Jamaica plotting prudent fiscal policy course - Salomon Smith Barney

- Junior Dowie

Managing director for Latin American Investment Banking at Salomon Smith Barney, Hugo Verdegaal, centre, with a plaque presented to him by chairman of the Economic Policy Committee of the Private Sector Organisation of Jamaica (PSOJ), Peter Melhado, right, after addressing the organisation's annual economic seminar at the Jamaica Conference Centre, downtown Kingston last Tuesday. Others from left are PSOJ president, Peter Moses, and Finance and Planning Minister, Dr. Omar Davies.

AN EXECUTIVE of the world's leading investment bank, Salomon Smith Barney in the United States, has given the thumbs up to the Jamaican Government for its commitment to prudent fiscal policy.

However, he said the depressed United States equity markets would be among the challenges the island would face through to 2002.

Managing Director for Latin American Investment at Salomon Smith Barney, Hugo Verdegaal, said the Jamaican economy was recovering well, and fiscal austerity plans appeared to have been effective.

However, noting the current market challenges for Jamaica, Mr. Verdegaal said Argentina, Turkey and other emerging market economies continued to have problems, which would affect Jamaica's ability to meet its obligations in the period to 2002. In addition, he said, high oil prices were negatively impacting many Latin American and Caribbean net import countries, especially Jamaica.

Addressing the annual economic seminar of the Private Sector Organisation of Jamaica (PSOJ) at the Jamaica Conference Centre in downtown Kingston last week, Mr. Verdegaal said another challenge facing Jamaica was that it would have large borrowing requirements in 2002.

However, those challenges notwithstanding, Mr. Verdegaal said, the recent upgrade in its ratings from Standard & Poor's was "extremely beneficial" and was contrary to ratings decline in much of Latin America. The firming of global commodity prices in 2000, despite the impact of oil prices, was also largely positive for the Jamaican economy, he said.

Mr. Verdegaal said Jamaica, despite its credit strengths, also faced credit challenges because of the high level of general Government debt at more than 140 per cent of Gross Domestic Product (GDP) of which local currency debt accounts for the majority. Credit challenges were also manifested in low levels of economic growth, low external liquidity despite being mitigated by the Government's prudent fiscal stance, and limited fiscal flexibility, with heavy interest payments on the stock of debt, he said.

The investment banker said the rating agencies were focusing on continued Government support for prudent policies, which was particularly important for maintaining Moody's Ba3 rating that assumes policy continuity.

The agencies were also focusing on the orderly disposal of assets being held by the Financial Sector Adjustment Company (FINSAC), the progress of privatisation, improvements in fiscal flexibility, and the ability of the economy to grow, thereby stabilising the high debt ratios.

Mr. Verdegaal said Standard & Poor's recent upgrade of the island's credit rating to B+ considered the Government's proven ability to improve the fiscal stance and created positive momentum. The rating upgrade, he said, depended upon continuation of the fiscal stance and sustainability of debt ratios.

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