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IMF discussions on in earnest
Published: Friday | May 29, 2009
R. Anne Shirley, Business Writer
A team from the International Monetary Fund (IMF) is in Jamaica holding discussions with various government officials.
During this visit they are expected to accomplish two things: finalise the 2009 Article IV consultations; and help Jamaican authorities to develop a financial programme - including the medium-term targets - that will allow Jamaica to access a standby borrowing arrangement with the Fund.
In terms of the Article IV consultations, an IMF team had already visited Jamaica earlier this year and prepared a draft staff report for discussions with the Jamaican authorities.
The team here is expected to finalise these discussions with Jamaica, complete their report for presentation to the IMF executive board, prior to the public release of the assessment.
The report will give a clear picture for the first time of the actual state of the current account deficit, and the net international reserves (NIR). While the NIR is currently at US$1.6 billion, it will come under pressure during the current quarter because of the expected overall reduction in foreign exchange earnings.
Analysts are taking Senator Don Webhy's comments two weeks ago as a Freudian slip that is closer to the truth than the rosy picture that is being painted by other government officials.
Wehby said worse case the reserves could slip to US$800 million.
In essence, the key question is what is the real gap that needs to be filled in both the external and domestic positions.
A series of reforms
On the matter of Jamaica seeking a stand-by arrangement with the IMF, it should be noted that in March 2009 the Fund announced a series of reforms aimed at strengthening its lending framework.
In this regard the IMF board has approved a major overhaul which includes:
Elimination of facilities that were seldom used.
Doubling of access limits - with the new annual and cumulative access limits for Fund resources being 200 per cent and 600 per cent of quota, respectively.
Modernising the IMF conditionality - this is being accomplished in two key ways. According to the Fund, "the new framework ensures that conditions linked to disbursements of IMF financing are sufficiently focused and adequately tailored to the varying strengths of members' policies and fundamentals.
Qualification criteria
This is achieved by making greater use of pre-set qualification criteria (ex-ante conditionality) and making more flexible the modalities of traditional (ex-post) conditionality.
In addition, structural reforms are now monitored in the context of programme reviews, rather than through the use of structural performance criteria, which will be discontinued in all IMF arrangements, including those for low-income countries."
Introduction of a new flexible credit line (FCL) for countries with very strong fundamentals, policies, and track records of policy implementation.
The FCL is available for either crisis prevention or resolution, and represents a strengthening of the earlier short-term liquidity facility, which is being discontinued.
Enhancing the flexibility of the Fund's regular stand-by lending arrangement (SBA) -the facility that is of interest to Jamaica at this time.
The new SBA framework will allow countries that do not qualify for the FCL to have high access on a precautionary basis to a stand-by arrangement for crisis resolution. It will provide increased flexibility by allowing the front loading of access and reducing the frequency of reviews and purchases where warranted based on the strength of the country's proposed programme and the nature of the balance of payments problem faced by the country.
Based on discussions with a number of highly-placed government officials, it should be possible for Jamaica to access around 300 per cent of its quota or US$1.2 billion over a three year period.
Jamaica's quota with the IMF is currently SDR 273.50 million.
US$300 million facility
In addition to the SBA, Jamaica should also be able to receive a US$300 million facility without any conditionalities, in the last quarter of the current calendar year.
The Government might be tempted to have the economy limp along until it can access this latter facility, but the problem with the Jamaican economy is greater than a one-year short-term fix.
The issue is not about financing this year's expenditure and balance of payments problem, rather it is about dealing with a fundamental reform of the Jamaican economy, once and for all, starting with drastic public debt reduction that is sustainable in the long-run.
Someone will have to bite this bullet.
Published: Friday | May 29, 2009
R. Anne Shirley, Business Writer
A team from the International Monetary Fund (IMF) is in Jamaica holding discussions with various government officials.
During this visit they are expected to accomplish two things: finalise the 2009 Article IV consultations; and help Jamaican authorities to develop a financial programme - including the medium-term targets - that will allow Jamaica to access a standby borrowing arrangement with the Fund.
In terms of the Article IV consultations, an IMF team had already visited Jamaica earlier this year and prepared a draft staff report for discussions with the Jamaican authorities.
The team here is expected to finalise these discussions with Jamaica, complete their report for presentation to the IMF executive board, prior to the public release of the assessment.
The report will give a clear picture for the first time of the actual state of the current account deficit, and the net international reserves (NIR). While the NIR is currently at US$1.6 billion, it will come under pressure during the current quarter because of the expected overall reduction in foreign exchange earnings.
Analysts are taking Senator Don Webhy's comments two weeks ago as a Freudian slip that is closer to the truth than the rosy picture that is being painted by other government officials.
Wehby said worse case the reserves could slip to US$800 million.
In essence, the key question is what is the real gap that needs to be filled in both the external and domestic positions.
A series of reforms
On the matter of Jamaica seeking a stand-by arrangement with the IMF, it should be noted that in March 2009 the Fund announced a series of reforms aimed at strengthening its lending framework.
In this regard the IMF board has approved a major overhaul which includes:
Elimination of facilities that were seldom used.
Doubling of access limits - with the new annual and cumulative access limits for Fund resources being 200 per cent and 600 per cent of quota, respectively.
Modernising the IMF conditionality - this is being accomplished in two key ways. According to the Fund, "the new framework ensures that conditions linked to disbursements of IMF financing are sufficiently focused and adequately tailored to the varying strengths of members' policies and fundamentals.
Qualification criteria
This is achieved by making greater use of pre-set qualification criteria (ex-ante conditionality) and making more flexible the modalities of traditional (ex-post) conditionality.
In addition, structural reforms are now monitored in the context of programme reviews, rather than through the use of structural performance criteria, which will be discontinued in all IMF arrangements, including those for low-income countries."
Introduction of a new flexible credit line (FCL) for countries with very strong fundamentals, policies, and track records of policy implementation.
The FCL is available for either crisis prevention or resolution, and represents a strengthening of the earlier short-term liquidity facility, which is being discontinued.
Enhancing the flexibility of the Fund's regular stand-by lending arrangement (SBA) -the facility that is of interest to Jamaica at this time.
The new SBA framework will allow countries that do not qualify for the FCL to have high access on a precautionary basis to a stand-by arrangement for crisis resolution. It will provide increased flexibility by allowing the front loading of access and reducing the frequency of reviews and purchases where warranted based on the strength of the country's proposed programme and the nature of the balance of payments problem faced by the country.
Based on discussions with a number of highly-placed government officials, it should be possible for Jamaica to access around 300 per cent of its quota or US$1.2 billion over a three year period.
Jamaica's quota with the IMF is currently SDR 273.50 million.
US$300 million facility
In addition to the SBA, Jamaica should also be able to receive a US$300 million facility without any conditionalities, in the last quarter of the current calendar year.
The Government might be tempted to have the economy limp along until it can access this latter facility, but the problem with the Jamaican economy is greater than a one-year short-term fix.
The issue is not about financing this year's expenditure and balance of payments problem, rather it is about dealing with a fundamental reform of the Jamaican economy, once and for all, starting with drastic public debt reduction that is sustainable in the long-run.
Someone will have to bite this bullet.
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