Windsurf boards in Jamaica where fallout from global crisis is likely to result in reduced tourism (photo: glowimages)
Financial crisis
In a December 10 speech at the Private Sector Organization of Jamaica (PSOJ) in the country's capital, Kingston, he indicated that countries with the strongest fiscal policy frameworks should take the lead in supporting global demand. He cautioned that emerging economies face an additional challenge: to ensure that the unfolding liquidity squeeze does not transform into a solvency crisis, as deleveraging impacts them.
Challenges for the Caribbean region
The Managing Director's visit to Jamaica was part of his first official tour of countries in the Caribbean and Central America. During his stay in Kingston, he met with Prime Minister Bruce Golding, among other senior officials.
In his speech before the PSOJ, Strauss-Kahn said that the Caribbean countries will inevitably be impacted by the global economic turmoil, particularly given the region's close ties to the U.S. economy. Weaker foreign remittances and dampened economic activity in key sectors such as tourism would be the likely consequences of the slowdown in global economic activity. As a result, the IMF's outlook for the Caribbean economies had been revised down in recent months.
Protecting the poor amid the volatility
Strauss-Kahn noted that the IMF's expectation for Jamaica was a relatively flat economic growth this year and a modest recovery of about 0.5 percent in 2009. These figures contrast sharply with the Fund's outlook earlier this year of growth in excess of 2 percent in both 2008 and 2009. This sharp revision in outlook is explained by strains associated with the ongoing global financial volatility. Notably, spreads on the country's sovereign and corporate debt have widened, while the currency and foreign exchange reserves have come under pressure.
Strauss-Kahn pointed out that the authorities had reacted to those problems with decisive and well-coordinated policy actions, such as the moves by the central bank to establish a liquidity window for financial institutions under pressure from external margin calls, and additional steps to tighten monetary policy. Equally important is the government's commitment to its fiscal consolidation and reform program, crucial given the underlying risks associated with Jamaica's large debt burden. At the same time, care will need to be taken to protect social spending, including through well-targeted programs for the poor, he stated.
Collaborative partnership
The Managing Director stated that the IMF intends to remain a collaborative partner with Jamaica. He noted that the Fund's economic reports on Jamaica are produced bi-annually, as opposed to the conventional yearly reports prepared in the case of many other countries.
Moreover, the Fund has been actively providing technical assistance to help Jamaica overcome challenges associated with unregulated investment schemes and to help the government in the design and implementation of its ambitious fiscal reform agenda. He emphasized that the organization is deeply committed to continue working closely with Jamaica in whatever form the government feels is most appropriate.
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