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IMF official assures dealers market conditions will get better

Published:Wednesday | January 29, 2014 | 12:00 AM
Van Selm

Avia Collinder, Business Reporter

This story was first published online

Dr Bert Van Selm, the International Monetary Fund (IMF) resident representative in Jamaica, says some of the glitches which have arisen, including reduced liquidity within the financial sector, should be addressed as the economic reform programme continues, leading over time to the availability of more funds for lending to the private sector.

The financial sector is now experiencing very tight liquidity conditions, Van Selm acknowledged in a presentation at the Jamaica Stock Exchange ninth regional conference on investments and the capital markets in New Kingston last week.

"The Central Treasury Management System is very good, and means that the Government has one account held at the central bank. The amount of funds that the Government needs to hold is less. (However), the transition towards that has an impact on the domestic financial sector, meaning that there is much less liquidity floating around. That's something we have seen," he said.

The Central Treasury Management System was implemented to more effectively manage Government's bank accounts, financial assets, financial planning and forecasting of cash flows, public debt management, administration of foreign grants and counterpart funds from international lending and donor agencies.

Currently, 30 government agencies have had their accounts consolidated, with funds redirected from private financial institutions.

Van Selm said that another consequence of the economic programme is a reduction in secondary market trading in government securities.

"For many financial institutions, it is an important asset on the books and has some impact on their lending decisions. We hope the reform programme continues, and as we continue to do reviews, these issues will be addressed and free up resources for lending to the private sector," the IMF official said.


He said that "because the financing need of the Government is reduced and there is no new net borrowing, that can also mean that in principle there is financing available for others. The financing sector should be looking to channel those funds to productive investments."

As for the reform programme, Van Selm noted that the IMF staff mission has completed two reviews so far and "everything is moving along on track, both the structural and macroeconomic agenda".

He added: "We had an excellent 2013, but at the same time there is a very long way to go to rebuild the economy. The next big item on the agenda is legislation of the fiscal rule, which aims to entrench fiscal consolidation and set targets for debt ratios. This is used in the EU (European Union) where I am from."

He explained that "The rule targets a level of debt which allows you to avoid spending all you have on debt servicing. Coming from 138 per cent (of gross domestic product), which is the current level for Jamaica, to 60 per cent will take a long time."

However, "the idea is to set such a target", he told the conference. Jamaica is now debating just how flexible the laws surrounding the fiscal rule should be.

Van Selm said the legislation should include an escape clause in case a natural disaster hits, but also actions to be taken subsequently to ensure the economy does not derail.

He said the legislation should ensure that despite the party in power, things will remain on track.