Financial sector rescue fund to be wound down - IMF
Published:Sunday | January 16, 2011 | 12:00 AM
The International Monetary Fund (IMF) last Friday completed the third review of Jamaica's economic performance under the standby arrangement (SBA) and approved the immediate disbursement of US$49.3 million.
With the approval of the current tranche, IMF deputy managing director and acting chair, Murilo Portugal, also announced that the fund plans to wind down the Financial System Support Fund (FSSF) over the course of 2011.
The FSSF was meant to be a US$950-million rescue fund for investment houses, and under certain circumstances, banks, that the authorities feared might have been weakened by the reduced returns on domestic securities on their portfolio, as well as pending financial reforms.
Those fears have now eased.
"Prudential indicators point to continued resilience of the financial system," said Portugal last Friday.
"Financial-sector reforms aimed at strengthening prudential requirements and the overall supervisory framework are moving ahead broadly on schedule."
The FSSF resources will instead be used "for general purpose international reserves," said Portugal without specifying the amount.
This brings total disbursements under the arrangement to SDR 541.8 million, or about US$838.2 million, the fund said.
"Jamaica's performance under the program has been positive overall," its statement said.
"All end-of-September quantitative performance criteria were met."
The IMF's executive board also approved modifications of certain performance criteria, including "a small relaxation of some fiscal targets to accommodate spending related to Tropical Storm Nicole and an increase in the floor on net international reserves".
Jamaica has a 27-month borrowing arrangement with the fund, dating from February 2010, over which period it will receive US$1.27 billion, or SDR 820.5 million.
With the approval of the current tranche, Portugal said Jamaica had so far performed satisfactorily.
"Signs of recovery have emerged, with net job creation for the first time in four quarters, and inflationary pressures remain subdued, allowing an accommodative monetary policy," said Porugal.
But "further progress is necessary on the fiscal and structural reform agenda," he said.
In that regard, the IMF is maintaining a close watch on public-sector rationalisation - under which wages and salaries are to be cut to around nine per cent of GDP - tax policy, debt management, and public financial-management reforms.