Leon mum of new IMF reviews, says growth a collaborative process

Jamaica's crime rate has stymied growth by five to seven per cent, making it the single largest impediment to boosting the economy, according to International Monetary Fund (IMF) Senior Resident Representative Dr Gene Leon.

But, concurring with a recent World Bank report, he said there were other obstacles contributing to the island's low economic growth, including deficient human capital, a challenging business environment, and fiscal distortions, each of which puts limits on productivity.

In outlining strategies to mitigate the impact of those obstacles, Leon suggested that cutting the current crime rate by half, or more, would contribute to an increase in economic growth.

"A laser focus on crime reduction would also translate to increases in productivity from redirected resources, and benefits from enhanced social integration," said Dr Leon, while addressing members of the Jamaica Exporters' Association (JEA) at its awards function at the Wyndham Kingston hotel, New Kingston, on Wednesday night.

He also touched on the Jamaican Government's concerns leading to the Fund's 27-month standby agreement as well as three reviews up the December 2010 quarter, but declined to address the status of the reviews for the March and June 2011 quarters.

But he said the IMF has a strong relationship with Jamaica and would continue to support its efforts toward macroeconomic reform and sustainable economic growth.

Speaking under the theme, 'Imagine a New Brand Jamaica', Leon suggested that in order to address the deficiency in human capital Jamaica should aim for a ranking among the top 25 countries for pay and productivity, and shifting from the bottom 25 where it is at present.

He said the growth performance of the last decade or two suggested that the fiscal-incentives model has not been sufficient in generating sustained growth.

"Experience shows that, in general, the provision of tax incentives is not a long-term growth strategy," he said.

"The design, cost-benefit calculus, prioritisation among recipient sectors, opportunity costs to non-recipients, appropriate monitoring, and exit are not always easy to calibrate or implement."

Moreover, any benefits that may have accrued eventually dissipate if beneficiaries did not ensure they could be competitive when the incentives ceased.

Leon said a sometimes complementary strategy of growth through diversification was aimed at obtaining the greatest use of national endowments through maximising downstream value-added and horizontal linkages across sectors. In that regard, he said, Jamaica's major sectors could be characterised as relatively closed.

He said mining, for example, has few linkages across sectors, while tourism has relatively weak inter-sectoral linkages, an observation also made by the World Bank in its growth strategy report for Jamaica, released three weeks ago and in which it described those sectors as following a pattern of enclave development.

The IMF representative said that generating growth was a shared responsibility.

The Government should also invest in human capital towards a well-educated, flexible workforce, be able to adapt to the changing global environment, and encourage Jamaicans living abroad to participate in the new Brand Jamaica effort, effectively mitigating the impact of the brain drain, as well as build buffers to mitigate the impact of frequent natural disasters, he said.

And, the private sector needs to buy into what he described as a "cultural reorientation," pointing to a study which identified more than 200,000 incentives in Jamaica, covering a wide area of activities.

"Even if beneficiaries argue some positive benefit, incentives are costly - directly in terms of who is providing them, and indirectly in terms of the opportunity cost of what could have been done with those resources," said the IMF representative."

They should be evaluated, therefore, in terms of cumulative costs and benefits, and in terms of their effectiveness in solving the impediments they were meant to mitigate."

By that measure, he said, incentives should be targeted within a prioritising framework, be time bound, measurable, capable of being monitored, and implemented with a contingent exit plan.

mcpherse.thompson@gleanerjm.com