AS THE New Year, 2005 begins, there is an understandable focus on the economic prospects for the new year. At first blush, the prospects for the economy are essentially positive. For one thing the Ministry of Finance's efforts in raising relatively cheap funds in overseas markets, right on the heels of Hurricane Ivan, was a master stroke that restored confidence in local and overseas investors.
Additionally, there was the latest upgrade of the country's debt instruments by the international rating agency Standard and Poors. On top of this, the Central Bank recently reduced short-term interest rates. This is a remarkable development as, in the past, at this time of year, BoJ has had to increase rates to protect the currency from the usual pent-up Christmas demand. This time around the monetary authorities have slashed rates.
The Central Bank attributes this rate reduction to the improved macro economy since Hurricane Ivan. Specifically, the Bank referred to buoyant foreign exchange inflows from tourism, mining and remittances that have led to an accumulation of foreign reserves that now stand at in excess of US$1.8 billion.
Taken together, all these factors augur well for increased investment flows in the economy this year. This assumes even greater importance given all the expected much publicised investments in tourism and mining frequently stated by government spokesmen.
Regrettably there is a downside in all this however. At the top of the list is the Air Jamaica saga. Even given the recent restructuring, the unfavourable conditions that obtain in the international airline industry will make turning round the national airline's fortunes more than a herculean task.
Then there is the continuing crime problem that remains unabated. This not only stifles business activity but has a dampening effect on the national psyche. Equally worrying is the government's inability to cope with the spending requirements of the social agenda such as the health and fire services and road repairs.
One positive in all this is that for most of last year (2004), the Ministry of Finance has appeared to be very committed to sticking to its fiscal targets. If the set targets are met by the end of the fiscal year, then there could be an easing of the financing structures facing the government. The size of the national debt would still be a serious hurdle but the government would be able to return to the overseas market to meet its funding requirements and implement its management strategy.
In this regard, barring any natural disaster and should government be able to keep the lid on explosive social issues, 2005 could be the year that the economy finally turns around a pleasant New Year prospect!
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
