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April 8, 2013 11:58 pm
Multilateral lenders have finalised a rescue package of almost $2bn for Jamaica, one of the most indebted countries in the world, as the Caribbean heavyweight attempts to return to fiscal and economic health.
The International Monetary Fund said on Monday that it would lend Jamaica $958m, some $200m more than expected, while the World Bank and the Inter-American Development Bank said they will each lend $510m.
In order for the bailout to go ahead, the IMF required the government to implement the second restructuring of Jamaica’s domestic debt in three years, with Jamaican bondholders agreeing in February to exchange J$860bn ($9.1bn) in existing debt for lower yield bonds and later maturity dates.
Although the failure of the 2010 debt exchange to resolve Jamaica’s financial crisis has damaged its credibility with markets, the government has repeatedly rejected concerns that it would not adhere to the new IMF programme, which as well as the debt exchange also includes tax increases and wage freezes.
In an interview with the Financial Times, Peter Philips, Jamaica’s finance minister, said that the market’s scepticism was “understandable” after the previous government failed to implement tax, wage, and competitiveness reforms, but argued that the record so far of the new administration, which came to power in 2012, “should give some comfort”.
He said the government had met all the conditions required of it by the IMF, even exceeding some of the targets, and that “all told we think that demonstrates the seriousness of purpose of this administration”.
“The success of this program crucially depends on full and timely policy implementation by Jamaica of a co-ordinated set of reforms, to strengthen the public finances, restore debt sustainability, enhance growth, and bolster the resilience of the financial sector,” said the IMF in a statement.
“Jamaica has taken the bold decision to tackle the structural impediments to growth that have hindered its development for decades,” said the World Bank and the Inter-American Development Bank in a joint statement.
Waiting since the February debt exchange, Jamaicans were concerned about the IMF’s delay in announcing the package. Some speculated that the deal would be postponed. “Maybe we were a little optimistic as to how long the discussions would take, given how complicated a case Jamaica is,” said an IMF executive.
Jay Collins, vice-chairman of corporate and investment banking at Citigroup, which is advising the government, said Jamaica has been suffering from a “trust deficit” with the banking community, the market and multilateral institutions.
“However, the government has now made huge progress in closing this gap by meeting all of the [IMF’s] prior conditions [required to secure the loan]. This is a major step to say, ‘yes, we’re very serious’, and now continued trust will require continued implementation.” he added.
Keith Collister, chairman of the Jamaica chamber of commerce economic affairs and taxation committee, thinks it could be different this time around.
He said the government’s two-thirds majority, as opposed to the razor thin majority of the former government, and the upfront wage freeze with the public sector unions will help, as will a recent devaluation.
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