Latibeaudiere THE Bank of Jamaica (BoJ) has pinned its prospects for growth in the Jamaican economy during the current fiscal year on what it said was a stable macro-economy and anticipated recovery in the global economy, particularly the United States.
In its monetary report for the first quarter of the calendar year, the Central Bank said economic growth recorded in the United States in the six months to March 2002, as well as leading indicators for that economy signalled that the recession, which officially began in the March 2001 quarter, was one of the shortest in that country's history.
The report said that although growth in the Jamaican economy may be mild in the June 2002 quarter, stronger growth is anticipated for the second half of the year.
Jamaica's growth potential will also be dependent on the performance of other major economies, including the Euro area which the BoJ said was also expected to reflect stronger growth patterns.
Although BoJ Governor Derrick Latibeaudiere has projected a two to four per cent growth for the Jamaican economy in fiscal year 2002/2003, the monetary report suggests there would also be implications for the country as a result of recent developments in Latin American, particularly Argentina.
In a treatment on the implications of the Argentinean crisis on an emerging market such as Jamaica, the report pointed out that international financial markets did not react significantly to the news of the Argentine default on its foreign debt in January this year, as well as the subsequent introduction of a dual exchange rate system in the Latin American state.
"In the case of Jamaica, no significant adjustments in the yields of Government of Jamaica bonds were noted," said the report. "This inertia on the part of the financial markets suggests that the market had long expected the default and had positioned itself for this eventuality."
BoJ officials noted that investors had been taking a more discerning position with respect to emerging market debt since the financial crises of the 1990s. The Argentine debt default has, however, served to increase the sensitivity of rating agencies and investment houses to deviations in macroeconomic performance from targets, it said. Furthermore, while Standard & Poor's has since affirmed its 'B'-plus long-term foreign currency and its double 'B'-minus long-term local currency sovereign credit ratings on Jamaica, it has duly noted the country's significant exposure to the international commercial markets.
The BoJ said that beyond the issues in the financial markets, the crisis in Argentina has opened the possibility of deterioration in Jamaica's external competitiveness. Some trade in consumer-related food items takes place between Argentina and Jamaica and both countries also trade with the United States, it noted. "A real depreciation of the Argentine peso can engender increases in Jamaican imports from Argentina," said the report. "It could also facilitate a cheapening of competing Argentinean products in the US market relative to similar Jamaican goods."
According to the report, in terms of the broad lessons that could be drawn from Argentina's experience, it should be noted that, in the context of external shocks and a rigid monetary regime, there were little or no offsetting adjustments in the fiscal accounts.
The problems faced by Argentina therefore underscored the importance for all countries to have complimentary labour and fiscal policies underpinning monetary and exchange rate arrangements, said the BoJ report.
