International Monetary Funds

Topics: Economics, Bretton Woods system, International Monetary Fund Pages: 4 (838 words) Published: May 4, 2014
(A) Jamaica and the IMF: Opportunities and Challenges to the Jamaican productive sector

Jamaica and the IMF: Opportunities and Challenges to the Jamaican productive sector

After a decade of anemic growth, the Jamaican economy moved into recession towards the end of 2007 on the back of the global economic meltdown. The crisis was particularly felt in Jamaica due to the existence of structural impediments such as declining productivity, high debt, and crime. In July 2009, the Government of Jamaica announced its intention to borrow from the International Monetary Fund, (IMF). The Jamaican economy would have had to adjust their level of spending in order for the IMF to approve the borrowing agreement. The availability of this funding intends to increase opportunities in production and foreign exchange earnings. Some of this is caused by the decline in net foreign exchange inflows from merchandise exports and remittances. There has also been a significant decline in both official and private net capital inflows. Jamaica's foreign exchange problem is a "flow" problem: the outflow of foreign exchange exceeds the inflow. The borrowing of money from abroad does not solve this flow problem. By itself, it only allows Jamaica, for a time, to use more foreign exchange than it can attract without borrowing. Unless Jamaica can correct this imbalance, it is hardly likely that external creditors will continue lending more money to Jamaica into an indefinite future. The decline in net foreign exchange earning has a counterpart in inadequate domestic saving. A substantial element of this domestic "dissaving" is apparent in unmanaged fiscal deficits and in declining primary surpluses (the fiscal balance without including interest expenditure). These fiscal deficits contribute to both the external account deficit (decline in official foreign reserves) and to the increase in public sector borrowing and public debt. Public sector borrowing from domestic financial markets is...
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