Jamaica closed 2009 carrying more debt per capita than almost any country on earth, facing the final stages of negotiations with the International Monetary Fund that would define its fiscal path for years ahead, and watching with cautious hope as its tourism sector showed the first unmistakable signs of a recovery. The decade that had begun with the FINSAC cleanup was ending with a different kind of reckoning — and the infrastructure built through both crises was the quiet evidence that the building had never entirely stopped.
Key Highlights
- IMF Stand-By Arrangement negotiations in final stages; programme imminent
- Domestic Debt Exchange (JDX) being designed to reduce interest burden
- Winter tourism season shows first genuine recovery signs in two years
- Highway 2000 Phase 1B moves toward opening in coming months
- Caribbean Airlines deal for Air Jamaica advancing through government talks
- NHT housing programme maintains affordable-segment market floor
The final weeks of 2009 were, for Jamaica’s economic managers, a period of intense and consequential activity conducted almost entirely out of public view. In Washington, the technical teams of the International Monetary Fund and the Jamaican Ministry of Finance were finalising the details of a Stand-By Arrangement that had been in negotiation for the better part of a year. In Kingston, the architects of what would become the Jamaica Debt Exchange were designing the most significant restructuring of the domestic government securities market since the FINSAC settlements of the early 2000s: a voluntary exchange in which holders of existing government bonds would be offered new instruments with lower coupon rates and extended maturities, reducing the government’s annual interest payments and creating the fiscal space that a serious primary surplus would require. Neither of these processes was yet public; both were moving inexorably toward the announcements that would define Jamaica’s economic landscape for the decade ahead.
For the ordinary Jamaican household, the most tangible change of the final quarter of 2009 was neither financial nor political but meteorological: the winter tourism season, which had opened in November, was performing measurably better than the preceding two winter seasons. Visitor arrivals to Jamaica in November were running above the equivalent month of 2008 for the first time in nearly two years — a modest year-on-year improvement, but the first upward movement in a statistic that had been declining continuously since its 2007 peak. Hotel occupancy rates in Montego Bay and Negril through November and December tracked above 2008 comparisons, and in-destination spending per visitor — the measure most sensitive to consumer confidence — was recovering toward pre-recession levels in the upper market segments, though the budget and mid-market visitor categories remained cautious.
The improvement reflected a combination of factors that had been building since mid-year: the US labour market, while still shedding jobs at rates that would persist into early 2010, was doing so more slowly; the collapse in household wealth caused by falling US home prices and equity markets had partially reversed as markets recovered; and the extraordinary low interest rates set by the US Federal Reserve had begun to rebuild consumer credit availability in ways that, while modest, were showing up in increased holiday bookings. For Jamaica, which had been hit particularly hard by the recession through its American tourism exposure, any improvement in the US consumer’s position was directionally positive. The question was whether the recovery would prove durable enough to justify the resort expansion investments that had been deferred since 2008.
Highway 2000: At the Gate
Through the autumn and early winter of 2009, the Highway 2000 Phase 1B programme was completing its final construction phases with a deliberateness that spoke of a project approaching the end of a very long journey. Pavement works were finishing; line markings, safety barriers, signage and toll equipment were being installed. The highway management and toll collection systems that would be required to operate the new section were being commissioned and tested. Engineers conducting final inspections were working through the punch lists of minor items that always accumulate in the closing stages of major infrastructure projects, ensuring that safety systems and drainage structures were performing as designed before opening to public traffic.
The property market implications of an imminent opening were beginning to be priced into land transactions along the corridor. In Old Harbour and the communities north of May Pen, asking prices for commercial land parcels near proposed interchanges had risen above where they had been a year earlier, even as the general market remained subdued. This divergence — highway-corridor land appreciating while the broader market was flat — was precisely what infrastructure investment theory predicted and what the Phase 1A experience had confirmed years earlier. The investors who had acquired positions during the recession years, when prices along the corridor had fallen from their pre-crisis peaks, were now in a position to see the beginning of that patience being rewarded.
The implications for commuters and freight operators in St. Catherine were significant in ways that extended beyond property values. The existing road network between Kingston, Spanish Town, Old Harbour and the communities of the St. Catherine south coast had been under pressure for decades: road surfaces deteriorated faster than they could be repaired, traffic volumes at Spanish Town interchanges were consistently above designed capacity, and the journey times for trucks moving freight between Kingston Harbour and the south coast manufacturing zones were unreliable and fuel-intensive. The new highway section would not solve all of these problems, but it would provide an alternative routing for a significant proportion of traffic, reducing the loading on the existing roads and improving both journey time reliability and fuel efficiency for commercial operators.
Air Jamaica and Connectivity
The discussions about Air Jamaica’s future were moving toward a structure that would become public in the new year. Caribbean Airlines’ interest in the routes and operating assets of the national carrier was sufficiently advanced that both governments — Jamaica and Trinidad and Tobago — were engaged in parallel negotiations about the regulatory and commercial framework for a transition. For Jamaica’s tourism infrastructure, the implications were closely watched: Air Jamaica’s distinctive red-and-gold livery was woven into the island’s identity as a tourism destination, and its routes from New York, Miami, Fort Lauderdale and Toronto carried a loyal diaspora and tourist passenger base. The outcome of the negotiations would determine whether that connectivity survived the transition to a new operator, and in what form.
The airport concession at Sangster, now operating through its third full year with the new terminal, had demonstrated over the quarter that its financial model was resilient to the traffic volatility that the recession and the Air Jamaica restructuring discussions had introduced. The terminal’s operational efficiency — its ability to handle variable traffic volumes with consistent service quality — provided a platform of credibility for whatever airline operator served the airport in the post-Air Jamaica environment. The infrastructure was not contingent on any single carrier; it was designed to serve the airport’s catchment demand, whatever aircraft showed up to carry it.
The Energy Baseline
Crude oil ended 2009 at approximately $79 per barrel — double its December 2008 level, but still dramatically below the July 2008 peak. For Jamaica Public Service Company’s customers, this translated to electricity tariffs that were higher than the trough of late 2008 but well below the crisis peaks of mid-2008. The Office of Utilities Regulation had been conducting a tariff review through the year, examining whether the base rate structure — distinct from the fuel adjustment component — adequately reflected JPS’s actual capital and operating cost requirements. The outcome of this review, expected early in the new year, would set the baseline tariff structure on which the fuel adjustment would operate going forward: a decision with direct implications for the electricity cost component of every household and business budget in Jamaica.
The energy efficiency investment cycle that had been driven by the 2008 price spike was continuing even as prices moderated. Developers of new commercial buildings were incorporating energy performance features that would have seemed extravagant before 2007: high-efficiency air conditioning systems, building envelope specifications that reduced cooling loads, LED lighting in common areas, and in some cases roof-mounted solar panels connected to net-metering arrangements. These investments were driven not by the current electricity price but by the institutional memory of $147 oil and the rational expectation that price volatility — in both directions — would remain a feature of an import-dependent energy system.
What This Means for Property and Investment
Homeowners ending 2009 were better positioned than they had been a year earlier on most measures: lower electricity bills than mid-2008, a hurricane season that had caused no significant damage, and a broader economy that had stopped contracting even if it had not yet resumed growth. The structural fiscal pressures that the IMF programme would address had not been resolved, but their direction of travel was changing.
Buyers with funds were entering a market where the best-quality properties in established residential corridors were being accumulated by buyers who understood that recession-era prices in prime locations rarely persist into the recovery. The NHT’s first-time buyer programme had been modestly expanded through the year, providing additional support to the moderate-income segment that was most reliant on financing.
Developers were carefully watching the tourism recovery indicators, the Highway 2000 opening timeline, and the outcome of the JDX and IMF programme, all of which would determine the investment climate in which they would be operating through 2010 and beyond. The most consequential question for the development sector was whether the fiscal adjustment path would restore Jamaica’s macro stability quickly enough to attract the foreign private capital that large-scale resort and residential development required.
Commercial property investors in Kingston found the office and retail market beginning to stabilise after a year of rising vacancy rates. Several major lease renewals in the new business district were completed at rates that, while below the 2007 peak, were not the capitulation prices that pessimists had feared; the market’s floor appeared to be establishing itself.
Diaspora investors were heading into 2010 with renewed optimism that a combination of improved macro stability in Jamaica and recovering personal finances in their host countries would make the coming year a window for the property acquisitions they had been deferring. The JDX, if successfully executed, would be understood internationally as evidence that Jamaica was taking its debt management seriously — a signal that would matter to diaspora investors assessing long-term country risk.
Outlook: January – June 2010
The first half of 2010 will be one of the most consequential six-month periods in Jamaica’s recent economic history. The IMF Stand-By Arrangement will be completed and announced, establishing the fiscal framework for the next two to three years. The Jamaica Debt Exchange will be executed, reducing the government’s annual interest burden and creating the fiscal space for the primary surplus that the IMF programme requires. Air Jamaica’s future will be resolved, with implications for the air connectivity that underpins north coast tourism investment. And Highway 2000’s Phase 1B will open to traffic, delivering the most significant transport infrastructure improvement that St. Catherine parish has received in a generation. These four events — IMF programme, JDX, Air Jamaica transition, Phase 1B opening — would individually be notable; arriving within the same six-month window, they constitute a structural reset of Jamaica’s infrastructure and financial landscape. The decade of difficulty is ending. The question for the next ten years is whether the foundations built through that difficulty can support something more durable.
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