This year has seen the Jamaican economy placed on a sound footing, resulting in a revaluation of the Jamaican dollar, currency stability, reduced interest rates and the successful implementation of the Jamaican Debt Exchange (JDX). Here the Bank of Jamaica (BOJ) and its senior staff have played a vital role, employing technical competence and sound banking practices. In fact it was the BOJ who gave the JDX, which has generally been hailed as a success, its legs, thus paving the way for its general consensus.

At a time when the country’s reputation has been dealt a severe blow on the international scene due to the unrest that is currently taking place in the corporate area, the BOJ has to be singled out as a sound institution with its staff playing an instrumental role in the stewardship of the economy.

Greek drama

The situation in Grece highlights what can happen when monetary policy goes awry. The absence of control of monetary policies perhaps has contributed to a crisis that now threatens the entire Euro zone. Greece had no means of repaying the 8.1 billion euro which had been due on May 19, and 20 billion euro was hastily arranged and placed in Greece’s account to address its debt obligations. The IMF later loaned Greece 30 billion euro as part of a European-led 110 billion euro finance plan to avert the euro zone’s first sovereign debt default. Efforts continue to prop up the ailing Greek economy, which has become as fragile as its ancient statues and relics.

The IMF has insisted on a number of austerity measures and has imposed a debt workout, which sees severe cuts in national expenditure and tax hikes. Greece’s President George Papandreou has sought to put in place spending cuts, raise the retirement age to 65 and severely cut salaries. This has been met by riots in the streets, civil insurrection and the country’s Ministry of Finance has been set on fire.

This toxic confluence of financial crisis, deepening economic crisis and emerging social crisis, born of an inability to implement sound monetary policies, threatens to destabilse not just Greece but the Euro zone, and its contagion may well spread to the financial markets of the world.

Indeed the German Chancellor Angella Merkel says the Greek debacle has put into question “the future of Europe and the future of Germany within Europe.”

Twenty years ago the British Prime Minister Margaret Thatcher warned against the perils of European economic and monetary union and how some of its weaker economies would destabilise the stronger ones. It was perhaps one of her primary reasons for not subjecting Britain to the Euro and so giving up its Pound. A decision in retrospect which sees her reasoning vindicated.

Putting out fires

The end of last year saw Jamaica’s economy in dire straits as it sought a bailout from the IMF. It too was subjected to expenditure cuts, tax measures, the divestment of public assets and the restructuring of its debt. Jamaica realised that it had to swallow a bitter pill and the BOJ was on hand to ensure that the experience though necessary, would not be too unpalatable, and together with the Ministry of Finance remained resolute, ensuring that the Jamaican economy did not implode.

In December of last year the BOJ made some short-term advances to the government, which have now been repaid. Also that month the Central Bank purchased some J$20.6 billion in government securities. This was an accommodation to the government net of repayment. In the March quarter the BOJ purchased J$13 billion of the 60-Day securities that were sold in January. Both the J$20.6 and the J$13 billion were provided in the context of the uncertainty in the market which led participants and investors to stay back from the markets. In short, there was a market failure at that time which saw the BOJ stepping in and providing resources in return for receiving marketable securities. It is those securities that were redeemed in the March quarter.

Paid in full

“The totality of accommodation to the government provided by the Bank of Jamaica in December (the net outstanding) was J$20.6 billion in medium and long-term securities. In the March quarter the totality of securities acquired or advances made within that period were redeemed and paid in full. The amount that we have been tackling in terms of permanent sterilisation relates to the J$20.6 billion net in December and of that amount we have sold J$17.6 billion in the market during March, April and May.

” Another sign of the acceptance of the JDX is that those sales occurred at yields even further below the JDX interest rates; in other words we sold them at a premium,” the Governor of the BOJ Brian Wynter said at a recent Press Quarterly Briefing held at the BOJ’s headquarters in Downtown Kingston.

Spring in Wynter

Wynter took up the position as Governor in December of last year at a time when the credit rating agencies and all manner of institutions were most unkind to Jamaica. With the country buffeted by revenue shortfalls and the inability of the government to make good on its obligations, together with succeeding a well respected and competent predecessor, Wynter faced a daunting task.

It is a testament to his character, technical expertise, professionalism and ability to galvanise a competent and able team that he has, in less than six months, steadied the ship and got its turbine engines going through treacherous waters. A lot of fuss has been made about his contract and salary by the shortsighted whose myopia prevents them from seeing the wood for the trees. What would Greece, a member of the Euro zone, give now to have a valiant and technically adept central bank capable of navigating its way out of its current predicament.

The senior management team of the BOJ that includes Audrey Anderson, Myrtle Halsall, Gayon Hosin, Rudolph Muir and Livingstone Morrison are not given to verbosity or grandiloquent pronouncements. Neither do they venture into the remit of the Ministry of Finance – rather they focus and concentrate on running an efficient and tight ship. For years it has been said that the Eastern Caribbean Central Bank (ECCB) is perhaps the region’s best central banking institution. Considering what the BOJ had to contend with and prevail, that may well be debatable. It is all very well coming in to bat at No.5 when there are 400 runs on the scoreboard. It is an altogether different proposition walking to the crease at No. 5 with just 85 on the scoreboard.

Implementing the JDX

The JDX programme does contain considerable risks, which must be made clear. Many did not favour a debt-restructuring exercise when both Ralston Hyman and Dennis Chung mooted it as perhaps the way to go.

What the JDX is seeking to achieve is ambitious – that is in a relatively short time, make a profound adjustment to the fiscal and debt dynamics of the country at a very difficult time for the world economy. What cannot be discounted at this time is the spectre of natural disasters. What happened in Haiti is still fresh in people’s memory. A natural disaster could prove a challenge to achieving the objectives of the JDX programme. How does Wynter perceive this daunting possibility?

“In light of that I want to stress how carefully the programme was constructed. Efforts have been made to be as conservative as is reasonable in respect to projections. It is vitally important that the country and its stakeholders demonstrate positive progress along this difficult path. We are very pleased at the BOJ in respect of the targets that we are responsible for and overall so far things have turned out well, but there are challenges and the risks still remain real. It requires considerable vigilance and care as we go forward.

“We have to manage this process to a successful conclusion. Now a successful conclusion is the entrenchment of the fundamental reforms so that our fiscal and debt dynamics are readjusted to a sustainable path that we can reliably look at and say this takes us forward. We now have to create that environment, and it is our aim and hope that we are able to attract serious immediate and long-term investment into the country. Our role at the BOJ is to ensure price stability and that we can deliver on what is projected. We must also look to the health of the external accounts so that we have the resources to adequately deal with challenges that might arise,” said Wynter, speaking with Caribbean Business Report.

The Governor is not placing all his eggs in one basket and he would not be considered vigilant if he did not have a plan B. Here he points to the over- performance of the Net International Reserves (NIR) which now stands at US$1.74 billion. “We are trying to make sure that if things do not work out the way we would like them, to we nevertheless will have some room to make adjustments and come back on track effectively,” said the Governor reassuringly.

Can Greece learn from Jamaica?

With Jamaican Eurobonds rallying and the markets likely to head south later this year, is this the right time for Jamaica to return to the capital markets? Does it have to, considering it has plenty of external financing in place? Can Greece indeed learn anything from Jamaica?

“Well, I can’t speak to what Greece can learn from Jamaica. I have to leave that to Greece and others. Can we learn from Greece and the events occurring in Europe? I do believe so. We look to what is happening to see what we can learn. Yes, there is a potential blowback that can impact Jamaica. Already we see Spain taking some contractionary fiscal measures. These retrenchment efforts by European countries could indeed temper the recovery and therefore the positive spillover effects on the Jamaican economy particularly our external sector.

“In terms of the capital markets, this would be a decision for the government to make at the appropriate time. It is keeping an eye on the markets as are we, and we provide advice as and when it is requested or we think it is appropriate. I must say here that interest yields on Jamaican Global Bonds are indeed very attractive from an issuer’s point of view over the last couple of months.”

The way the Governor sees it, it is a question of when does the Government think it requires additional funds. He believes that by design, the economic programme that Jamaica now has provides the space for decisions like that to be made without any pressure or desperate measures having to be taken.

Game changer

The employment of the JDX has undoubtedly been a game changer, with the BOJ playing a pivotal role. However, Wynter stresses it is important that this game-changing endeavour is not undermined by constructions Jamaicans have in their heads from the past.

So how does Jamaica build upon this good start, and can it prevent the shootouts in Kingston from undermining it? Here Wynter sees a bigger picture, with reticence being the order of the day. There is still some way to go.

” A big part of our job in the policy administration of the financial programme is to ensure that the reforms stick. When participants are fully convinced that the reforms are permanent, then whatever gains we have seen so far in confidence and the reduction of the sovereign risk that people have perceived – both Jamaicans and foreigners – you can then imagine just how much there is to gain when these are accepted as permanent.

“That is a big challenge, and that is why it is important to get the fiscal responsibility framework policy working properly. We have to ensure that we get the inflation environment securely down and therefore interest rates down. This will help to reduce borrowing rates for individual entrepreneurs and help spur business activity. As these things are credibly reduced further, I think we are looking for a significant improvement in investment and therefore the basis for long-term sustained growth in the economy. We have a long way to go to make sure it works but that is what we are striving for.”