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Time for Jamaicans to invest in business, says IMF representative

Published:Wednesday | March 4, 2015 | 12:00 AM
Bert van Selm, IMF representative to Jamaica.

Bert van Selm, the resident representative for the International Monetary Fund (IMF), says that with improving economic fundamentals, it is time for Jamaicans to step up and invest more in business.

The IMF representative is predicting two per cent growth for Jamaica this year and possibly even more beyond that. "My bottom line is that Jamaica is very well poised for higher economic growth in 2015, but also higher growth over the medium term - two per cent in 2015 and for the medium term a little higher, in the range of two to three per cent. This is not just pie in the sky, but a reasonable prediction which has solid foundation," said van Selm on Tuesday as guest speaker at Sagicor Life Jamaica's annual pensions seminar in Kingston.

"Finally, to make economic growth happen, what is needed is an entrepreneur to step up, take the initiative and do something with these great economic conditions. This is what John Maynard Keynes described as 'animal spirit'. People need to see the opportunities, grab them - and that is what will propel economic growth."

The IMF representative reaffirmed that the policy measure which resulted in the depreciation of the dollar was necessary for improvement of Jamaica's competitive advantage.

Now that this has been achieved, stability will ensue, he added, even while cautioning that the imbalance in the inflation rate between Jamaica and its trading partners may call for future adjustment of the exchange rate.

"The real exchange rate is quite close to equilibrium. We see a deficit roughly where it should be, so the real exchange rate is roughly where it should be," he said.

But, "inflation is quite a bit higher than key trading partners, and Jamaica may need to correct for it eventually or we will price yourself out of the market".

Lower global oil prices, the IMF representative said, has resulted in lower inflation and a cut in the current-account deficit, but for the fiscal accounts it has meant lower revenue. Altogether, they have contributed to a better investment climate, he asserted.

Citing both tax reform, which he called a milestone achievement, and regulatory changes, Van Selm said the Jamaican economy was making rapid progress after many years of mediocre performance.

"It's starting to signal to people inside Jamaica and around the world that Jamaica is truly open for business, and also to instill in domestic investors that now is the time to invest," he said.

He adds that emerging trends in the international economy were also in Jamaica's favour, noting that stronger growth in the United States, the main source of local remittances, was a good development.

He added that the slowdown in China was connected to the reduction in world commodity prices, including oil.

Lower oil prices, in turn, have led to lower electricity costs. And eventually: "It's going to lead to higher growth," van Selm said. "It simply means that people get money in their pockets that they no longer need to spend on fuel bills. Some will go to imports of course, but some will go to local production."

And while the current conditions have also led to a fall in revenue for the Government of Jamaica, its expenditure will also decline, van Selm said. However, he indicated that the authorities have no clear view on whether Jamaica will come out ahead, saying "how it plays out is not easy to assess".

Still, the advice to the administration was to stay the course.

"We at the IMF are pretty confident that they will do just that," said van Selm.