EDITORIAL - World Bank loan good sign, but dangers still lurk

Last week's approval by the World Bank of a US$100-million loan to Jamaica is an encouraging sign that the country has turned the corner, and is on the home stretch towards resolving its difficulties with the International Monetary Fund (IMF).

The fact is that three quarterly performance tests - for the period between December 2010 and June 2011 - under Jamaica's US$1.3-billion standby agreement with the Fund remain outstanding.

The assessments were held up while the Golding administration worked out how it would finance J$30 billion in back pay to public-sector employees while motioning its commitment under the IMF agreement to reduce public-sector salaries from nearly 12 per cent to nine per cent of GDP. The Government also has to show the IMF that it has buyers for a number of state enterprises, including Clarendon Alumina Production, or show that they would no longer drain the national coffers.

Since the Fund's imprimatur of good housekeeping is important for the disbursement by other agencies of loans that are contingent to the IMF programme, it is understandable that the European Union, and others, held back cash to Jamaica. That would have impacted Government's spending on projects and slowed an already sluggish recovery.

Further, the situation would have weakened investor and consumer confidence and raised questions in the financial markets about the sustainability of Jamaica's fiscal programme, notwithstanding their recent trajectory.

The World Bank's decision to approve this money, which will help to shore up the Government's budget, would have happened on a signal by the IMF that it had reached an accommodation with Jamaica, including, if necessary, providing a waiver on any target that may not have been met.

This, of course, does not mean that we are out of the woods. Indeed, many dangers remain around the corner, including the possibility that the United States, Jamaica's major tourism market and the source of a large chunk of its remittances, could be headed into a double-dip recession. The debt problems in the Eurozone add to the uncertainty.

Sure-handed economic management

The situation demands sure-handed economic management on the part of the Jamaican administration, which must include transparency and consensus-building around policy. Despite the commendable introduction of fiscal-responsibility legislation, the latter approach was not adhered to.

The resuscitation of a plan to introduce a special consumption tax (SCT) on energy drinks is a case in point. Earlier this year, energy drinks were on a list for the SCT when the haphazardly implemented new tax regime for spirits and beers was on the agenda. It was dropped when manufacturers and distributors of energy drinks complained about, among other things, the difficulty of defining what would qualify.

Last week's announcement that the tax was back on the agenda was thrown out by the information minister and government spokesman, Mr Daryl Vaz, after a meeting of the Cabinet.

Moreover, this move comes weeks after the tabling and approval of the Government's revised Budget. It appears, in that context, to fly in the face of the Government's fiscal-accountability undertakings, notwithstanding any arguments about the relatively small amount of income that is likely to be raised from the tax.