Phillips pushes back at critics - Pledges to continue reform under IMF pact
Published:Sunday | September 22, 2013 | 12:00 AM
Lavern Clarke, Business Editor
NASSAU, Bahamas:
Minister of Finance Dr Peter Phillips acknowledged last Friday that "some" Jamaican business interests are doubtful that Jamaica can stick to its current programme of reforms under this four-year agreement with the International Monetary Fund (IMF), but suggested he has no intention of trying to change hearts and minds.
Instead, the finance minister said he would let the execution of the IMF programme and the reform efforts within it speak for itself.
Mid-point a question on how he plans to deal with the uncertainty, Phillips interjected: "Continue the reform!"
"Nobody learns lessons at the same pace," he added.
Jamaica is expected to pass the first IMF test on the June quarter results — a final determination by the multilateral's board is due by month-end — and appears on track to deliver on its targets for the September quarter.
However, businesses remain uncertain about the programme, especially the 7.5 per cent primary surplus target that is seen as curtailment on the capital budget and likely anti-growth.
The private sector is also anxious about the outcome of tax reform. Phillips said what is being crafted is a new and exciting policy that aims to remove distortions from the system by recreating the incentive structure that encourages business investment that is beneficial to the economy as a whole, and not individual companies or sectors.
Some of that uncertainty is manifested in the foreign-exchange market where, despite some 24 issues of special Certificates of Deposit by the Bank of Jamaica, the dollar is now headed towards J$103 to the US dollar. It traded at J$102.85 last Friday. The market is also demanding higher interest rates, which pushed the six-month Treasury bill to a three-year high in August.
"Nothing that has happened in relation to the foreign exchange market or the bond market is unexpected," Phillips told Sunday Business on the margins of the 2013 High Level Caribbean Growth Forum organized by the multilateral funding agencies in conjunction with The Bahamas as host government.
Market analysts, at the point where the six-month T-bill hit 8.13 per cent, have noted that the central bank appears to be doing a trade-off between interest rates and stability in the foreign-exchange market, and that the fall in the value of the JMD had a greater potential to derail the IMF targets.
The Net International Reserves have fallen to US$882 million as the JMD weakens.
However, Bank of Jamaica Governor Brian Wynter, who was interviewed jointly with Phillips at the conference's luxury venue, the Atlantis, said the indicators are "performing as expected", including the current value of the dollar and the performance of interest rates.
Wynter said it was as important to stress the performance of inflation, which was measured at two per cent fiscal year to date. Annual inflation is at 9.5 per cent, and the fiscal year target remains within the 8.5 per cent to 10.5 per cent range, the central bank chief told Sunday Business.
Jamaica's private sector has been insisting that growth is key, and actions to create a more friendly business climate are urgent. The conference, which concluded last Friday evening, was all about the role of the private sector as primary creators of economic value and the need to engage its players early in the planning process, but had no private-sector participation.
Phillips sees Jamaica's businesses as the driver of growth, in a scenario where Government may promote certain projects and programmes but where it is private capital being put at risk. That essentially is the make-up of private-public partnerships, which is the investment model being pushed in Jamaica and elsewhere in the region.
Zhang Jun, the senior Caribbean regional manager for the IFC, said that one of the initiatives now under discussion is the possibility of a 'social PPP' in the education sector, where the Government would lease school plants that are built and owned by private investors. Currently, schools are constructed with public funding.
"We're just now talking with Government and the private sector," said Zhang in a separate interview. "It's being worked on; it's just a concept."
Growth in the Caribbean is now performing at 2.6 per cent on average. Jamaica is among the negative performers weighing on the region's output.
But asked for a drill down into the details as to exactly what would deliver economic growth, Phillips said there were a variety of things under consideration, including needed improvements to the business climate, and that there was agreement to focus on developing certain sectors. He said there was promise in tourism, agriculture and other sectors.
The formulation of those plans are assisted in part by private sector consultations under the Regional Growth Forum, which is a project of the IDB and World Bank, that seeks feedback on policy actions and support services needed to mobilise private investments.
"It's not like the growth component is separate from fiscal consolidation, separate and apart from tax reform" or other aspects of the economic programme, Phillps said. "We are working out a joint business plan."
The programme is still unfolding, but the idea is to pass on the findings of the consultations to individual governments, who then determine what they can deliver and in what timeframes.