NA TlONAL UBRARY OF JAMAICA t·· \

/t/,~vv NJ !~fJ.A-1 .. (1£'1 ~~

SeconJ Year of Pro0ra~~e of Extended Fund

Facj_lity ~r~angement with the International

i'!onctary run.d

On r.1ay 9, 197~.? , this honourable Hou se cornmenced

debate on t'linistry F.::tj_le r iJo, 1:. of J.J78 which set out

targets and obj r:;cti ves of the Econoraic F"t'O<Jran1!:1e of

1 978 - 19 88.

Subsequently , I had the honour to ouLFli t t o Hembers of

the House s of Parliament ~)inistry Paper ~Jo . 34, wh ich

detailed the Extended Fund Facility Arratisernent with the

International J'IIO':l f'" ' .·-,.-ry Fund. I submit the attached Paper,

i.vh ich revie1,vs ·the ::3 i.:,1. te of the economy and presents a

Memorandum on Economic Policy .. It for~s the basis for

presenta::.ion to tl1.::.: International Honetary Fund f or the

second year of the Extended Fund Facility Arrangement . . ..... -- ·.

2 ,. rvrernbers of t.l:.e rto t1sc -wi ll reca.l.l tf18 s t~ecific performanc2

.cr i teria which were ident.ifiec'1. in trlQ Agree..,:;u:_-t. The liouse

wil l be pleased to know that all these criter ia· bave been met

for the first ye~r of tl1e BxtendeC Fund Fac ility Arrangemen~.

3. ~he Economic ProgTa~~e for 1979- ~ 0 is basad largely on

what has been terme~ the Socia l Contract . The s pecifics of

this programr.1e for econorr.ic recovery will be detailed in

another Ninistry • 'ai)er ·tJ be tabled by the aonourable Frirne

Minister .

SRIC 0 . BELL

Minjster of Finance and Planning

f.-': a y 2 , 19 7 )

M. F. File No. l'Jo. t~ 1)6/1)-'~1.

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ar1 incentive for mor~ substantial production increases in 1979.

Alon} witl: tnesc successes came s om0 failures . Despite impressiv~ s~ins ir1 so~c sectors, provisional da~a point to a further slight fall o f real GDV in 1 978. There were substantial CJ.::l ins in va .luC: a.dr~ed in "'l'Jr icul tur c; p <::: specially in the production cf domestic food cro~s . in mining , where bauxite and alumina output increast=.=d t-:· ti per c e nt and · 3 per c ent , resp8cti vely; and in tourisw, whcro the number of visitor arrivals increased by about 3B p~r cent. But major production declines were registered i n manufa~~urj.ng ~nd conttruction , both of which suffered severe l y from a short~ge o~ imported inputs and spare parts caused by lack of foreign exchAng ~. Another adve rse factor, p~rticularly in ·the c ase of the ~anufacturin0 sGctor , was a ~rop in domestic d emand . attendant on thG r0duction in n~a l incomGs and t'he substantial increa s e in cons umption duties wh i ch formed part of the tax package introduced in May 1~78. The raw-ma t er ial shortages and lack of ~emand led to lay-off s in ~anufacturing and the closure of some businesses. The shortag~ of imported building '1\a teri "! l .s .. and r in caine cases ; of contractors a.nd other skilled personnel due to migration - led to t emporary. suspension or abnndonmant of a number of construction ·projects. ·r n th·~'[.:::) circu:rnst.:>.nccs, the unemployment rat ;.~ in October 1973 reached a l evel cf 2G per cent from a l ev e l of 24 per cent in October 1977 - in terms of those actively looking for work , the increase was fran 11 per c~nt to 13 per cent .

The econor.1ic progr ·J.P.J.ne: for 1 978 2nta iled Ll sharp but controlled acceleration in-inf lation. As it turned out ~ the consurner-p~ice indox rose by more than 30 per cent in the three months· fo llOiving th•:; sxc.hanqe·-rat-::: Cldjustments of c;arly ~1.:1y. In the s~cond half of the ye~r. inflation returned to a more normal rate of 1 to l~ p ::T cent :·1.or::C.ld.yr with the result .that. the increase in the consumer-pric ( inde~ for the whole of 197J (on an end-Gf­period basis ) wns 49 pHr cent, compared to 14 por cent in 1977 ,

Infl~tion ~n~ the increase in unemployment have i~cvitably c Rused ha rdship, di s~o11r~g emcnt and socia l t ensions . If th~ se t ensions are not deJ.lt witl1 , there is the risk of social uphea~al which \'lOUld sl.ir·o J. y rev0.~so t hE:! econon<ic prorJress achieveu l-ast year at such great socia l cast and prec i pitate a renewed decline of ihe economy and thereby qn.:ater hu r ds lJ.ips. '.i.'he Governmsnt is determined to see that the s~crificos enJure~ by broad sections of the n~tion in 1970 are rewarded by a resumption of economic growthp a giadual improveme nt in living standards, and tht": provision ()f morn jobs. But for th( policies te l ead to ~ r~gen0ration of production and a lm·.;-arin c_:< o f inflC1tic;n , it is essr=nti -1 1 that :-:.n atmosphere of mutue1l trus t i:_)ruvail :)e tw~:.:en o ll s <?cto-rs of the , soc.icty. .'

-The Government is committed to ~ mixed economy in which the private sec tor must play a significant role in generating economic prosperity YLt r the pr ivate s0ctor hRs displayed little dynamism . in rec~ant years. J -'l;":lt1 ica 0lso has one o f the most . deve loped trade-union !..,.OVP.mcP·ts i1mong tht:; sma llc!r natio:;;. s of the ' world. Howev,?. r r this mover;:.e:nt is fragmC!nted into some 1 7 orgwnisa­tions that compete with ~acl1 other for r epresentationa l rights . This makes the country extre1r.c-ly vulne rable to indus·trial stri fe .

Unless ·tb · .~rc is ;--l!J incre.l. Sl.! i..n private-se ctor production, a reduction in ·urlion rivalry and a modicum of mutual trust betwaqn l abour, C)mployer s" and Government, it Hill be impos s ible~ . to · exerc ise tho waga and pricu restraint a nd to deliver the p~oduction l evels And tha ~mploym0nt opportun ities which Jamaic~ so desperately needs. As n 1ne.1n :.: or '1.ch i.t... vinq t;1is Je:gree of social cooperation the Governc~nt hns . in r~ccnt weeks, held extensive consultatioris with all sectors of the economy. Thes e consulta ti6ns hnv~ focused on.·the wayc in which the socicty c2n wcrk together to e~pa~d pro­duction and enmloymc:nt ~md to sti1bilif,:.; dor.~c'! stic prices ..

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The key c:.;lements of this cooperation involve ·-

(l) A ceiling for price increases of 10 per cent per ye~r over ~ two - year period beginning 1st May 1979, togethe r with an ~ssurance from employers of job security for worke~s except in cas0s whare disciplinary action is justified or where the enterprise 00es J ut of business. Enp loyers will 2lso s eek to expand production ~nd G~ploym8nt within existing cap~city limits and, as soon as possi ~ .l8~ to increas~ capacity so as to provide the b~sis for faster : gro,lth in the future (Section II - 2).

(2) A c essation of trad~-union rivalry over representRtion~l rights~ the CULtail~cnt of ~ork stoppages and other forms of industri~l -~ction which affect production; and the obsGrvance of a ~ational w~Jr norm of 10 per cent a year for the two-year period beginning lst f!ny 1979 (sae Section II- 1).

( 3) production and supply

Goveinment will pursue policies that ·· wil~ stimuiate_ and exports and maintain the right' ·balance ' between d•.YG'.ard (Section II 1 3-6). · 'l

( 1 ) Emplbyers and unions ar8 expected to devise ways of increasing productivity and to provide appropriate pay incentives :- ., acl1ie,re this end~ D

(5) Government has also called on other sectors - profe ssiona l3; self-employed, farmers- to-~xercisc restraint in pricing and to disp l ay.a sense of social responsibility in increasing production .

Government considers that there is sufficient under­standing in the= society in order to enable the country to proccnd ulon0 the aforementioned lines. Details have to be firmed up and problems of implementation will have to be resolved as they surface. GovernGent will, therefore , be in close contact with repr~sentativos of priv~te enterprise and with labour leaders to receive advice from tt1en on how best to set up an institutional machinery that will 0 iva , firm foundation for cooper3tion among the several elements in the pro1uctive process and allow this cooperative venture to gather streng·th

The alternatives to cooperative action Qlong these lines could spell disaster for the e conomy anrl the nation. Attempts to :1llevia·te uneritploymcnt by deliber.:.tely boosting consumer demand are: doomed to failur e at a time when the foreign-exchange shortRgo is so acute. Price and wag e increase s above the norms of 10 per cent a year might cause reductions in demnnd, which would only force some employers to reduce their labour forc e, with the result that thos a who retain employment -would get a larger share of a smaller qu~ntum of gauds and s0rvic0 s and th0 risinu numb8r of unemployed would receive a ven lass thQn they rec e ive at present. In addition, inordinate wage 6nd price increases would certainly erode Jamaica's newly regained export competitiveness and, therefore, necessitate a steady deprcc ia­~ion of the Jamaica dollar , in which case th~ condition of thos e who have no c apacity to defend themsulves would have worsened. The unemployed, the non-unionisedf the pensioners, th~ aged and the poor ~vould find themselves worse off then ever: meanwhile the employed would find themselve s no better off th~n before · since a higher infl~tion would wipe out <tny additional monetary ·gains they '_ might receive.

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I I ., Economic H<:!.nagcr.lent for 19 7 9 I 3 0

In order to achieve ~

(a) exchange-rate st~bility;

(b) substantial reduction in the rate of increase in the cost of living ; and

(~) increased opportunitiGs for new enployment;

it is essential that the society move to new norms for the movement in prices and incomGs. It is ~lso essential that the CovG~-­nrnent adopt the right policies for production, for budg~tary bal~nco. for monetary flows and for the Ba lance of Payments.

1.. Incomes Policy

Between 1973 and 1977, the money value of wage rates rose roughly by two-thirds~ despite a decline of a quarter i.n the output per person employed .. As was to be expected, prices rose sharply and employment, expanded at a slow rate, particularly in the more productiv-2 sectors of the economy. In an effort to stop this vicious oycle ~ wage guidelines were adopted in May, 1973 which ·limited pay· incre.J. ses under any wage contract 2xpiring after lst May, 19"/8 to 15 per cent per yeAr for a two-year period. T:lif wu~e policy was consistent with the objective of increasing inve stible surpluses and, in conjunction with the ex6hange rate ~olicy, was responsive to the imperative need to restore Jan~ica;s export co~petitiveness. Parti2l indicators suggest that~ with ~ few exceptions, the wage gtiidelines ware substantially adhered to, and even when allowance is mad~ for larger wage increases negotiated during·l978 under diffe rent guidelines (r1inistry Paper 38), wages in the unionized sector increased in 1978 on the average by less than 20 per cent.

The wage guidelines will now be replaced by a n C.!W

~orm for mage negotiations barring pay hikes in excess of 10 per cent per year for the next two yaars under any contract cxpirin0 after 1st May, 1979 . Contracts which expired before lst May, 1979 , but which were not yet settled by that cata, will need to c~nform wi-th the new norm r Q~cpt where bona fide offers under last y(~ ....... rJs ·' guidelines (Ministry Paper 22) were already on record by 1st May . 1979, in which cases these offers may be taken into account. The provisions of the former guidelines in respect of their covera~c of ~oth the public and tho privat0 S8ctors, the definition of pay . th0 requirement of certification of wage contracts by the Pay .Monitoring Unit of the Ministry of Labour , nnd the sanctions through the pricG control and inco~e tax mcchanicms will be retained. The new nor~ for wage negotiations will r emain subj~ct to ability-to-pay considerations within the 10 per cent limit b~t ability-to-pay will now be determined on a casu-by-case basis rather than by the standard criterion specified in Oinistry Paper 22 (a 15-20 per cent rate of return valued at replacement cost) . The clarification of the former guidelines in respect of definition of the Wage Fund issued by the Ministry of Labour on 9th of April will remain in force.

The certification pro~edures under the guidelines did not operate as intended, since many contracts settled were not reported to the Pay I~nitor ing Unit. This meant thRt the Unit could not establish whether the guidclinas were adhered to at any given instance. To deal wi~h this vroblem , GovernQent will invoke the provisions of the Industrial Rel~tions Act wherehyr under ~~nalty of fine, the wage contracts must be reported to the Ministry of Labour within l ~ dnys of their conclusion. In an effort to :i treamlinc this procedurc r the Ministry of Labour will be seekinq all relevant informRtion prior to the start of negotiations.

Pricc~s Policy.

The private sector will be required to hold -u-,. ( ir '­:rice increoses ·to a maximum of 10 per cent a year for the next. t>IC ~·: -~: -::,

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assuminp." risP in tbr:ir import and labour costs · of that ma?.nitude. The norm for pricing i s expressed in terms of a maximum perm issible annu al rate o~ increase, an~ docs not provi d e guidance on ho~ to ph ase it ov~r t l1e ycnr · 1-.ut ~earin£' in 11lincl. t he need to h ·old price ri ses to incr e ases in costs . the 1attPr ~us t dict a t e the ~r e nd of t h e f o r IT' c r . P n cl c r n o c i r c u rr s t a n c e s , t h c r P f o r e , ""' i 11 C: o v e r n m mt tol c ratP .::tr: _Lnt€'rpr.-ctatioP of tl1e 1-r~sic norm for pricinr. as a si~n~l to th o 0nt r ePr.n~urs to rais e their nrices bv 10 per cent from t h c start . fur t h ,, r r10 r •2 . it is n x n e c ted that hi g h c r uti 1 i z at ion of cxistinf capacity ~tl l p0r~it busin~ss to ahsorb co s t increases to s oiPe extent.

Th~ present op2ratin8 procedur e of tlte P ric es Commission for ~ranting apn1ica ti ons for nricP incr eases wi l l b e maintain e d. Goods which hav e a siQnificant i~pact on the cost of livin~ are n~w being subject tn Qit~·er A List procedure ( app roval in advance) or to B List procedures (arproval wi.ll be soup-h t after the pri ce has ~cen incr eased). Existin~ rrice controls for social r e asons and to pr eve nt abuses in ~onopolv or oli~opoJistic situat~ns wi ll continu~ in force. Th(' ~vr;tpm of nrice monito rin p, ~vill he expande.d with the aid nf a ~arg nu~her of voluntc~r price insp e ctors.

3. Po,licies> to stimulate: PI!'3cruction

Gpvernmcnt r r co~ni~ e s fullv that a majo r factor that has inhi b it ed th e e xpansi0n or manufacturinr- o utput , and e xp or ts_ has been the lacl- of rl~penda~le flow of imported ra w materials and spare ~arts du e to th e foreipn cx chapg c shortaRe . In an effo r~ tb c0rrect this situation . p~rti~u:arly as it affe cts industri e~ p roducing for C' Xport, the rovc:::-nm Gn t has introduced a '' Certified Export ers S c h e IP c '· t 1: n t r.: j v c s a 1 J c: x p o r t a n d 1 i n 1·: a f, c i n d u s t r i ~ s , ,., h i c h s a t i s f y c crtnin criteria , ~rioritv acc2ss to forcipn e xchan ge re so urc e s an d to impo r t licr:nsrs. 'T'his scht>mc i s more fully describ e d ·l a t e r on . Effores t o incr c Rs e the ~v9ilabili.ty of foreipn e xchapg0. for the i~por t ation of ~ssrnt iaJ goods and services will a lso be pursued througr the: rwp,ol: i.:'lt·i.on of ~trr.1nr,r•ments Hitll forci~n commercial h a n k s f o r v 2 r i o u s 1· i n d s o [ c r r. cl i t -r- n. c j l i t ; :' s , et n d o f 1 i n c s o f C r CUi t f r 0 !:1 f 0 r 0. i ,. fl. f!, 0 V C r 11 1'1 P P t '~ 8 n d i :· t (: T n [l t i 0 1'1 .". 1 f :in_q n C i Rl inS tit U ­

tions.

Govern~ent will observe t~is yenT the utmost e co nomy in the . man agr.mr.n t of th r: public fincnc€'s. Amonp: other thin~sJ this will -g iv e private business a cc ess to a lar rer share o f a vail aQle bank credit than in 197 P;,

Government will al~o continue to [acil itate th e entry of hi ghly skilled technicians, to si~plify further th e impor t licensing system and to intensify its effo rts t o attra c~ forei rn investment, particularly the pronation of ioint. ventures b~ t w2c n for e ign c ap ital and the local priva t e a nd pu1J}_i_c sectors.

C o v c r n I' I c n t h ,1 s t h r~ r o J .1 n \-J in f~ c Cl n C" r c· t c p l an s \vi t 11 r cr.. a r d t o p r o d u c L i. o n " n d c m p 1 o v m c n L I n t h c r i ,, ] d o f .,_ r. r i c u 1 t u r n t I! c f i n <d stages of the land 1cas0 proRrnmrne wl1l . b conplcte~ .and th~ syste m of pion ee r farms, whicl1 in its first ye~r pro vid e d oppor~uniti 0 s

for many unr-: rnployccl rura.L yout lt to (~ fli;Df!P i.n productive ac ti'vity . w i 11 b c r~ x t c n d (' d . 't'l, e i r r i r, <1 t i o n p r o r. r a m rn (' "' i 11 h e c o rt t i 1 n u c• c1 n r. d t h e a d m in i s t r a t i o n o f n ~ r i c u 1 t u r a l c r e d i t ~vi 11 h e imp r OJC d s o i1 s to a llow a crc~tcr and more timely flow of credit to farmers. RecoBnizing th at inad n qu~tc markctinr nrrangemtns hav e constituted a disincentiv e to pgricu lt ural production, special emphn s is wiJ.l b e g i v en , \ ·1 i t h f in a r: c i a J i1 :1 d t e c h n i c 2 1 a s s i s t ;-.. n c e f r om c e r t a in intern ~t ion ~l or~Pnizations , t o th e improveme nt of th e mArketing

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system . Consider a tion i s b o in~ giv e n to seeking ficancial and a dmini s trativ e onrtici pn tion from the private sector and the filrr::inp. comrr:unitv in th ;~· Agric,J ltural Marketinr: Corporntion (MfC), ·'1 Hholly· owfl :c d <1 nd o o ': ratP-cl ~o vernmcnt institution

In touris r . fcllowin f th e rApid ~rowth in ~isitor arrivals, ~overnment is con s idcrin r the expansio0 of hotel cap~city, and is <'-lso c ncour a f'ilH' th ~ privat e> sector to intensi'Tv its sctiviti ~ s in this se c tor .

A st r ~t 2 2 y ha s be e n d e vised to e ncourage in~rea~ed production by t~c bnuxit ~ and nlumin<1 compani 0 s, Over the last thr~e y e ars. 'b ;1 n x i t e p r o d u c t i o n !-w s r c r1 a i n c d cl e r r c s s c d ( b c: 1 o \V' t h e 1 9 7 !~ p r o <1 u c i o n lovel of 1~ million loDr tons). T~ ~ dcprecia~ion of the Ja~nicnn doll2r has improv e ~ th e ccnpetitiv c n e ss of the indust~y hut this has not ;r e t rcsu]t c cl in A n ajor incr 0 a:=:e in rroduct·i'on. N c t'oti~tions

are now proce e din g with th G bnuxit 0 a nd alumina tornpani~s to offer adeauat e inc e ntives for a rr e nt e r utilizntion of their existinr productiv e capacity and th e cxp 0 nsion of that capacity . Goverri~ent is also s c ckin~ to increa s e ~ rodu c tioD nnd exnorts by ~xploring n e w m a r k c -t s •

4. Fiscal Poli cv ___ ____ __.,_

The exo c ct c: rl turn a round in th e public fin a nces f~iled to materializ e over tlH~ J<1 s t fiscn.l ye~r. IP.stcnd of beinr. in virtuA.l equilihri.urt , t h<·. r e current budp.et of tf.c C0ntr.rtl. r.overnment re g ister e d n dcfic.i t r~ quiv n l e nt to 2. 7 per cent of r,nr. The sliy:p.a; e r :::· fl .. ~ c t ecl ~ s e ri o us· shortf n ll in ~ovcrnment r c~venue :s · ~md

the · di.f'ficuJ.tj_c s e ncount rc r c: d i n holdinr, dovm expenditure in the . face of ~ountin r wage d e mand s. Th e Government remain s committed . t o t r e t a s k o f r ':! s t r u c t u r j n 1: t h c b u d r. c t so a s ' t o p r o p u c. e ·a de a u a t e current ac c ount snvin g s to n ssist in the financin~ of capitaJ form r.J t ion in t h P TJ u h l i c r1 n r1.1 in . !1 o v7 e v c r , for this y e ..-1 r it is expected t l1at th e r Pcurr e nt budg e t will he in approximate hnlnnce.

r: o v 0. r n 1.1 c n. t i s o f t h r 'J i e •1 t h co t t h e i n t r o d u c t :iaJ. c f a n o t h e r sizeabl e t a x . pack arc in lQ?Q would be counter-productive. Instead, it proposP~ to c xRmin 2 cnr e fullv c e rt~in tax reform studies that have h2 c 1-: conc1uct c cl, 1 ; ~ th the i~t C> ntion of implementin~ SCJ112 o 'f the propos ~ ls in th e cnur s~ 0f th e curr e nt fiscal year. Tax reforMs W i 11 r1 j 1'1 <1 t i. · p r 0 V i I1 ? t 1 ~ ,-, C q U j_ t y "1 n d C f f i C i C: n C y 0 f t h C' t '1 X S y S t ~ T'\

and ma kin ~ it nnr 0 reRponsiv~ to th e needs of the economy, but they will not yield si pnific a nt incre~cntal revenue in t~e current fiscal year.

With th e constr a ints imp o s ~ d o n the revenue side. the hurden of fiscal ndj e ctment mu s t nf n r ccs s jt y fall on government spending. Accordin g ly. t he Cov ~ r n ~ 0 nt i nt ~ nd s to maintain its current exp e nditures in ]07Q/RO ~t A . l ~ vel s lightly Rbovc their nominal l e vel in 1 9 78/7 9,. whi c l, \'''"' ttld IDf'. i1n ,1 r c rluction of about 12 per cent in r c .<'ll t crr.~ s . T o tll ii> ~~ f.f ~ ct , t•1e follo~linp. economy measures have been impl ement 0~ .

The WnRc Fund h 2 s ~ cc n r e duc e d from last year's: 15 per cent t h is y eRr . T hi ~: . \v.i ll n c c r. s r. :i. t ." t (' t h r' c 1 imina t ion n f c c r t a in · tcropo~ar ~ posts ~ncl th e c~ncell n tion nf a number of v~cnncics in c r t a in ~1 i n ·i r; t r :i c r.; • S 11l · n i rl i e : on 1 o c n 1 sa 1 e s o f su r-.,'\ r and drugs havf· h c en ( lln i nnt ' d · i· h r,s.- nn th e h .1sic basket h ;1v0. be:n rcduc.cd by 1 0 p c r c ent ·"' n d t lt , s ll' s i (1 y o n pub J i c t ran::: p or t R t i o o 1: n s He c n maint ;1incd ,qt i.t P; n (l mjn ,l l lr' v r:' l ·in th e lflst fiscal year.

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A 11 o c a t i c r> s f o r ' . t h c r c a t c: [: o r i r~ s o f r e c u r r C! n t ~ o v e r n m c n t cxpcnrlitur c h .1v e b r:r n rAdically cut b c- cL, which hnc necessitated t h e. :.t b <1 1l d o n '' c n t n r r c d u c t j o n o f c e r t '1 i n p r o r. r e1 m m c s , A s 1 o w i n g

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' in th e rat o of commissioni~~ of ccrta~n puh l i c wo~ks , the me r ~1~~ of sone statutor y bodies. nnd the reduction ip the size and sco~ ? cf others. While concerted efforts have bee n mad~ to r e structur ~ the budget id a man~dr th a t would not se r io usly iggravate t h~ unemployment problem . th0 very ma~nitud n of the n~ed e~ contra c t ion of r e curr ent government s p~ n~in~ will of n0ce ssity result in oorn e

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retrenchment in ~o v ernmcnt employment.

As far as gcnoral pub l ic administr~tion is concrrn e d , th o Government is firmly committed to tlt c rntionnlisation ~nd r es tructurin g of th e bureaucracy with the objective of ensfirin r o ptinuili efficiency in the nnchinery of Covernment ~nd mnnn~ en er t

of pro~rammes nt l east cost. The GovernmcT"\t ~vill cCID11ission A t.'l sk force by the 30th July 1°7 9 . to ~xam in ~ the present stAte of _ the nachinery of GcvernRent, includinr. Locnl Authorities. St~tut n~y a nd ~thcr Administrative Agencies an d regional structures: nnd tn n~ke . ~eco~mend nti~ns for th e modifi cati o~, me rRers or abando~ment of the e xistin g institutions. Gov ~ rnm0nt undertakes to impl c•• mt acceptable r e co~mendations wi t hin a period of two years.

As regards capital e xpe nditur e, h ud get a llocatibns . hav e been restricted to fund cn - roin~ prngra~~cs, programmes already committed a nd n ew pr0jects '0nly to th e ex t ent that they re~ e iv e s~hstanti a l fin2ncin~ (inclus iv P of locnl cost s) from extern~l sources on conc e s sion.".lry terms.· Amo n g ne'v projects nriority i s beiri~ g iven · t b thos0 w~ich yield quick economic benefits whil n infrastruct~r e · works with R delayed return a nd non-productiv e . employment pro~~a~mcs have been downgraded. Government int e nd c t o redouble its eff o rts to speed up t he execut ion of projecEs financed f~o~ e~tornal sourceq whi ch nrc alrea dy in th ~ pip e l~n c . It aJ.so int e nds t o undertake ~ determihed search ' fbr aid ana h ud r c t support from ~broad to finance rrior it y proic cts.

\-1 i t h t h e · me<:> s u r e s _i us t d E s c r i 1 c c1. • t l t c C e rtr a 1 Govern men t s h n u 1 d approximately balanc e the curren t acco un t of the hudget in 1979/ PO as arainst the approximately negati v e saving of more than 2~ ~ c r c e nt o f GDP in 197 8 /70.: to l ower the overall p.o vernmePI.t deficit, as per cent of GDr. fro~ 12.~ per cent in 1978/79. to 8.7 " pcr c~nt in 1~79/ SO! and to reduce th e use of incr cmentP l domestic . bank credit from J $1 35 mi ll ion to J$85 million. For the General rnv2=n ­nent (which inc l ud es t ~c Capital Development Fund wit~ i~ subsi di~ry, the J a rta i c a N a t i o !1 nl In v c s t me n t Con r any , a s \v c 11 a s the Nat ion n l Housing Tru s t a nd the rJational Insur.c1ncc Fund), the. 1979/RO r r:sults ere . likely to .be savin~s of J~ per cent of dDP compared to 1 p~r c e nt in 197P./7 9 ' and an o v erall deficit of R re r cent of GDP compared with 11 r er cent in 1978/79. ·

The public e nt e r prises hAv e L ~ e n directed to continue t n make a n all · out effort to incr0ase ou tput and invest~ent. P o lic y ~ ~ utility char ge s will continue t o be based on the obj~ctiv e 0f making t h e ril ··cov e r t h P J r c u r r c ~~ t c x n c n d i t u r c s and , ·a s a Pro up ; t o ge nerate savin gs sufficient to fj~nnce 30 per cen~ of their investment outluys.

5 . ~?netary policy

DurinR this comi ng yenr, monetary po l i~y will ~iay S mer e aggressive role than in the past ·~ mobilising domestic snvin os ~nd ensuring tha t sufficient hank credit is made available t o priority s e ct o rs. Interest rntcs will he a ll owe d to rise tim e ly

to levels where the rc~l rRt e of rpturn on financial savinps will_ b e p o s i t i v e , ~ f t e r t al': i n ~ f! c c o u n t o f t h e e x n e c t e d r a t e o f i n f 1 n -­tion ovQr the corin~ ye a r. The TIRnk r a t e will be noved in t llP sane direction a n d th r: il~n] : o f .Jar.3iCP. v7il J. use the· reoiscount rate wi th suff i cient flexibility to ens u re fulfilnent of the none t ary prorranrc. In order t0 nr e serve the competitivene ss o f the building soci e ti e s in the face rf rising commercial b ank d<=-ro sit rtltcs, consid e r..,tinn is 1110:- inr, ?ive n to raisinp, o r r e ~o vin f th e s t a tut ory ccilin~ o~ t he lcndin~ rate of thes e inst itut::i: r:ns, >·Thich h<~s stnnd a t 12 p e r cent for th e l as t fer · ye::1rs.

. In J a nuary lC179, the non•! t<'.r y authorities sponso re d :! voluntary increase in the liquidity r a tio to 48 per ce~t of the deposit li abilit i es of c onnf:rcial ha n k s in order to ensure obse rv a n ce of t he nonetcry pr nprarnnc. Pre sent projecti ons sug~est th ~t a 40 r ~ r c e nt liquidity rat io is neither inconsist 1~ nt with th e p r ojecte d d e nand of th e ryrivate s e ctor fcr bank cr ed it nor .. with obse rv ance of th e rPquisit ~ r e s tr a int on overall cr ~dit expansion. The mone t ary authorities will : howc ~ e r , k eep t~ situation und e r constant r e vi e w and ar c p r epa red to adjust t his ratio as n2eded.

Credit policy will he us ~ rl , alonr with fiscal polic~ tn keep Rggre~ate dorne~ti c expenditur e t o ~ lev e l consist e nt with th e proRranmed b c l:!nc ~ of ~ay~cnts 2 nd nricc performance. whil o e n s urin g tl1 at s uff icien t r-e sourc e s ar e available to : fimrnce priv c. t e sect c r expa n sion. Pith these .nb j e c t i vcs ~ the authorities. h ave s e t ceilings o n t'be expcmsion. of n e t doJl"es tic credit by t.h e Ban]~

of J ama ic a ~ nd of net cr e dit to the public sector hy th e • ••• bankin -, system. However, to facilitat e:~ the expansion .of experts : special r edis coun ting f~cilities ha v e been set up for bank l oans to ex~orters covered by the Ce rtified Ex~o rters Sche me . Dis cuss­ions will also be held with the co~nercial banks to explore w0ys in which th ey can contribut 2 tn the attai nm e nt of · the Gov e rnnent ' s p ri o riti es. Possible ways include th e adon tion of a vcluntar y system of cre dit allocation fo r p r oductiv e pur~ oses and th e provi sion of n e diu~ terM finAnci n ~ for the capital ex~ansi~n programmes of fi r ns whic h 2 re harnstrun~ by insuffici e nt equity.

6. Balance nf paymen t s rnana~eme~t

The shorta g e cf foreiRn exch an u e has probably b ee n th e n2i o r ohst2.cle to inrlustri:;l CXfL'lnsion and , t(' a les .se.-r extent, t o rr c wth in n g ric u 1 t u r e and c ons t r u c t ion , La r p, c: 1 y for t hi s reason , t ,1, c G o vern~ ent has g iven ton priority to expo rt pronation, to -incr eCls ­in~ for c irn exchange availability frnw ot her sourc e s. acl t o providin g a l areer international reserve cushion to meet unf nr Gs cc n contin genc ie:s.

Th e Government relied h e avily - l~st yea r on exchan ~e r a t e policy in order to restor e Jamaica's expor t competitiveness. On ° th May , 1978, the du a l 0xchanp ~ rat e sy stem was abolish ed and the JaiD~ica dollar wos d ~ prccint e d ~y some 30 per c ~ nt vis-a­vis th e U . S . d o 11 a r t n ~ n e 1v r ;:-, t e n f .J s 1 . 5 5 per U . S . do 11 a r . In the remainder of th e fir s t yeAr of the programme, t ~c Jn~1icR

dollAr w2s dprrecintcd J,y an o ther 15 p e r cent hy a s e ri e s of T'l :i. n i -- d e v c:fl u a t i o n s o f b c t to) c ,·: n 1 l !-; a r c1 1 r c r c e n t r e r. w o n t h ,

(',

Gc•vcrroro.:nt l,r· li r'vcs thrtt th r; cxch<en/:•.~ rate policy pursued li1Gt yetir · .. :in ccnj'..iCti(1n 'lith tl1e '''nge r; uidelinP.s ---· hns restored J <" m '1 i c r~ ' s " x ]1 o r t c on iH! t i t i v c n e s s • H h i 1 c remain in t~ f i r rr.l y com r.li t ted t o .~ f 1 E<-< i b J e 1: x c h :1 n P r:· r .:1 t ~ p o 1 i c y , t h e r; o v e r n n1 c n t h a s : t h C-:! r e f o r e , conclud 8 d that it c1n 3ffor•1 to suspend the ~ini-devalu~tions as o f Hay . u h en t h ~· J an ;J i c :: u o ll "' r H i 1 ~ . ·r: c ~" o r t 1-J 5 E U . S • c en t s . The emphasis will t 1·c reaft 0 r n ed to be nlaccd on pr~scrvin~ Je~aica's r c c e n t J. v r e : ; ;: j_ n .:: ;; c x p o r t c or~ r '::! t i t i \' e n e s s . A r e n 2 \<T :::: cl e r o s i o n o f this colT' p c t i t i v :,: n ,_ ~' s 1· :·' s l :L p p a F; c s fro r1 the afore mention<:~ d w a~ e and pric~ norms or d o pnrtur~s from th 0 fiscal and wonctary tarRets set ••ouJ.d unnvoid .'1l:ly n c c<: .s sitntc .:\ resu~ption . of exchrir, Pe rate action. This beinr th e c~sc , the Government is determined to keep the adequacy of the 0xchan~e rnt c und e r constant review .

An importcnt n e w instru~2 nt of th e Governnent 's export policy for 1079 is the intr0duction of the Certified rxport0rS Sci:0.1'18 ,., 'Jich ~,rj 11 ~ive qualified expnrte rs priority ~ccess to i~port licences with a mini~um of bureRucr.:ttic red tape nnd to t i rJ col y f o r c i rr n c x c h o. n? e a 1.1 o c a t i on f o r t h c i r imp o r t s o f r 3. w. m a t 0. r i .<1 l s an d s p R r e r .:1 r t s . T '-> e s c r• c ~~ c Hi ll b ,-, . · f :ii nan c e d by a lo an of US$30 mi llion from the IDFr anrl is nlso expected to benefit fron supple~cntnry fin~nci~l ~usistnrcc hv forci~n commerctnl banks i 71 the for rn o f ad ct'i t ion al 1 c t: t c r s of c red i t . S c v en t y ~ e i?. h t ·exporters hav~ been rc~istered thus f r r under the scheme. which is· due to come into operation on lst June, 1979. The introduction of the Certified Export e rs Sc!J e rne shculd hFlp to attain a . projected 25 J'Cr c0n t incr ease of the VAlue of non-traditionAl exports during 1 9 7 9 . The Go v c r n men t i s nl so "'1 d e <'l v our in f. to n e r. o t i a t e >~ d d i t:i on a 1 assi~tance to expor ters in t~e form of special lines of crcdit~or th e finoncin r nf rlnnt~, 0quipmen t and materials. The Ja~ai£a Export Credit Irsur2nce ~orporntio n (JECIC). which operates these credit 1 in e s .. •-li.l] gun. r :1 n t c ~ t l, is yeAr 50 per cent of. ~he. l o c a 1 credit required by exporters, which will have the cf£ 0c t of ~n­

criasin r th e l oc~l workin P capital avai la~le to benefi c iaries. In addition to thes e ~Gnsurcs, Government haR recently intensified the expo rt rlrive hy estnbJishinr n Trade Commissioner Service which, or e r a t in ?- tH! de r t 1, c J - n a ·[ c ·-. i'! a t i on nl Ex p o r t C o r p o r a t ion ; ~1 i ll s e e k to ex~and J~8aicc's ovcrsc '1s n n rkcts.

I

The dcsircbility of outtin~ rRw Pat~rials and spare parts on ~n auto~Attc liccnsin~ system a t this time and to free all i~ports fron rc~~rictinns for b a lance of payments reasons is reco~­n i 7. i s e d , E u t ; ~ r e c e r t r e v i c w o f t h e s i t u a t i o n s u p, r- e s t s t h a t Jam aica Hill c ontin u e t~ he for some tine under ~arked halance of rayments constr2ints. It does not Rppca r feasihlc, therefore, to attain tlJcsr:- objectjve s i1t th e pres~_nt til'le. A modest ber-inning is be in g ~ad e 1-' y free in p C : r t if i e cl r. x port e r s f ron all 1' o s s i h 1 e iII co n v en i en c e s o f t h e i Ft r o r t 1 j c e n s i n f' r e g i r., e , t h o u f.> h s t r i c t monitorin ~ procedures over th e usc of import licences riven to them 1o1ill he iDstituted. In tl;( cours e of tbe year,an effort •·1 ill he mad e> to fJ 1 a c e !l d d i t i on r-11 c ,.,. t C' "(~ r j e s n f i m !1 o r t s on au t om D t i c 1 i c.~ n sin r: , p n r tic 11l <' r 1 y imp o rts in s 111 .:'l J 1 q u n n tit i e s . of spare parts and raw materials.

ArreArs jn r espect of pnymcnts nnd t~ansfers f~ current intcrn.1tinnol tr2nsnctinns Hill h e clin inRted by D0•cemher 31, 1979, a n d w i 1 J. n 0 t 1 , 2 '" 1 ] rq.;r e d t 0 r c .'1 p p .:- n r t h c r c a f t e r . A d e r o s i t s c h em e has be c n in trod u c c ci [ c r ·:1 r r ~~ ~~ r s n n p :-1 y T'l c n t s 2nd t r n nsf e r s for a m o r t i s a t i o n o f p r i v a t ~ n o :1 -- 1 ~ u C1 r :1 n t l:' r· d d c h t . P r e s e n t a r r a n r c me n t s

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1.0 -

call for the climinetian of th o le ~epooi t - ~ocked a rr ears by the end cf this ••••· The h,]oncc of thn o ntstondin R ptiv•tC• externo: dcht without pcvornRr Ot puorn nte e es timot c d ot US$)31 milli"" dll h ' coneol.idct., d .• nd finance d over • JO-~onth nc r in d

b~rinninr in Jnnu~r~ l~"n. Th< covercncnt bas es tablished limitS on th • eo ntr nctinn

of neu ~ - crt ""d ncdiua-terft ax tnrnal borrowinP of tho ru•lfc sec)Oo.r' 8ntl r·[ tl>e ;>rivotC sector »ith po v er nmcnt pue.rantoC other than cxtrrn•l 1•nrr•·"inr· ••ithiD t1 •c frame work of the IBRD ·l•d aid consoiti•• nod c xtcrnol ' " ~' cefinaneinr opcrotinns - Thin is te make sure ·cMt relief fron nrcsent nroOlcms is not el toin o d .,.relY

at the expense 0f fJturC difficultieS.

In scc.rc'r of ccnenl r,-.1 n••• of •ony~c nts s unoo rt, t''" Government h•• opnrnec\•••0 rot on t i" 1 for eiPD cff id a l l,>n d ers ani donors for spcci•l financiol ossistance bn concessionarY terms and tbot is quicLly distu<schl•· h ,rclinioa rY nec tinc of s uch donor• v·• held a t tb• c~d of ~oril aod it is h ore d thot hy oorly June, extcrnol assistrnco of this kind in an amount of some US$65M for the nc•t ••• r will •••• been conmi ttcJ (lost yopr us~53.5 milli on wns nlod r od). ln • ddition t o financial assistonco from public sources obroad, nacotiations a re in n rcgDcs• for the refinoncin• of oevan-cights of ell omortis ot ion poymonts in r osooct of direct •nd Gov c rn~ent··••••ntecd debt due to forcir• corr.rr.crcial 1•arl• • hct"'ccn )st Ppril. 1979, and 30t'' J'orch, 19?-1.