation are key reforms being undertaken by the Bruce Golding administration and the central bank to facilitate the expansion of local exports.

Wynter suggested that these, among other macroeconomic and social factors, some of which are outside the ambit of the BOJ, are necessary for the export sector to grow even in today’s harsh global economic climate.

“We all know that an exporter-friendly macroeconomic environment assumes a low rate of inflation, relatively low interest rates and high levels of productivity underpinned by a stable social environment,” said Wynter during his keynote address at a Jamaica Exporters’ Association Quarterly Luncheon held on Wednesday at Eden Gardens in Kingston.

The central bank boss’s comments were made against the background of the Jamaica Debt Exchange (JDX) initiative, which involves the lowering of interest rates on domestic public debt aimed at reducing interest cost to the Government by $40 billion in the upcoming fiscal year, and the country’s US$1.3-billion Stand-By Arrangement with the International Monetary Fund (IMF).

Wynter said the IMF agreement will play an important role in facilitating an expansion in the export sector. The arrangement, he explained, was a necessary part of meeting the country’s external obligations and generating sustained growth following the global economic crisis which “exacerbated Jamaica’s persistent fiscal and current account deficits”.

Jamaica’s total exports fell 51.3 per cent in 2009 following a sustained economic crisis and a contraction in demand worldwide. As exports declined while the value of imports continued to increase, Jamaica has run a sustained merchandise trade deficit. In order to correct the imbalance, the country will need to export more in relation to its imports — an estimated US$3.7 billion as at September 2009.

Wynter, who was appointed head of the central bank three months ago, said the renewed borrowing relationship with the IMF was preceded by a development plan for economic growth, particularly in the export sector.

“The main objective of the medium-term economic programme is to fundamentally transform the Jamaican economy to facilitate growth. It does this in part through a reduction in inflation, greater stability in the exchange rate and lower interest rates,” he said, adding that “In the process, the programme will also allow us to build a more resilient economy so that we will have more manoeuvring room to cope with external shocks.”

However, Jean Smith, manager of the JEA, told Caribbean Business Report that without a significant reduction in interest rates, in line with Jamaica’s major export competitors, the sector would not be able to take advantage of the opportunities that are available for investment and export.

“I can’t be prescriptive but what I know is that in terms of our major competitors in our global market, we need to see Jamaica having interest rates at the same level as the competition, otherwise we are not able to compete effectively against them,” Smith said, arguing for ‘single-digit’ interest rates.

As at December 2008, the prime bank lending rate in Barbados was nine per cent, while in Trinidad, interest rate is now at 9.5 per cent and is generally thought to be “excessively high”. Interest rate in Jamaica is currently in the region of 15 per cent.

In addition to the further reduction in interest rates, Smith argued that there are other crucial industry reforms that must be effected to sustain the sector. These, she said, include trade facilitation, the reduction in the time taken to get shipments to port and to the foreign market, export readiness, business development, competencies, trade promotion and marketing.

“It has to be a mix of those supporting factors that will help us and will see a turnaround in exports,” she said.