Phillips to cut supplementary Budget as 'tough' IMF talks resume
Published:Friday | January 20, 2012 | 12:00 AM
Finance and Planning Minister Dr Peter Phillips has assured investors that the Government will not be pursuing a policy of high interest rates.
He also announced Wednesday that there will be expenditure cuts in a supplementary budget he will be tabling in Parliament shortly to compensate for declining government revenues, amid renewed talks earlier with the International Monetary Fund (IMF) on the country's bailout programme.
Addressing the monthly investor forum organised by Mayberry Investments Limited Wednesday night in New Kingston, Phillips said that a sustainable resolution to Jamaica's problems must start with the acceptance that there is a problem that needs fixing.
"The Government is determined to fix the problem and we will fix it in a framework of national and international partnership," the finance minister said.
He said the previous government failed to successfully complete the agreement with the IMF - stalled since last May, he said - resulting in the non-disbursement of multilateral funding, including US$220 million from the Inter-American Development Bank; but anticipates that progress on new negotiations will help unlock those funds.
Phillips said an IMF technical team arrived in Jamaica on Tuesday and held preliminary talks with him on Wednesday as a prelude to fuller negotiations.
"These negotiations are going to be tough, but based on the discussions today I can say that there is a spirit of goodwill and the atmosphere is good," he said.
He said the agreement would be based on the establishment of credible, predictable and achievable macroeconomic targets that would inspire confidence among local and international investors, as well as other stakeholders.
"In the medium term, any programme going forward must involve comprehensive tax reforms, the reform of the public-sector pension system, public-sector transformation and a reduction in public-sector costs," Dr Phillips said.
Wages constituted only one of the costs of the public sector, he said, noting that other costs attributed to utilities, rent, waste, corruption and general inefficiencies would also have to be reduced.
There would also be a coordinated campaign to remove bureaucratic red tape, the finance and planning minister told investors.
Focused on stability
Speaking under the theme, 'Jamaica's next 50 years', Phillips said he is focused on macro-economic stability.
"This has to be maintained and must and will include low inflation and low interest rates. "There is no policy of high interest rates and there will be no policy of high interest rates," he said.
"We are committed to providing the macroeconomic framework that will support low and competitive interest rates. We would like to get the rates even lower, if conditions allow."
The minister said there was stability in the system, but said it was due to low demand for credit and foreign exchange resulting from the weakness in the economy.
Banks are "competing vigorously" to lend and are lowering interest rates, he said, but borrowers are not getting the full benefits.
"As rates are lowered, the banks need to assist in taking active steps to contain their costs, increase their efficiencies and so contain the growth in their spreads," the minister implored.
A participant at the forum, noting that the Government was seeking to re-engage the services of "a former Bank of Jamaica employee who has an appetite for high interest rates", asked what would be done to ensure that such rates do not become a feature of the new administration. It was a clear reference to former central bank governor Derick Latibeaudiere.
Phillips repeated that there would not be a policy of high interest rates, and that the economic management team he inherited will remain in place.
"I have no reason to change the team at this time," he said.
The team includes BOJ Governor Brian Wynter, Financial Secretary Dr Wesley Hughes, and Planning Institute of Jamaica Director General Dr Gladstone Hutchinson, all of whom were appointed by the Golding administration.
The question was raised against the background that on January 4, former Finance Minister Dr Omar Davies, who headed the transition team for the new Simpson Miller administration, said Latibeaudiere would be engaged by the new Government but not in what capacity.