Harnessing the winds of change

The earthquake which struck Jamaica during The Courier's recent visit in connection with this Country Report was a jolt in more than merely the literal sense. Mercifully, casualties were light and damage was limited but the event brought sharply into focus the capacity of mother nature to thwart humanity in its quest for development, prosperity and progress.

In fact, seismic disturbances do not appear particularly high on the scale of development challenges facing this Caribbean island country. Devastating earthquakes are rare and, as those who experienced the terrible effects of Hurricane Gilbert in 1988 will testify, tropical storms pose a much more serious threat. And, of course, there are the man-made challenges or at least those in which mankind is not so much the helpless spectator as the central participant. There is no shortage of these in Jamaica as the country strives to come to grips with a range of economic and social problems in the last decade of the 20th century. In this Report, we examine some of the key issues facing this friendly 'island in the sun' and look at the efforts which are being made to tackle them.

It is fair to say that Jamaica's economic performance, in the thirty years since independence, has not lived entirely up to expectations. During the first decade, the island's traditional dependence on sugar and banana production was reduced as the bauxite sector continued to grow and new investments were made in cement and clothing manufacture. Growth was not spectacular, however, and the high birth rate tended to offset these gains. Government finances were shaky and unemployment remained persistently high.

In the 1970s, these economic difficulties were exacerbated by the first 'oil shock'. Jamaica relies heavily on imports for its energy needs and the crisis was reflected in foreign exchange shortages, further increases in unemployment and general economic stagnation. The People's National Party (PNP), which had defeated the incumbent Jamaica Labour Party (JLP) in 1972, also chose this time to pursue a more active socialist agenda. Some important social reforms were introduced but the economic situation continued to deteriorate. There was a flight of capital from the island and many qualified Jamaicans also left. The vitally needed stability, which local businesses require for expansion and outside investors demand before they will commit funds to new ventures, was also noticeably absent. Indeed, political polarisation, reflected in widespread violence at election times, appeared to threaten the democratic fabric of the country.

The 1980s saw a return to JLP rule and, as the decade progressed, a significant decline in political tensions. The new government introduced a programme of economic liberalisation with a series of structural adjustment measures supported by the IMF and the World Bank. However, the problems proved to be more intractable than the government had hoped and, although there were some signs of progress, not all the targets were met. Modest economic growth was recorded in 1987 but Hurricane Gilbert delivered a major setback the following year, causing serious damage to infrastructure.

Jamaica's balance of payments deficit -aggravated in the early 1980s by an investment policy which drew in capital imports-was financed through overseas borrowings and, as a result, the debt servicing burden grew alarmingly. By the end of 1990, the situation had recovered somewhat but the country's foreign debt still amounted to some US$4.6 billion, or almost US$2000 for every Jamaican.

On the political front, the pendulum swung once again with the election of the People's National Party in 1989. By this time, however, the winds of change elsewhere in the world were already sweeping away the monoliths of centrally-planned economies. The PNP had recognised this and, in adapting to the new situation, had abandoned many of the elements of its previous 'socialist' programmes. As a result, there was no policy 'U-turn' and the new administration continued with a broadly liberal economic strategy and a stringent policy as regards public finances.

When The Courier last reported on Jamaica in 1988, we concluded that 'the recovery is still fragile and, given the openness of the economy, it remains vulnerable'. A number of things have changed since then, but in essence, the same conclusion remains valid today. In overall terms, the Jamaican economy has been expanding slowly over the last five years although GDP per capita actually fell slightly in 1991 as the population increase outstripped economic growth. (Population grew by 0.9% in 1991, a figure which is well below the ACP average). In the same year, the balance of payments deficit fell to US$ 132 million, a significant improvement on the US$340 million deficit of the previous year.

The unemployment figures continued to make for depressing reading. Whilst recurrent expenditure of 1$17.4billion had to be set aside for debt servicing.

Of course, government expenditure cuts inevitably involve pain for those affected. O.D. Ramtallie, who is Minister of Construction, admitted that the recent austerity measures had had a negative impact on his department's budget and the result was a curtailment-hopefully only temporary-in road and construction programmes. Grass-roots discontent was reflected in a series of public-sector strikes during 1992.

Measures to commercialise or privatise a range of state-owned entities have also been undertaken. The National Water Commission, which is responsible for the country's water and sewerage systems, is one such body which has been forced to adapt to the new economic evironment. Claude Stewart, who is the new President of the Commission, explained the plans to restructure the state-owned utility in order to make it more commercially viable and responsive to its customers. (There are no plans to privatise.) The service is being decentralised and, although there has been a reduction in staffing levels from 5000 in 1989 to fewer i than half that number at the end of 1992, Mr Stewart is confident that the service can be placed on a sounder footing, with improved maintenance and more efficient collection of charges. Overseas funders are active in this sector in the provision of new infrastructure.

Currency turmoil

GDP, the balance of payments, unemployment and the government budget are all important issues but in 1992, the economic news was dominated by what was happening in the currency markets. The story of the Jamaican dollar's fall and rise is a dramatic and fascinating one i which would not be out of place in a

Jeffrey Archer novel.

During the latter half of the 1980s, the dollar was held stable-at what was probably an artifically high rate of roughly 5.5 to the US dollar. As pressures built up, the government chose initially to devalue and then to liberalise the currency trading system, allowing the dollar to float. In September 1991, all remaining controls were removed and within a short space of time the Jamaican dollar had plummeted to a rate of almost 30 to the US dollar. The story of how Butch Stewart, a local tourism entrepreneur, 'came to the rescue' is recounted in the box article on the next page. It is a tale which will doubtless enter Jamaican folklore, but suffice it to say here that the rate bounced back to J$22.20 :US$1 where it subsequently stabilised.

In an economy which is highly dependent on imports, the tribulations of the currency have inevitably had an impact on inflation. This reached 80.2% in 1991, having been at a modest 8.5% only three years previously. The rate fell equally rapidly during the latter half of 1992 as the 'one-off' effects of the dollar's fall worked through the system. In November 1992, year-on-year inflation stood at 39.4% and the annualised rate for the fiscal year (beginning in April) was down to 17.3%.

For a private sector view of recent economic events, The Courier turned to Dennis Lalor who is Chairman and Chief Executive Officer of the ICWI Group, one of the Caribbean's leading financial congLomtes. In an upbeat assessment, Mr Lalor described the decision to liberalise the currency, as 'possibly the most important decision since emancipation'. He believed that the Jamaican dollar had been overvalued for far too long and the new rate was now very tempting for exporters-although he did acknowledge the importance of the Butch Stewart initiative in stabilising a situation which had threatened to get out of hand because of the activities of the speculators.

Mr Lalor also praised the liberalisation of import controls. In the past, import licences were needed for more than 1000 items, but most of these had now been removed, making it far easier for companies to obtain inputs from overseas.

While he was enthusiastic about recent liberalisation measures, Mr Lalor recognised what he called 'the continuing fragility of the economy'. The most important element in strengthening the position was a continuing atmosphere of stability and a genuine 'spirit of cooperation'. As he wryly concluded, 'you catch more flies with honey than with vinegar'.

It certainly appears that the macroeconomic indicators are nudging in a positive direction, but a sustained recovery depends-more than ever before in the new economic environment-on the extent to which the private sector seizes the opportunities which have been presented to it.

Notwithstanding the successful economic diversification mentioned earlier, Jamaica, in common with many other small countries, has nevertheless tended to rely for its prosperity on a relatively narrow range of economic activities. A slump in one vital sector, which may be accomodated with greater ease in a larger economy, can therefore have serious ramifications. Although the island is clearly less vulnerable than some of its smaller Caricom partners, there are still three main sectors whose performance can have a big impact on the wider economy.

In financial terms, the most important of these is nowadays the tourist sector (which is discussed in more detail in a separate article later in this Report). Tourism has seen sustained growth over the last decade and this has been reflected in new hotel investments creating additional employment and in the successful expansion of a variety of ancillary activities. Although the tourist 'product' is not something that can be quoted on the world's commodity markets, it is evidently susceptible to external events whether it is war in the Persian Gulf or a recession in the United States. There is not much that Jamaica can do to influence such events, but local tourism entrepreneurs can and do work hard to provide a competitive and quality product designed to keep the visitors coming.

In the primary sector, the country's principal product is bauxite and the alumina which is processed from it. The bauxite mining industry is subject to cyclical trends and, in particular, the level of economic activity in the main western markets for aluminium, which is the end product. In 1991, Jamaica produced and exported more than 11.5 million tonnes of bauxite, which represented a 6% increase over the previous year. Production has been on a rising trend since 1986, when fewer than 6 million tonnes were mined. Alumina production has doubled over the same period from 1.5 million tonnes in 1986 to more than 3 million tonnes in 1991. The main export markets for this product were North America (1.3 million tonnes) and Europe (1.2 million tonnes). The trading relationship which Jamaica previously had with the Soviet Union (see the interview with Senator David Coore), which included a barter arrangement involving bauxite for Lada cars, has been interrupted because of the political and economic upheavals in that former country.

The impressive growth in bauxite and alumina production has, unfortunately for Jamaica, not been fully reflected in the economic returns. Indeed, income fell during 1991 as the average price of primary alumina slumped by almost 20% on the London Metal Exchange. It is nevertheless worth noting that in 1991, more than 11% of GDP was generated from this source. In 1986, the figure was less than 7%.

Agriculture

Traditionally, Jamaica's wealth has been founded on its agricultural production, with a particular focus on sugar and bananas. For a time, it looked as if both crops might be in terminal decline. Sugar production dropped from half a million tonnes in 1965 to well under 200000 tonnes in the mid 1980s. For bananas, the fall was even more dramatic with exports slumping from 150 000 tonnes in the 1960s to as low as 20000 tonnes two decades later. Both sectors have recovered in recent years, however, with sugar production at a 12-year high in 1991 (237 000 tonnes), and banana exports bouncing back to 75 000 tonnes. And while, in overall GDP terms, their contribution is modest, they continue to be important to the country in terms of both foreign exchange and employment.

Under the old system of Commonwealth preference, these two products had access to an otherwise protected United Kingdom market and were largely shielded from the pressures of international competition. Shortly after Britain joined the European Community, new provisions were negotiated in a series of protocols to the Lomonvention which largely preserved the preferential access arrangements. Indeed, quantities of sugar up to a certain level were given a guaranteed market at a guaranteed price (related to the prices set under the Common Agricultural Policy for the Community's own beet sugar). Bananas were to be protected in their 'traditional' markets, which in practice, for Jamaica, meant the UK, while rum. an associated product of sugar, also benefited from a duty-free quota.

It is widely thought that, without these arrangements, the banana and sugar producers would not have been able to withstand the international competition and that large-scale production in the country would, by now, have ended. Recently, such a possibility did, in fact, appear as a dark cloud on the horizon, due to two separate events-the GATT negotiations and the creation of a single European market. The fact that, for the first time, agricultural products were included in the world trade negotiations put a question mark over all forms of protectionism including those rules which gave substance to the preferential access enjoyed by certain ACP products in the Community. The EC's own single market programme seemed to pose a particular threat to the banana trade since the special arrangements vis-is 'traditional' markets were not consistent with the establishment of a genuinely frontier-free Europe.

At the time of writing, the GATT negotiations remain stalled but full trade liberalisation in the agricultural sector is clearly a longer term process and there does not appear to be any immediate threat to the special arrangements which Jamaica and other ACP countries have with the European Community. As regards the specific issue of bananas, a new Community-wide solution has been proposed which purportedly seeks to balance the interests of the ACPs, Community growers and the 'collar-zone' producers. This was still subject to intense debate in the Council of Ministers at the time of going to press.

When Dr Marshall Hall, who is the Managing Director of the Jamaica Producers' Group Ltd (formerly the Jamaica Banana Producers' Association), spoke to The Courier, he was ready to put a brave face on the most recent Community proposals for a new banana regime. These proposals would provide reasonably generous tariff-free quotas for each banana-producing ACP country. Cheaper dollar-zone bananas would also, in effect, be granted a quota, although subject to a tariff of 100 ECUs per tonne. For imports above the determined quotas, a high tariff of ECU 850 would be levied. According to Dr Hall, 'Jamaican producers can live with this scheme' but he recognised the need for the local industry to become more efficient and competitive. He also pointed out that it was only access, and not prices, which would be guaranteed. In fact, the price of bananas in the Community dropped by almost £100 a tonne in 1992 as dollar-zone producers stepped up their exports to the EC in anticipation of the single market, and this is obviously a source of concern to producers in Jamaica and elsewhere in the Caribbean.

Only a rash person would predict where the island's banana sector might be in five years' time, but the Jamaicans themselves have clearly recognised the precariousness of this particular export business. Diversification is seen to be the key. It is not coincidental that the Jamaica Producers' Group Ltd has dropped 'banana' from its title and the company has successfully moved into the export of citrus fruits and other produce, although bananas remain as its core activity.

Among the country's so-called 'nontraditional' crops, yams to the value of almost US$ 10m were exported in 1991 while other products traded included mangoes and cut flowers. Other 'traditional' crops which are exported in modest quantities include coffee, coconuts and pimentos.

Social implications

Although there is considerable enthusiasm in the private sector for recent liberalisation measures, the social implications of these changes-at least in the short term-are an obvious source of concern. Jamaica is certainly not unique in having to grapple with a serious crime problem but the apparently inexorable rise in violent criminal behaviour and, of course, the chronic drug problem, are now among the most serious challenges which the government must tackle. And while the underlying reasons are undoubtedly complex, only the most reactionary observer would fail to see at least some connection with poverty and unemployment. In an attempt to come to grips with the problem in the short-term, the government has focused on improving enforcement. The police force is not widely respected and reforms to this service are being considered. The army- whose discipline and reputation are much higher - has been brought in temporarily to increase security on the streets and they are operating in tandem with the police. A recent decision to end a de facto
moratorium on the use of the death penalty has also been applauded by many Jamaicans but it has attracted some criticism both internally and from outside. No executions had been carried out at the time of writing.

For the longer term, the Government clearly hopes that economic improvements, feeding down to the poorest levels of society, will have a positive impact on crime rates. Unfortunately, the evidence from more developed countries, most of which are also battling with ever-rising criminality, is less than encouraging.

On a more positive note, Jamaica, in common with most of its Caribbean neighbours, puts a lot of emphasis into education and training. The outreach of the school system is on a par with most of the industrialised world and literacy rates are high as a result. Professor Gerald Lalor of the University of the West Indies confirmed that his institution had largely escaped the government's budget cuts and talked of plans to expand the Mona Campus, which is the UWI's base in Jamaica, to accommodate a 50% increase in student numbers. He also spoke of the growing interest of businesses in educational investment, a fact which was reflected in the endowment of four university chairs by the private sector.

The high level of educational attainment is to be seen in many areas of Jamaican life but most notably in the wide range of cultural activities on the island.

Looking to the future

When one experiences the beauty of Jamaica, the hospitality of its people and the vibrancy of its culture, one is sure to be captivated. This is clearly a country with a great deal to offer but also, it must be said, a great deal to do. After years of economic stagnation-by no means all of which has been self-inflicted-the signs are that, at last, it may be turning the corner. A new economic reality prevails and a new political consensus offers hope for sustained economic development in the coming years.

For government, the challenge is a familiar one, faced today by governments all over the world: how to continue fostering an enterprise culture while, at the same time, maintaining social equilibrium.

For the private sector, the challenge is to grasp the new opportunities which have been presented to it and become the engine of a new prosperity.

But, in the final analysis, the main challenge is for the people as a whole. In the quest for human development, it is human resources which provide the key. It may only be a pointer, but the remarkable response of the people last year to their currency crisis suggests that the Jamaicans are willing and able to rise to the challenge. Simon HORNER