Despite most of Jamaica’s history being marred by low growth and different crises, Finance Minister Dr Nigel Clarke believes that the mobilisation of capital and legislative reforms will ensure the country will not be as vulnerable to economic shocks and the consequences that have followed throughout the country’s history.

“You just have to open your Bloomberg screen and you look what is happening to the spread over treasuries for sovereign bond yields across emerging markets. Clearly, as interest rates go up, bond yields will go up and prices across the board will come down. Bond yields for emerging markets in Latin America, the Caribbean, Africa and Asia have skyrocketed over treasuries representing risk that is perceived. I’m not talking about countries that are basket case. I’m talking about countries that in the popular parlance had a good time,” said Clarke at the recently held alternative investments summit dubbed ‘Sygnus Day’ held at the AC Hotel by Marriott Kingston.

However, he explained that Jamaica was trading inside the spreads over treasuries as compared with investment grade countries. He highlighted that this was achieved through deliberate policy actions and choices over the years despite the country going through its greatest economic shock in its history.

“I want us to reflect this morning on the fact that we’re here in what represents a period of significant turmoil in capital markets for emerging market economies. It would be a mistake for us to believe that those are automatic achievements,” Clarke added.

The finance minister also harked back to the strengthening of the country’s foreign exchange (FX) reserves by US$1 billion since 2019 and shift to inflation targeting as some of the reasons Jamaica was not in a difficult position when the novel coronavirus impacted the country in March 2020. He made mention of the fact that PAYE (pay as you earn) taxes didn’t decline despite the country losing 150,000 jobs, most related to tourism, when the country would have lost US$2 billion of foreign exchange inflows overnight.

According to Clarke, Jamaica took 14 years to get back to 1976 levels of output from the 1970s turbulence and 11 years to get back to 2008 levels of output after the global financial crisis. These shocks led to events such as debt crises and balance of payments crises that resulted in the country taking a generational time frame to recover.

“This time, we’re not going to take 14 years, we’re not going to take 11 years. The way that we show that will not be the case is to make sure that the shock does not deliver second and third order consequences. That Jamaica uses the crisis as a means of differentiating ourselves from the rest of the emerging markets space. We’re going to go from first principles and any intervention that we’re going to have is going to be disciplined, targeted to people who need it. We can subsidise people, but we cannot subsidise profits,” Clarke elaborated in his presentation.

The way which Jamaica’s economic future was charted during and after the crisis was through a 100-page document which outlined the economic recovery strategy on seven principles. It was built through a collaborative process involving the private sector, trade unions, members of academia and several ministers who were part of a huge task force. This task force worked on several big policy items.

“We forged consensus that we would follow through on the independence of the central bank. The pandemic provided every excuse not to do it, but in December 2020 when people were at home, when we were socially distanced, we followed through in what will someday be seen as the most consequential, single legislative actions to remove the central bank from the sphere of political involvement,” Clarke expounded.

In order to support the growth of the economy through access to capital, Clarke referenced the Government’s decision to remove distortionary taxes, bring private assets to market, and reforming regulation to make the accumulation of capital more seamless. This has included reforms that allow pension funds and institutional investors the ability to invest in private vehicles dedicated towards venture capital and private equity and the ability for pension funds to invest in private debt once it’s rated.

“The capacity of the private sector far exceeds this investible capacity of the Government. The key is to have an enabling environment where investment is attractive, where there are investment opportunities, where the Government doesn’t stand in the way of investment and that there are means by which investments can be mobilised. We have been focused on policies that are conducive to that taking place. It’s good because our market economy can only be effective if we have flexible pools of capital in the economy that can take advantage of those opportunities.

To assist with the formation of capital and have the Government invested on the same level as the private sector, the Government invested $750 million in a venture capital fund under the Development Bank of Jamaica (DBJ) and another $750 million to a private equity fund. There was a request for proposal (RFP) put out for a private fund manager who would be able to raise additional funds to bring each fund to $2 billion through private sector investors. The GOJ also launched an incubator and innovation funds with $2 billion in 2019 with the DBJ seeking a fund manager to bring it up to $4 billion.

While the Government seeks out a fiscal commissioner for the independent fiscal commission, Clarke is confident that the mobilisation of capital will support the drive of entrepreneurs who have the energy, acumen, passion, character and ability to bounce back from defeat to carry out their initiatives.

“We are promoting, we are backing, we are sponsoring the mobilisation of private capital in Jamaica to build a robust medium and small business ecosystem. The Government of Jamaica is supporting a deepening of capital markets and really a Jamaica where capital becomes a commodity. Our aim is to commoditise capital. As I have been at pains to point out, we can create for ourselves the future we want. It may not come over night, but it is unmistakeably possible. All it requires is focus, discipline, planning ahead, of course the social consensus is critically important, maintaining that and bringing people along,” Clarke closed.