Halfway through 2012, Jamaica’s economy had still not found its footing. GDP was contracting for the second year running, the IMF negotiations that might unlock multilateral support had yet to produce an agreement, and the Finance Minister was managing the national accounts without the safety net of a programme. The question that summer was not whether Jamaica’s adjustment was working — it was whether the country could hold together long enough to reach a deal.
- GDP contracts for a second consecutive year amid weak domestic demand
- EFF negotiations with the IMF continue without agreement through the quarter
- Agriculture faces pressure as dry conditions reduce crop yields
- Jamaican dollar under intermittent pressure without IMF programme backstop
- Tourism earns steady foreign exchange as stopover arrivals grow modestly
- Peter Phillips holds primary surplus as proof of continued fiscal discipline
The Jamaican economy in the third quarter of 2012 was caught in a condition economists call a fiscal trap: a government spending less than it collected, maintaining a primary surplus that international creditors required, and yet watching GDP contract because the spending cuts themselves were suppressing the domestic demand needed for recovery. Construction was quiet. Consumer spending was subdued. Private investment, uncertain about the country’s fiscal trajectory and the absence of an IMF programme, remained cautious. The quarter’s data, when it was eventually compiled, would confirm that 2012 was on course to be another year of negative growth — the economy’s second contraction in four years.
Agriculture, always a barometer of conditions in Jamaica’s rural communities, was having a difficult season. Dry weather had reduced output in key crop sectors, adding to the difficulties of a farming community that had never fully recovered from the disruptions of the previous decade. The government’s JEEP programme, which had been expanded since its January launch, was providing some income support in rural parishes, channelling work into road maintenance and environmental management. But JEEP was a palliative, not a structural fix. Jamaica’s rural economy needed investment and market access, neither of which was easy to supply within the constraints of an austerity budget.
Tourism, by contrast, was a relative bright spot. Stop-over arrivals were growing modestly, buoyed by Jamaica’s reputation as a destination and by the resilience of the North American market. The north coast resort corridors — Montego Bay, Ocho Rios, Negril — were seeing occupancy rates hold up even as visitors remained price-sensitive. Cruise passengers added volume, though their direct spending impact on local economies was, as always, more limited than that of hotel guests. The Jamaica Tourist Board reported figures that, while not spectacular, at least provided a stable flow of foreign exchange at a time when the country badly needed every dollar it could earn.
In the foreign exchange market, the Jamaican dollar was under intermittent pressure. Without an active IMF programme, the Bank of Jamaica was managing the currency’s trajectory with its own reserves and its interventions in the interbank market. The net international reserve position, which had been rebuilt impressively through the SBA period, was now the primary bulwark against a disorderly depreciation. The central bank moved carefully, aware that a sharp fall in the exchange rate would push up import costs, accelerate inflation, and add to the real burden of Jamaica’s substantial external debt obligations.
The most consequential conversations in the quarter were happening away from public view. IMF technical staff and the Ministry of Finance were working through the architecture of what would eventually become Jamaica’s Extended Fund Facility — a programme more ambitious in its surplus targets and more far-reaching in its structural conditionality than anything Jamaica had agreed to before. The government had, by this point, taken the position that it was prepared to accept a primary surplus target in the range of seven and a half per cent of GDP — more than double the level achieved under the failed SBA. That commitment, if it could be maintained, would place Jamaica on a credible debt reduction trajectory for the first time in a generation. Whether it could be maintained was another question entirely.
What This Means
For the average Jamaican in the summer of 2012, the macro-economic arguments were somewhat beside the point. What they experienced was a labour market that offered few opportunities, a cost of living that continued to rise faster than wages, and a government that kept promising that the deal with the IMF would unlock the resources needed to turn things around. That promise had been made before. The IMF programme of 2010 had come with similar assurances, and it had ended without the growth that was supposed to follow the adjustment. Patience, in a country that had been adjusting for a very long time, was not inexhaustible.
What was new in 2012 — and what gave cautious analysts some grounds for optimism — was the government’s evident seriousness about the fiscal targets. Peter Phillips had made no attempt to ease the primary surplus requirement in response to political pressure. The budget had been austere. JEEP was a social buffer, not a fiscal stimulus. If the EFF eventually came, it would arrive in a Jamaica that had demonstrated, in a period without any programme, that it was capable of maintaining fiscal discipline on its own.
The Road Ahead
As the third quarter of 2012 drew to a close, Jamaica was bracing for what would prove to be a difficult autumn. Hurricane season brought its perennial anxieties, and the fiscal calendar was relentless. The EFF remained the central prize — the agreement that, once signed, would restore Jamaica’s access to multilateral disbursements and signal to private creditors that the country was again on a supervised fiscal path. The government expected that agreement to come before the end of the year. It would not. But the groundwork being laid in these quiet, difficult months would prove to be the foundation of the most consequential economic agreement in Jamaica’s modern history.
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