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IMF says yes - US$1.27b loan for Jamaica approved - US$950m fund for financial sector

Published:Friday | February 5, 2010 | 12:00 AM

THE INTERNATIONAL Monetary Fund (IMF) on Thursday approved a US$1.27-billion (SDR 820.5 million) standby lending facility for Jamaica, and pave the way for other multilaterals to pour in additional capital of up to US$1.1 billion.

The agreement will trigger immediate funding of US$1.335 billion for Jamaica, of the US$2.37 billion to flow into the country over the 27-month agreement.

The flows will come from the IMF, US$650 million; Inter-American Development Bank, US$400 million; World Bank, US$250 million; and Caribbean Development Bank, US$35 million.

The substantial portion of the multi-agency loans, totalling US$950 mil-lion, is earmarked for the special Financial Sector Support Fund (FSSF) for the support of banks and securities dealers whose balance sheets are weakened by their participation in the Jamaica Debt Exchange (JDX).

Another US$185 million will finance the budget and grow social spending by 25 per cent - the equivalent of 0.3 per cent of GDP - on programmes such as PATH and school lunches.

The size of the FSSF, though US$150 million less than originally announced, is still a substantial investment because of the level of exposure of the financial sector to government bonds.

The Financial Gleaner has learned that the JDX will affect 20 per cent of the total assets of banks, while securities dealers have a 70 per cent exposure, and that even with the liquidity support, some firms are expected to falter as bond income falls, while others will be required to strengthen their capital.

The FSSF will be split US$600 million for liquidity support and US$350 million for margin calls, the Financial Gleaner has learned.

Its funding will be split US$450 million from the IMF, US$200 million from the World Bank and US$300 million from the Inter-American Development.

The IMF said the JDX had close to 95 per cent take-up, and would create savings for Government equivalent to 3.0 per cent of GDP and reduce by 65 per cent the amount of maturing debt in the next three years.

Outlining the main programme goals of the standby agreement, the IMF said GDP is expected to shift from a contraction of 3.5 per cent at FY 2009/10 0.5 per cent in 2010/11, and a further two per cent thereafter.

Inflation is expected to round out FY 2009/10 at around 12 per cent and "in the absence of strong demand or foreign-exchange market pressures" fall to an average of 11 per cent next year, eventually moderating to 6.0 per cent over the medium term.

It also prompts public sector, taxation and financial reforms, and gives the Bank of Jamaica "explicit responsibility for overall financial system stability".

Trevor Alleyne, IMF mission chief for Jamaica, said on a conference call yesterday that the deal Jamaica got from the fund was a good one, and would position the country for growth.

"Jamaica will be able to access the private capital market in a year," he said.

"Now is the time to implement; the serious work is to start now, which has been repeatedly said by the prime minister. We have confidence in the commitment given by the authority in terms of the programme they are going to implement and the success of the JDX is a positive sign."