By Al Edwards, Business Co-ordinatorBANKING AND securities brokerage firm Bear Stearns has bucked the trend and has taken a somewhat positive outlook on the Jamaican economy.
This follows scathing reports by both the IMF and the World Bank and local economist Omri Evans all indicating that the economy was in dire straits and that tough times lay ahead with the Government's priority having to be to pay attention to its vast debt mountain which is approaching the J$700 billion mark (both internal and external) and the fiscal deficit now standing at $29.7 billion.
Bear Stearns has given Jamaica a B1/B rating and is giving an "outperform" recommendation to its clients holding Jamaican debt.
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It's monthly report read: "Moving to outperform from underperform in Jamaica is the most aggressive of our recommendations this month. We have been negative on Jamaica since October 2003, due to what we viewed as a precarious fiscal and debt situation that would become more obvious toward the end of the fiscal year (March 2004). Jamaica significantly underperformed our BSCAX index in 2003. Since December, however, there has been a major development that could be very positive for the near-to-medium-term credit outlook: the "social contract" being driven by the private sector is gaining traction.
The programme-which involves economic and fiscal reforms, wage restraint, and possibly a voluntary debt swap-has the support of the major unions, which is key in Jamaica. In his year-end message to the nation, Prime Minister Patterson expressed support for the social contract process, which indicates that some concrete announcement can be expected in the coming weeks. At minimum, this should shore up the support of the local investor base and forestall a major negative credit event."
Earlier this week Dr. Trevor Munroe echoed Bear Stearns' sentiment saying that the Partnership for Progress spelt the best hope for the economy and that a joint effort by all concerned parties would ensure a panacea for the malady besetting the country. The President of the Private Sector Organisation of Jamaica (PSOJ) Mrs. Beverley Lopez has outlined the objectives of this private sector led initiative as being to construct a social partnership from the bottom up including the private sector, unions and Government that through a combination of expenditure cuts, wage restraint, more aggressive privatisation and a voluntary swap of high yielding local domestic debt for lower initial yielding debt for example including United States indexed bonds, Jamaica would start to reverse its very unfavourable debt dynamics.
Government figures for the month of August showed tax revenues are up by 21 per cent and expenditure increased by 15 per cent.
WAGE INCREASES
The Government was unable to contain wage increases as it went up by 8 per cent with programme spending increasing by 7 per cent. Commenting on these numbers in October, senior managing director of Bear Stearns, Carl Ross said: "
This is reflective of considerable fiscal restraint by the Ministry of Finance. However, interest expense is up 32 per cent, reflecting higher debt stock and higher interest rates this year on floating rate debt. Interest took up an incredible 47 per cent of total expenditure and 67 per cent of revenues. We know of no other country with these ratios."
A month later, Mr. Ross observed that Jamaica's debt-to-GDP ratio may have stabilised this year, due in part to inflation, moderate real GDP growth and continued vigilance on the fiscal programme.
"With public sector debt at 150 per cent of GDP, however stabilisation of the debt ratio is not good enough," he said. "Jamaica, like other countries with very high domestic debt levels such as Brazil and Turkey, has been able to roll over this year's maturities in the domestic and regional markets."
According to Bear Stearns' lead broker of Eurobond debt Greg Fisher, last Wednesday saw emerging market debt players taking up US$20 million of the country's Eurobonds, the best day he's had for a very long time. According to one of Jamaica's leading analysts, most of those players came from the U.S and the U.K.
