US$1b rescue fund for financial sector - Size of FSSF surpri

[Karl]

US$1b rescue fund for financial sector - Size of FSSF surprises players


The Bruce Golding administration has called for a US$1-billion (J$90 billion) rescue fund for the financial sector, the size of which has sparked concerns about the health of Jamaica's investment houses, including its smaller players.


http://www.jamaica-gleaner.com/glean...business1.html

[Karl]

Lazie...more hurt i.e hurt greater than thought?
Just asking yuh, boss!

[Karl]

Preventing failure of our programme with the IMF

Preventing failure of our programme with the IMF

Ken Chaplin


Tuesday, January 26, 2010


The medium-term macroeconomic programme aimed at restoring the economic stability can achieve its objective if we all put our shoulders to the wheel. A critical part of the programme will be its monitoring, because it cannot be allowed to fail. Its failure would signal the beginning of Jamaica's darkest economic era.


The programme will be monitored quarterly through quantitative performance criteria, indicative targets and structural benchmarks, says the letter of intent from the government to the IMF. The government is requesting a 27-month standby loan in the amount of about US$1.3 billion. Programme reviews will assess achievement of quantitative targets and focus on the fiscal year 2010-2011 on progress in key structural reforms. In this context, the first programme review will focus on the financial year 2010-2011 budget and the implementation of the fiscal responsibility framework. The review will also examine plans for recapitalising financial institutions.

SHAW... the entire country should work with him


SHAW... the entire country should work with him


The second review will focus on fiscal reforms, specifically in debt management, tax and public financial management areas. It will also review progress in the various institutions aimed at strengthening the financial regulatory and supervisory framework. The third review will focus on public bodies and employment reforms as well as progress in financial sector reforms.


Proper monitoring is of critical importance to the success of the programme. First of all, I believe that the body to monitor the implementation of the programme should comprise the Ministry of Finance, the Bank of Jamaica, the Planning Institute and the Private Sector Organisation of Jamaica. It is essential that the private sector be represented on the body, but that representation should not come from financial institutions as suggested by head of the Jamaica Money Market Brokers Keith Duncan, as there might be a conflict of interest. In the interest of absolute transparency, the reviews should be published, be they favourable or adverse. A few years ago, a system of early warning was set up in the Ministry of Finance and Planning to alert the government of impending difficulty in the financial system, but for reasons unknown the radar was dropped and things went off-track resulting in financial and economic instability. We do not want that to happen again.


There are many challenges to be addressed in the macroeconomic stability programme. The four main ones are:
*Yielding permanent growth dividends by raising growth to 2 per cent by the financial year 201l-2012. After registering a decline during the current fiscal year ending March 3l, 2010, real Gross Domestic Product, the total value of goods and services produced, is projected to rise by 1/2 per cent in the financial year 2010-2011.

Underproduction is one of Jamaica's main economic problems. The growth outlook over the programme period reflects both a global pick-up in the mining sector as global demand recovers and continued investment and growth in Jamaica's highly competitive tourism sector. Restoring fiscal and debt sustainability will help reduce sovereign risk premiums and boost private sector investment. This will benefit agriculture and other activities with linkages to the tourism sector.

*Reducing inflation to 6-7 per cent range over the medium term. Despite a temporary increase in inflation this fiscal year resulting from the introduction of new taxes, underlying price pressures will remain limited, given the absence of strong demand or foreign exchange market pressure. In this context, inflation is projected to fall from 12 per cent in the 2009-2010 financial year to less than 8 per cent in the financial year 2010-2011. In subsequent years, monetary policy will continue to focus on bringing inflation to 6 per cent.

*Public fiscal deficit, the difference between what government earns and spends, has been threatening financial stability for a long time. The fiscal policy under the programme is aimed at eliminating the overall public sector deficit over the medium term and putting the debt to GDP ratio on a clear downward trajectory. The overall public sector deficit is projected to fall from 12 3/4 per cent of GDP in 2009 to l per cent in the year 2013 to 20l4.

This will be a hard target to meet, but the programme says that the increase is consistent with significant reduction in the interest bill and an increase from 6 per cent of GDP to 9 per cent in the primary surplus of Central Government. Debt to GDP ratio will decline steadily from 140 per cent in the year 2009-2010 to below 120 per cent over the next four years. This column has always argued that Jamaica is borrowing far too much in relation to its production - the level of reduction might seem small but it represents a major step forward.

*Marked improvement in the balance of payments over the medium term. Higher national savings are expected as a result of fiscal adjustment, the gradual recovery in world demand and a recovery of remittances are projected to help narrow the current-account deficit from about 9 1/2 per cent of GDP in the 2009/20l0 financial year to about 8 3/4 per cent of GDP in 2010/2011, and further, to around 5 per cent of GDP over the medium term. This improvement, coupled with a projected recovery in foreign direct investment, will result in solid overall balance of payments surpluses beginning in the 2011-2012 financial year.

There is no doubt that the programme is going to have a negative impact on the poor, and to soften this the programme includes important measures to strengthen the safety net. The contraction in activity has already led to a significant increase in layoffs, exacerbating the already high unemployment rate. The most vulnerable social groups, with a low level of human capital, are most affected by the decline in economic activity.
Safeguards have been included to ensure that the social safety net is not only preserved but broadened, with special attention to be given to enhancing those social programmes that are well targeted and far-reaching.

The situation means the country must have governance of the highest order to prevent the programme becoming a wish list. That is the awesome responsibility of Finance Minister Audley Shaw. The whole country should work with him.