TWO MACRO-ECONOMIC areas of prominence that the country will have to decide on in the context of priorities, is what is a tolerable level of debt service and, what is a tolerable level of Net International Reserves (NIR). This is in light of the massive External and Internal debt plaguing the country as well as recent declines in the level of NIR.
I will leave the debt out issue today, although it is linked to the NIR. Instead I will look at various considerations that need to be examined, in considering the level of NIR that we can carry in the next three years. First, we need to look at the end of year NIR figures between 1990 to 2000, in the accompanying table.
(See Table).
The data shows that Jamaica moved from a negative Net position in 1990-93 to a positive position by 1994 and, barring a decline in 1997, has been improving its NIR ever since. In the year 2002 however the NIR declined, as the BoJ had to spend a lot of time intervening in the foreign exchange market, in a futile attempt to 'defend the Jamaican dollar' (which depreciated below the $50 = US$1.00 mark or to be more precise, the Jamaican dollar fell below the 1$ = US$0.02 cents). In 2003 over the first two months, the NIR has further declined, to around the US$1,400 million. mark, when we have the computed figures.
The considerations that we should look at, should guide us as to what is a reasonable level of NIR. Is it a four week level of imports or does Jamaica need a higher level, given past problems? For instance, it is clearly desirable to be in a positive position than a negative position as no sane person would want to return to the period of 1977-1992, when NIR was negative. Given the mobility of international capital, this would be destructive due to speculative behaviour. We also cannot just allow the NIR to rise to high levels, in the wake of our debt service burdens that can and should be lower. At the same time, we cannot allow unprogrammed surges in NIR (as in the year 2001) or drastic declines (as in the year 2003). Somehow we need to find a correct balance, that allows the BoJ to intervene (when special occasions necessitate use) and use the excess of a tolerable level to drastically reduce our external debt burden.
Considerations should also be given to any economic constraints brought about by the deteriorating fiscal position; the rise of oil prices; and any fall-out from an Iraqi strike by the US. We however need to stimulate some debate on the NIR just like the debt situation.
