The last few months have been very difficult ones for Jamaica, with an ever increasing risk that social and political tensions would offset the initial positive economic impact of the successful Jamaica Debt Exchange.

In “Moody’s Weekly Credit Outlook”, dated May 31, 2010, international rating agency analyst Alessandra Alecci argued that the “Jamaican conflict could not happen at a worse time”.

She notes that the Jamaican government, as part of an IMF agreement, has embarked on a comprehensive series of politically difficult and unpopular reforms in order to restore long-term debt sustainability.

In her view, “Thus far, this complicated adjustment has gone quite well. As recently as 18 May, the IMF stated that all quantitative targets were met without the need for waivers, while “substantial” progress was made on reforms.”

She adds “The impact of this conflict on Jamaica is particularly negative at this time, as the economy was beginning to turn a corner, despite still being technically in a recession. The negative publicity, with images of shootings on mainstream media, reinforces Jamaica’s already unfortunate reputation as one of the Western Hemisphere’s most murderous countries, which could deal a major blow to tourism.”

Beyond the obvious economic consequences of depressed business confidence, lower foreign direct investment, and a decline in tourist arrivals, Alecci highlights the risk that “the political fallout for the ruling administration could end up eroding the political capital needed to continue implementing the difficult reforms agreed to with multilateral lenders. Overall, it can make an already complicated fiscal adjustment even more problematic.”

However, one of Jamaica’s most experienced economic analysts, Oppenheimer’s Dr Carl Ross, believes that the timing of the intervention could in fact have been much worse. In a June 7th piece entitled “Jamaica — At a Crossroads?”, he observes that “had this crime offensive taken place last fall when the economic programme was being hammered out, I think it would have been a disaster. Coming now, after the IMF agreement has been inked, the domestic debt restructuring completed, and the peak tourism season behind them, I believe, makes it less financially destructive than it could have been.”

Repeated rating agency downgrades and other financial pressures in the run up to the debt exchange had left Jamaica on the edge of a severe loss of confidence, potential capital flight, dollar weakness and further pressures on the local financial system. Despite all the costs of recent negative events (humanitarian, business, reputational and political), the Jamaican dollar has continued to appreciate against the US Indeed, the Bank of Jamaica (BOJ) demonstrated a surprising level of confidence in the stability of our local financial markets by cutting its 30-day rate by half a point to 9.5 per cent last Friday.

Ross believes that there are three main differences between the current economic programme and past attempts at adjustment.

“Firstly, for the first time it incorporates a direct assault on the debt burden, through a debt restructuring”.

Ross notes “Bizarrely, the debt exchange itself seems to have generated a positive shock to the financial markets (as opposed to the negative shock that might have been expected) that has led to lower interest rates.”

“Second, the plan includes a bold privatisation program.” Ross believes that in the past the sale of Air Jamaica would have been “taboo”, and that it will reduce fiscal losses.

“Third, a formal IMF agreement was signed with financial commitments from the other multilateral banks.” Ross argued that an IMF agreement had previously been viewed as “political suicide” in Jamaica. From an economic perspective, Ross is clearly correct that Jamaica is extremely fortunate that the disruption did not occur before the debt exchange and the associated receipt of massive IMF and other multilateral financial support.

Whilst our local financial markets have so far demonstrated an almost surprising resilience, there is no room for complacency. The international economic situation is still very fragile. The same sharp decline in commodity prices cited by the Bank of Jamaica as a justification for its more positive view on inflation, in the opinion of Lakshman Achuthan, the managing director of the world renowned Economic Cycle Research Institute, “is telling us that the peak in global industrial growth is imminent, it’s here right now”. More and more countries across the globe (Greece is just the poster child) are experiencing sovereign debt crisis similar to that just experienced in Jamaica.

In such a negative environment, Jamaica’s well managed restructuring has bought it some time, as Alecci admits. “However, Jamaica is far from entering a near-default situation at this stage, and the current B3 rating and stable outlook is for now still appropriate.”

World Bank representative Dr Badrul Haque made an extremely relevant point at the Launch of Jamaica Community Crime and Violence Prevention Programme last week when he observed, “There was a clear sense in the country that the debt exchange was a survival issue for Jamaica and everybody had to do their part and 99 per cent of the target group accepted the offer being made. Surely, it is possible to do the same in addressing crime and violence? Jamaica’s very survival is at stake.”

Ross also warns that in considering this new economic agenda, the outcomes are more “binary” than they have been in the past. “In particular, the cost of failure of this program seems very high to me, because I think global risk aversion is higher, the government has opened the door to debt restructuring, and domestic residents have been asked to take on a very heavy dose of austerity. If this IMF programme falls apart, I think it will lead to capital flight, currency devaluation, and external debt restructuring that will be very destructive to the social fabric.”

Jamaicans must therefore use this small window of opportunity to come together in partnership to tackle the issue of crime and violence in a transformational way. If this works, the relevant comparison would be with the outgoing President of Columbia, Andres Uribe, who has overseen a dramatic transformation in the economic and security picture of his country. It is therefore extremely timely that the theme of the PSOJ’s annual economic seminar this Friday is “Beyond Crime and Corruption To Growth: Practical Lessons From Colombia.”

The beginnings of a structure to capture and institutionalise the recent energy of civil society already exists in the partnership for transformation. Indeed, much of this structure has existed from 2003, in its previous incarnation known as the partnership for progress. What we have not yet seen, until perhaps this year, is the political and societal will to act decisively on the key issues of crime and the economy. For the future of Jamaica, this moment must not be lost.