Responding to Jamaica's Economic Crisis

On Tuesday, March 24th, 2009 the PSOJ hosted its Second Chairman's Club Breakfast Forum at the Pegasus Hotel.  The theme was "Jamaica Faces the Economic Crisis: How the Government Can Respond". The key speakers came to us from the Caribbean Policy and Research Institute (CaPRI) and included Dr. John Rapley (President),  Dr. Damien King (Deputy President of CaPRI), and Miss. Latoya Richards (Senior Research Officer).

Dr. Rapley at first established the framework in which CaPRI has sought to provide solutions to the problems currently being dealt with within the Jamaican economic environment. He highlighted that the Government of Jamaica (GOJ) has provided a Stimulus Package in response to the instability that emerged in the foreign currency market late last year. Dr. Rapley also made reference to deliberations on the issue of whether or not a fixed exchange regime should be adopted to contain the observed foreign currency instability.  Dr. Rapley pointed to the dilemma of not being able to have a stimulus package, achieve foreign exchange stability, and lower interest rates as businesses would have it.

Considering the issues outlined, CaPRI thought it essential to survey the key stakeholders within the Jamaica business community to get a first hand perception of the impact that the Stimulus package is having and likely to have on business activity.  Miss. Latoya Richards presented the findings to this survey; and also, expounded on the costs and benefits of the stimulus package.

Miss. Latoya Richards:

The Survey featured the impact of six (6) of the fifteen (15) initiatives within the stimulus packages.  The revenue foregone due to the fiscal adjustment have been broken down as follows when the data was annualized.  

Policy Change

Foregone Revenue (J$M)

Tourism Marketing


Tourism GCT.


Dividends Tax


GCT Threshold


Custom User Fee


Income Tax Threshold


Total (annualized)


Total (half year)



It was estimated that approximately 2.2 billion of tax revenue would have been foregone over a six month period and represented approximately 0.2% of GDP for the year.  The results suggested that the future impact would see a net reduction in the next period's fiscal deficit of at least 0.2%.  In a cost benefit analysis, CaPRI cited other uses that the foregone revenue could have been used for. These included the HEART programme which could have incorporated approximately 30,000 more persons if provided the funds. There could have been 2,000 more Police Officers employed in the fight against crime and there could have been 135,000 more pupils brought into the Early childhood programme.

Key sectors such as Bauxite, Tourism and Small Businesses among others reported a significant impact expected from the stimulus package. CaPRI noted that approximately 60% of businesses surveyed were expected to gain from the stimulus package.  Miss. Latoya Richards highlighted that the key benefit from the stimulus package was mainly seen in improved bottom-lines (profitability) among businesses rather than the expected postponement or dissuasion of laying off workers, and opting to close business operations.

Dr. Damien King:

In his presentation, Dr. King sought to clarify the fundamental reasons for the foreign currency problem being faced by Jamaica. He noted that when Governments spend more than they earn, they can only fill the gap by printing money.  If however, it is not allowed to print money as in the case of Jamaica, the only other alternative it has is to borrow. Borrowing, Dr. King noted, is not a solution to the problem, but rather, a postponement thereof as other generations will have to pay the bill.

Jamaica has tried to balance the budget but it has failed to do so. This result can be blamed on various occurrences. Probably it's an external shock (e.g. shortage of oil internationally) or a domestic factor such as a hurricane damage necessitating a fiscal deficit to meet current needs. While there might be justifiable reasons to run a fiscal deficit in the short run. It definitely is not sustainable over the long run, and especially under a flexible exchange rate regime.

Dr. King sought to explain how a fixed exchange rate regime such as that used in Barbados could be used in the Jamaican context. This is in light of the recent debate on the appropriate exchange rate regime that is needed in Jamaica to stem the problem of an unstable exchange rate. Dr. King noted that a fixed exchange rate regime will not work if it was meant to be restrictive. Rather, the government will have to meet the market demand at the proposed rate without any discrimination / partiality.

An essential element of making such a fixed exchange rate regime work is that the government cannot afford to spend more money than it is receiving. Any fiscal deficit will interfere with   the effective management of the fixed exchange rate regime.  This key characteristic was exemplified in mistakes made by the Barbados government for which stringent action was needed to cut fiscal spending and restore confidence in the system.

Dr. John Rapley:

Dr. John Rapley in summary noted that in while the Stimulus package was directed at improving conditions for job-creation, the survey highlights that this was not being achieved. He emphasized the need for fiscal austerity / discipline Jamaica. He mentioned the interest that has gone into securing a Social Partnership between key stakeholders in Jamaica, but noted that, due to the incentives under such an arrangement, the results might conflict with the Governments' efforts to deliver the desired level of fiscal discipline that is required to bring stability to the Jamaican foreign currency market.    

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