By Lavern Clarke, Staff ReporterTHE NET International Reserves (NIR), Jamaica's safeguard for foreign debt servicing and import payments, has dipped significantly in the first six months of this year to US$1.13 billion, reflecting a 29 per cent fall.
At the start of January, the NIR stood roughly at US$1.6 billion. In April, when Finance Minister Dr. Omar Davies announced that the country's foreign account would end the fiscal year at a projected US$1.32 billion, the reserves had already slipped to US$1.34 billion, net of the more than US$108 million of inflows at the end of March and April, the bulk of which were central bank purchases from the domestic market.
Its erosion reflects heavy debt serving on maturing debt over the period.
A Bank of Jamaica (BoJ) official says the fiscal target for the NIR remains unchanged, in response to Wednesday Business queries, noting that the reserves would be rebuilt from funds Government plans to borrow internationally, that is, new debt.
REBUILDING THE RESERVES
"It (the NIR) relies heavily on borrowing and we are confident Government will borrow during the fiscal year to rebuild the reserves," said the BoJ official. The comments came days ahead of news that the respected Standard & Poor's had given Jamaica another poor rating on its long-term debt, a development likely to keep Jamaica out of the foreign capital markets for some time.
Last Friday, the central bank had pointed to the improved performance of the country's bonds as among the factors underpinning its confidence in the Government's ability to raise overseas, the US$250 million it projected for this budget year.
"If you have been tracking our global bonds, you'll see where prices have been increasing significantly, causing the yields to fall," the BoJ official said.
Building the reserves from funds that are borrowed implies a future obligation on the reserves to service those debts, the central bank official conceded, but she was unable to say immediately the portion of the reserves on which the obligation currently exists, noting that the NIR was a moving account and that the tenure on Government debt runs to the year 2022. That type of assessment is currently done over a one-year period, the bank said.
The monthly NIR figures published by the Bank of Jamaica reflect a netUS$469.59 million decline in the reserves from January to June, but the central bank said the flows to and from the reserves were far more complicated than the published figures suggest. "Our major area of spending is debt payment, which far exceeded the US$470 million," said the BoJ official.The current reserve reflects draw downs of about US$522 million for debt payments for the first half of the year, as well as US$93 million in "net sales" of US dollars to the local market.
The central bank, a staunch defender of the exchange rate, buys and sells heavily on the domestic foreign exchange market, but does not reveal the extent of its intervention in dollar terms.
On average, the central bank has purchased US$2 billion per year, in the past two years, the BoJ official told Wednesday Business, but the figure reflects all foreign currency flows, including earnings from bauxite, tourism and other sectors, Government borrowings and divestment proceeds, as well as the BoJ's own activity in the foreign exchange market.
Purchases on the domestic market account for about 30 per cent of the total, the central bank said.
Jamaica is classified as operating a 'managed float' but the central bank's heavy presence in the market recently lead the Inter-American Bank to describe the system as a 'dirty float'.
NIR(US$b) End of December 2002 to end of June 2003
December 1.597
January 1.510
February 1.253
March 1.339
April 1.362
May 1.233
June 1.127
Source: Bank of Jamaica
