Minister of Finance and the Public Service Audley Shaw last night declared that the downgrade of Jamaica by international rating agency Standard and Poor's (S&P) was hasty and unwarranted.

Citing the resignation three days earlier of Bank of Jamaica Governor Derick Latibeaudiere, who was the lead negotiator on a possible standby facility from the International Monetary Fund (IMF), S&P yesterday dropped Jamaica's domestic and foreign currency long-term rating to 'CCC' with a negative outlook.

A 'CCC' rating signals that the ratings agency sees the debt issuer as 'vulnerable', and is an alert to investors that there could be interruption in servicing of the debt.

Negative outlook

This is the island's second downgrade in three months as, on August 5, the New York-based firm lowered the island's rating from 'B-' to 'CCC+' with a negative outlook.

"At that time, we highlighted the fact that Jamaica's severe fiscal situation, as well as the vulnerabilities in the Government's debt profile may give it incentives to renegotiate with its creditors, particularly its resident creditors that hold the larger bulk of Jamaican debt," S&P said in a release.

"Since then, the government's room to manoeuvre continues to narrow as it becomes increasingly difficult to further cut public expenditures - as reflected, in part, in the recently amended budget - in order to sustain an interest burden of about 60 per cent of general government revenue," added S&P credit analyst Roberto Sifon Arevalo.

Moving quickly

Last night, Shaw stressed that the Government had moved quickly to appoint Dr Wesley Hughes, financial secretary, to lead the negotiations with the IMF.

"Hughes, who is a former deputy governor of the BOJ and who served for 14 years as director general of the Planning Institute of Jamaica, is no stranger to IMF negotiations," stated a release from the finance ministry. "He was an integral part of the negotiating team during the last IMF agreement between Jamaica and the IMF during the 1990s."

The ministry also stated in the release that Hughes had been fully involved with the current negotiations from the onset and, as financial secretary, would have been leading most of the discussions around fiscal issues in any case.

Currently assessing

A team from the IMF is currently in the island assessing the prospects of the US$1.2-billion standby agreement.

Last night, IMF spokesperson, Andreas Adriano, said his agency was continuing to make progress in its discussions with the Government and that an update would be provided by the end of the week.