Jamaica WT/TPR/S/42
Page 1
I. THE ECONOMIC ENVIRONMENT
(1) MAIN FEATURES OF THE JAMAICAN ECONOMY
1. The Jamaican economy began a period of transformation in the late 1970s, when - as a
response to the economic contraction originated by the first oil shock and by inward-looking policies -
a new economic strategy was put in place.  The aim was to reverse the trend of falling output,
increasing unemployment, and large internal and ex ternal imbalances that had arisen between 1973
and 1980, after a decade of solid growth.1  However, these imbalances persisted during the first half of
the 1980s, partly because of the dependence on exports of bauxite and a lack of competitiveness of the
external sector, resulting in large trade deficits a nd an increase in the external debt to well above
100% of GDP.  In 1985, Jamaica introduced a programme of structural reform and liberalization,
particularly to restore its external position;  the programme provided for the relaxation of pricecontrols, improved financial intermediation, and a reduction of the public sector deficit.
2. Structural reform strengthened during the 1990s and has led to a more market-oriented
economy, where prices of goods and services are virtually free of government controls, import duties
have been reduced, and the role of the private sector in economic activity has been enhanced.  The
adjustment programme was supported by the IMF and the World Bank and by a 1992 Paris Clubmulti-year debt rescheduling arrangement, for a total of US$281.2 million in principal and interest.
Between 1978 and 1995, 12 IMF programmes and eight World Bank structural adjustment loans were
agreed.  Jamaica completed its last IMF structural adjustment programme in March 1996.
3. The Jamaican economy grew at an average rate of 2.6% between 1987 and 1996
2;  population
growth averaged 1% a year, implying annual aver age growth in per capita income of 1.6% in the
period.  GDP declined by 2.4% in 1997.  Besides the importance of services, which account for about
two thirds of both GDP and foreign exchange receipts, salient economic features of the Jamaicaneconomy are its dependence on the production of agricultural and mining products (Chart I.1),
especially bauxite/alumina, as well as on the production and export of textiles and clothing.  Recent
growth has been underpinned by services and, until 1996, by agriculture, while manufacturing has
stagnated.  Unemployment remains high, at 16.5% in 1997 (Table I.1).
4. Jamaica  has large deposits of limestone, bauxite/alumina, marble, silica sand, clay and
gypsum.  There is also a large variety of agricultural crops.  Apart from the traditional export
products - bananas, sugar and coffee - Jamaica grows pimento, citrus, spices, legumes, fruits, yams,
etc.  Tourism is the island's main economic activity, with over 1.9 million visitors in 1997, and a total
accommodation capacity of 22,945 rooms.  Jamaica has a network of roads of about
15,000 kilometres, counting primary and secondary roads.  There are two major airports, at Kingstonand Montego Bay, and two major seaports;  the railway system is non-operative.  Water supply is
adequate and electricity is mostly generated from imported oil.  Constraints to growth arise from
infrastructure bottlenecks, labour market rigidities and labour unrest.
3  This has been aggravated by
the current crisis in the financial sector.  A difficulty faced by the Jamaican economy, given its
                                                     
1Subsequent to independence in 1962, economic growth in Jamaica averaged 5% a year until 1973
(World Bank, 1997).
2Chiefly due to high economic growth in the 1987-90 period;  the economy has stagnated during most
of the 1990s.
3Industrial strikes lead to an estimated loss of 1% of GDP per year (World Bank (1996)).WT/TPR/S/42 Trade Policies Review
Page 2
abundant labour supply, is the capital-intensive character of some of its main production and export
activities, especially bauxite/alumina, and other mining activities.4
Table I.1
Major features of the economy, 1995-97
1995 1996 1997
Population  (million) 2.50 2.53 2.55
Labour force (million) 1.15 1.14 1.13
Employment (million) 0.95 0.96 0.95
Unemployment rate  16.2 16.0 16.5
GDP at current prices (US$ million) 4,152.9 5,770.4 6,198.8a
GDP per capita (US$) 1,661.0 2,280.7 2,430.9a
Exports of goods to GDP (%) 34.6 24.0 22.4
Imports of goods to GDP (%) 58.4 43.4 42.9
Share in GDP at factor cost (%)
  Agriculture, forestry and fishing 8.0 8.4 7.4
  Manufacturing 18.4 18.1 18.1
  Construction 9.4 9.1 8.9
Table I.1 (cont'd)
                                                     
4Although tourism also requires large capital outlays, and employed only 28,976 persons in 1997, its
strong links to agriculture and manufacturing have important induced employment effects on these sectors.-15-10-5051015
1991 1992 1993 1994 1995 1996 1997Agriculture, forestry and fisheries Mining and quarrying
Manufacturing Construction and installation
ServicesPer cent
aChart I.1
GDP growth rates, by sector, 1991-97
Estimates.
Information provided by the Jamaican authorities.a             
Source :Jamaica WT/TPR/S/42
Page 3
1995 1996 1997
  Electricity, gas and water 4.7 5.0 5.2
  Mining and quarrying 8.6 9.4 9.9
  Services 55.6 55.0 55.8
    Transport and communications 12.3 13.7 14.9
    Financial services and insurance 15.5 15.0 12.2
    Restaurants and  hotels 2.2 2.3 2.4
Employment by economic activity (%)
  Agriculture 23.2 22.6 21.8
  Manufacturing 10.9 10.4 9.4
    Mining 0.7 0.7 0.6
  Services 57.2 57.7 59.0
  Construction 7.9 8.5 8.4
Merchandise exports f.o.b. (US$ million) 1,436.8 1,386.9 1,387.6
Merchandise imports f.o.b. (US$ million) 2,426.4 2,503.2 2,658.6
Non-factor services (net)  (US$ million) 189.5 340.6 299.3
Transfers (net)  (US$ million) 607.8 636.4 641.7
Exports of goods and non-factor services/GDP (%) 75.8 55.8 41.9a
Imports of goods and non-factor services/GDP (%) 95.1 69.3 -57.6
Note: All figures are based on current market prices, unless otherwise stated.
a Estimates.
Source: Data provided by the Statistical Institute of Jamaica;  Planning Institute of Jamaica, Economic and Social Survey, Jamai ca, 1995,
1996 and 1997;  Bank of Jamaica;  and International Monetary Fund, International Financial Statistics (various issues).
5. Imports and exports of goods and services together amount to over 100% of GDP.  Foreign
exchange receipts rely heavily on tourism, the main earner since 1983, and on exports of
bauxite/alumina and clothing.  These three sectors account for 75% of the Jamaica's foreign exchange
earnings.  The concentration of exports, added to a strong dependence on imported oil, leaves Jamaica
vulnerable to external shocks.  Jamaica's heavy reliance on a single market, the United States, for
merchandise exports adds to this vulnerability;  in this context the authorities are also concerned about
the diversion effects of NAFTA.  Rising unit labour costs in excess of those in partner countries are
affecting competitiveness.  Exports to the United States of clothing, the largest earner of foreign
exchange among exports of manufactures, have been losing market share to other more competitiveproducers during the past few years.
6. Remittances from Jamaican workers abroad and other transfers play an important role in the
economy.  The surplus in the current transfers balance, which was US$641.7 million in 1997, helps to
finance the large trade deficit.  Jamaica's imports of goods are twice those of exports, in value.  Net
capital inflows have offset current account deficits, allowing an increase in foreign exchange reservesin most of the past ten years.
(2) R
ECENT ECONOMIC PERFORMANCE
(i) GDP and employment
7. After a period of economic growth between 1986 and 1990, the Jamaican economy entered a
period of stagnation in the 1990s, which led to a recession in 1996 and 1997.  During 1986-90, GDPgrew at an annual average rate of 5%, led by tourism, mining and construction.  During this period,
the monetary and fiscal policy stance contributed to an increase in inflation;  there was a reversal of
the central government's position from surplus to deficit, and the trade imbalance increased,WT/TPR/S/42 Trade Policies Review
Page 4
accompanied by a reduction in the surplus on services account.  The situation was aggravated by the
U.S. recession in the early 1990s, which cut into export demand.  The combination of twin deficits
and high inflation, reached by 1991, determined the need to apply an adjustment programme.
Between 1990 and 1995, real annual GDP growth  averaged just 1.1%.  In 1996, the economy entered
into recession, with GDP falling by 1.7%.  Economic activity remained weak in 1997, and GDP is
estimated to have fallen by 2.4%.
8. Stabilizing the economy and reducing inflation became the main economic policy goals for
1996 and 1997 in the government's National Industrial Policy (NIP).  Stabilization efforts are
expected to result in an improvement of economic fu ndamentals and to pave the way to growth in the
1998-99 period  (Box I.1).
Box I.1:  Jamaica's National Industrial Policy
In 1996, the Jamaican Government decided to implement a National Industrial Policy (NIP) with the goal of
meeting the challenges set by the process of globalization.  The NIP is aimed at stabilizing the economy andcreating an appropriate environment for growth to resume at a faster pace than in the past.  In its first stage,in 1996, the NIP was intended to focus on the need to reduce inflation and stab ilize the exchange rate.  The
goal for inflation was set at between 11 and 15%.  To  achieve this, it was considered necessary to adopt
policies which would have a restrictive effect on aggregate demand and costs. Among these measures were:
− establishing a range of fluctuation of 11 to 15% for  broad money (M3);
− achieving a public sector surplus of 3% of GDP;  and
− obtaining a social consensus among labour, capital and the State to ensure the consistency of income and
macroeconomic policies.
Although the inflation goal was almost met and monetary policy was very restrictive in 1996, the public sector
accounts showed a deficit of 12.2% of GDP (see section v), a result that had to be taken into account for thegoals set for 1997.  The 1997 goals included a further reduction in inflation to between 8% and 9% (theactual inflation rate was 9.2%), a 2-3% increase in output (estimated to have declined by 1%), and a fiscaldeficit equivalent to 1.7% of GDP (estimated to have been higher).
Source: Information provided by the Jamaican authorities.
9. In the short run, however, the tighter macroeconomic policies, to lower inflation, have
resulted in a contraction in domestic demand, with private consumption falling by 1.2% in real termsin 1996.  Consumer spending accounts for some 76% of GDP in Jamaica;  imported goods account for
a considerable part of this spending.  The decline in private consumption observed in 1996 followed a
three-year period of low but positive growth, during which spending on imported goods and services
grew at a faster rate than on domestically produced goods (Table I.2).  The concurrent real effective
appreciation of the Jamaican dollar contributed to an expenditure-switching effect, wherebydomestically produced goods suffered the brunt of the decline in consumption while consumption of
imported goods and services increased by 4%.  This, together with lower export prices, led to a
worsening of the traditionally negative contribution of net exports to GDP growth.
10. In the 1980s, investment grew at an annual average rate of 6.3%, almost three times as fast as
GDP, but slowed between 1990 and 1995, partly as a response to stringent monetary policy.Investment declined by 4.6% in 1996, particularly reflecting the further tightening of monetary policy.
Higher interest rates have, however, failed to boost the savings/GDP ratio which, at around 15%, has
remained well below the investment /GDP ratio.Jamaica WT/TPR/S/42
Page 5
Table I.2
Economic performance, 1970-97
1970-1980 1980-1990 1991 1992 1993 1994 1995 1996 1997e
Percentage change
 Real GDP at constant prices -0.9 2.3 0.8 1.5 1.4 1.1 0.5 -1.8 -2.4
     Private consumption 3.2 2.5 0.4 -5.9 2.9 1.0 3.6 -1.2 ..
     Gross domestic investment -9.4 6.3 6.0 -5.0 -1.0 1.3 0.3 -4.6 ..
Exports of goods and services -0.2 5.0 6.1 5.0 4.3 3.3 7.2 5.0 ..
Imports of goods and  services 7.4 3.6 7.3 -8.1 5.0 3.8 10.8 4.0 ..
Monetary survey
     Reserve money (M1) .. .. 95.3 49.8 40.0 13.7 41.9 22.7 8.8
     Broad money  (M2) .. 54.6 59.3 39.9 36.6 38.5 14.5 13.4
     Inflation rate (CPI) .. .. 80.2 40.2 30.1 26.9 25.5 15.8 9.2
Interest rate
      Deposit ratea.. .. 18.5 19.5 18.2 18.8 17.8 18.0 13.0
      Lending rateb.. .. 40.1 46.4 61.3 56.1 55.3 55.2 44.2
Government financec
    Government revenue
    (share of GDP).. .. 30.4 30.9 32.7 30.1 31.7 31.2 30.2
    Government expenditure .. .. 26.0 26.7 29.2 26.5 29.9 38.4 39.7
    Government surplus/deficit(-) .. .. 4.4 4.2 3.5 3.6 1.8 -7.2 -9.5
    Public debt/GDP .. .. .. 121.2 135.5 115.5 118.5 94.5 95.0
Memorandum:
   Gross Domestic
Investment/GDP.. .. 19.8 19.3 20.3 22.0 25.0 27.3 26.4d
   Gross Domestic Savings/GDP .. .. 19.1 20.3 12.8 18.7 13.6 23.8 27.5d
.. Not available.
a Commercial Bank end of year average savings rate.
b Commercial Bank end-of-year lending rate.
c Fiscal year April-March.d World Bank projection.
eP r e l i m i n a r y .
Source: Bank of Jamaica;  International Monetary Fund, International Financial Statistics 
(various issues);  and World Bank (1997),
Jamaica Country Overview.
11. In the 1990s, despite mounting unemployment, real wages have risen accompanied by
slowing productivity growth.  Wage increases averaged 44% a year in large establishments during the
period 1991-95, before falling to 21% in 1996 and 16% in 1997 5, while the unemployment rate
reached 16.5% in 1997.  Despite the high unemployment rate, job search appears to have fallen.Union membership declined from 43% of the labour force in 1979 to 24% in 1994, but unions retain
strong bargaining power.
6  There is no system of unemployment benefits in Jamaica and the
unemployed have no access to social safety-net programmes.  Employment in the informal sector has
                                                     
5Increases awarded to non-unionized private sector workers.  Increases for public sector employees
under wage agreements were 15% in 1996 and 12% in 1997 (PIOJ, 1998, Economic and Social Survey,Jamaica, 1997, p.19.5).
6World Bank (1996).WT/TPR/S/42 Trade Policies Review
Page 6
been increasing substantially in the past few years,  and it is estimated that it represents currently
around 30% of the work force.7
(ii) Prices
12. Since March 1991, most price controls, as well as general food subsidies, have been
eliminated.  Inflation, which peaked at 80% in 1991,  has been erratic and volatile during the 1980-95
period, averaging 25% per year.  In the 1990-95 period, inflation averaged 38.8% per year (Chart I.2).
13.  Several policy mixes have been implemented to tackle the problem of inflation.  In the first
half of the 1990s, the Government adopted a restrictive fiscal policy that led to several years of central
government surpluses.  This, however, failed to ex ert a strong effect on inflation, since contractionary
fiscal policy went hand-in-hand with expansionary monetary policy, which in turn fed inflationaryexpectations.  The adoption of a tighter monetary stance in 1996 seems to have been more successful
in helping to lower inflation.  Consumer price inflation fell to 15.8% in 1996 and to 9.2% in 1997.
8
The fiscal situation deteriorated during this period, however, and may endanger further progress in thereduction in the rate of inflation.                                                     
7World Bank (1996).
8Point-to-point inflation.  Average annual rates were higher:  26.4% in 1996, and 9.7% in 1997,
respectively.Chart I.2                                              
"Competitiveness" profile, 1990-96
0100200300400500600700800
1990 1991 1992 1993 1994 1995 1996Index  1990=100
Including basic wages or salaries, cost of living and oth er allowances, bonuses, gratuities, and payments in kind.
Data exclude overtime payments and are gross of  income tax and social security deductions.
Deflated by the GDP deflator.
Ministry of Finance; and International Monetary Fund, International Financial Statistics (various issues).a
b
Source :Consumer Price Average wage /a
Output per person employed
Real unit labour cost Jamaica WT/TPR/S/42
Page 7
(iii) Monetary policy
14. The Ministry of Finance has ultimate responsibility for the conduct of monetary policy.  The
Bank of Jamaica (BOJ) is in charge of implementing monetary policy, under the authority of the
Ministry, which appoints the Governor and several members of its Board of Directors.  The BOJ
targets the growth of base money, using primarily four instruments: open market operations, foreign
exchange market interventions, management of reserve requirements to commercial banks and otherfinancial institutions, and changes in net credit to the Central Government.  The Minister of Finance
has the ultimate authority in the management of credit policy, open market and foreign exchange
operations;  responsibility for reserve requirements lies solely with the Central Bank.  The Bank of
Jamaica, again reporting to the Ministry of Finance,  is responsible for the supervision of the banking
system and of specified financial institutions.  Additionally, one of its main objectives, as set out inthe Bank of Jamaica Act, is to "act as a banker to the Government".
9
15. The conduct of monetary policy has varied considerably since the beginning of the 1980s.  A
particular turning-point came in 1995, when, to stop the rapid expansion of the money supply in 1994
and 1995 (Chart I.3), triggered by the accumulation of foreign exchange reserves, the BOJ tightened
policy by requiring building societies to hold cash and non-cash reserves.  In August 1995, theGovernment announced a further set of measures including the imposition of a Special Deposit
Scheme;  an increase in the reserve requirements of commercial banks to 47%:  25% in the form of
non-interest-bearing cash, and the remaining 22% in the form of cash, with an annual interest rate of
22%, or Treasury Bills, an increase in the reverse repurchase rate;  and the reduction of public sector
balances in commercial banks.  The BOJ's control on liquidity and on exchange rate management was
enhanced by a government decision to let the Cent ral Bank intervene directly in the foreign exchange
market through sales to authorized dealers.
16. Monetary policy was tightened further in 1996;  M2 expanded by 14.5%, below the rate of
inflation.
10  Domestic credit continued to be the main source of money creation, expanding by some
80%, triggered by the advances provided by the BOJ to commercial banks, but there was also an
important increase in net foreign assets.  To contain the expansion of the money supply, the BOJ
resorted heavily to open-market operations, and high reserve requirement ratios;  a system of dualcash reserve ratios was imposed on building societies
11;  and the Special Deposit Scheme introduced
in 1995 was maintained.  Due to high real returns, banks kept excess reserves.12  Interest rates
remained high in real terms, but fell in the second half of the year13;  real average lending rates were
particularly high, although they declined marginally during the year and by the end of December were
estimated to be between 34% and 37%.14
                                                     
9Bank of Jamaica.
10The average annual growth rate of M2 between 1986 and 1997 was 33.7% (Bank of Jamaica, 1997.
11The ratios were 5% for building societies providing mortgages and 1% for traditional building
societies (Bank of Jamaica, 1997, p. 54).  The maximum limit was increased subsequently on several occasions,
up to 11%.
12The total reserve ratio for commercial banks was 50.4%, above the 47% reserve requirement ratio
(the cash reserve requirement is 25%;  the rest may be kept in the form of Treasury Bills (Table IV.17).
13Interest rates on Treasury Bills averaged 42.13% in the first half of the year, but fell to 26.36% at the
end of 1996.  Similarly, the rate of reverse repurchase agreements fell from 43.5% in May to 27% in December.
14Bank of Jamaica (1997), p. 54.WT/TPR/S/42 Trade Policies Review
Page 8
17. In 1997 monetary policy was less stringent than in the previous year, as inflation had come
down considerably.  Interest rates fell, and while net domestic credit expanded by 40% its
expansionary effect on the money supply was countered by a decline in net foreign assets.  There was
a policy tightening in the second half of the year, and the reverse repurchase rate was increased onseveral occasions, ending the year at 29%, compared to 18% in August.  The average lending rate
reached 44.17% at the end of the year.  Reserve requirements were maintained at the same levels as in
1996.  As a result of this tightening, M2 expanded by 13.4%, in 1997, less than in 1996, and mainly
due to an increase in savings deposits.  The monetary base – the Bank of Jamaica's main policy target
– expanded by 14.5%, slightly above the 12% envisaged in the National Industrial Policy for 1997.
(iv) Exchange rate policy
18. Jamaica has changed its foreign exchange regime several times since the beginning of the
1980s.  The Jamaican dollar was pegged to the U.S. dollar from 1978 to 1983, after which the
exchange regime underwent a series of transfor mations, which included a three-tier exchange rate
arrangement, an auction system with flotation within a band, a "Dutch" auction system, and the
reintroduction of a fixed exchange rate system.  Since September 1990, a freely floating interbank
exchange rate regime has been maintained;  however, the Bank of Jamaica intervenes through open-
market operations to keep the exchange rate at  a level compatible with its base money goals.
Exchange controls were eliminated in September 1991.
15  Foreign exchange transactions are
                                                     
15Jamaica accepted Article VIII of the IMF Articles of Agreement on 22 February 1963.-20020406080100
1991 1992 1993 1994 1995 1996 1997Per cent
aChart I.3
Annual percentage change of money supply, 1991-97
Estimates.
M1 (narrow money) is composed of currency and demand de posits;  M2 (broad money) is composed of M1 added
to quasi money which is composed of time and savings deposits.Plannin
g Institute of Jamaica (1998 ), Economic and Social Surve y Jamaica , 1997 , Kingston.M1
M2
a
Note:
Source :Jamaica WT/TPR/S/42
Page 9
conducted through an authorized dealer, requiring a licence;  foreign exchange dealers may be
commercial banks or cambios  and bureaux de change , and are required to resell 5% of their total
foreign exchange purchases to the Bank of Jamaica.  Banks also sell 8% of their foreign exchange
purchases to the partly privatized PETROJAM petroleum company.16
19. The Jamaican dollar depreciated steadily between 1990 and 199317, before stabilizing in
nominal effective terms in 1994 (Chart I.4).  This stability combined with substantial capital inflows
has contributed to a real appreciation of the Jamaican dollar (J$), particularly since 1995.18  Between
May 1996 and mid 1997 the Jamaican dollar appreciated vis-à-vis the U.S. dollar by some 8.3% innominal terms and by some 20% in real terms
19, due to large capital inflows triggered by high interest
rates.  To avoid further currency appreciation, the Bank of Jamaica has sought to sterilize these capital
inflows since late 1996, managing to stabilize the exchange rate at around J$35 per US$.  This
situation was temporarily reversed in the second quarter of 1997, when, due to demand pressures in
the foreign exchange market, stemming from a tem porary shift from local to foreign currency time
                                                     
16This is to ensure that PETROJAM has sufficient foreign exchange to import petroleum.  Jamaica
imports 94% of its total petroleum consumption, and is heavily dependent on oil, as a source of electricity.
17The exchange rate went from J$7.18 per U.S.  dollar as average in 1990, to J$33.35 in 1994.
18With the exception of a period between late 1995 and May 1996 when depreciation of the Jamaican
dollar led to an increase in interest rates and an injection of  US$93 million by the Bank of Jamaica to supportthe currency.
19This is part of the Bank of Jamaica's policy of targeting the nominal exchange rate through the use of
interest rate increases.  This policy was applied in 1993-94 and again in 1996-97.  In a period of high inflation,
this policy leads to a real effective appreciation of the exchange rate.020406080100120140
1990 1991 1992 1993 1994 1995 1996 1997Real effective rate Nominal effective rate J$/US$Index 1990=100, average period
Source :     Data provided by the Jamaican authorities.Chart I.4
Exchange rates of the Jamaican dollar, 1990-97WT/TPR/S/42 Trade Policies Review
Page 10
deposits, the Bank of Jamaica had to intervene in the market, selling US$152.7 million.20  This led to
a marginal depreciation and loss of reserves.  In the third quarter, however, capital inflows resumed
and foreign exchange reserves increased.  The process of currency  appreciation has led to a reduction
in the share of trade in goods to GDP (Table I.1): the share of exports plus imports in GDP fell from
93% in 1995 to 65.3% in 1997.
(v) Public finances
20. Since the mid 1980s, the Government has aimed to consolidate public finances.  A tight
programme of expenditure reduction, reform of the public administration and improvement in tax
collection, led to a successful reduction of the deficit, from 17% of GDP on average during
FY1980/84, to 3.1% of GDP in FY1989.21  Central government revenue remained stable at around
32% of GDP during this period, but expenditure fell from an average of 38% of GDP in the 1980s to30% of GDP in 1989 and 27% of GDP in 1990.
21. Between 1990 and 1995, Jamaica entered a period of fiscal surplus, partly due to a reduction
in current expenditures, particularly public sector wages and salaries.  In 1992,  the personal income
tax rate was lowered to 25%;  personal taxes are currently subject to a pay-as-you-earn assessment.  In
1993, the general consumption tax (GCT), introduced in 1991, was increased from 10% to 12.5% formost products, and again in 1995 to 15%.  Customs duties were reduced in 1991, when the Common
External Tariff was introduced;  they were reduced further in 1993 and 1995, through revisions of the
Customs Tariff Resolution, and again in 1996.  A new tax system was introduced in November 1996,
requiring all taxpayers in Jamaica to use a taxpayer registration number (TRN) in all their dealings
with the Ministry of Finance and Planning.
22. The fiscal situation deteriorated in 1996, partly due to the crisis in the financial sector (over
J$12 billion were provided to troubled institutions:  Box I.2), the effect of higher interest rates and anincrease in the wage and salary bill, which contributed to a decline of 5 percentage points of GDP in
the central government surp lus (to about 5.5% of GDP).
22  The process of privatization, with sales
revenue fed into the budget, suffered a setback with the cancellation of the sale of the
government-owned power company (JPSCO) in October 1996.  Similarly, the Government could not
finalize the privatization of the state-owned refine ry (PETROJAM).  Overall, the fiscal deficit stood at
7.2% of GDP in FY1996/97.  Income tax contributes the largest share of fiscal revenue, with
approximately one third of the total, followed by production and consumption taxes (slightly over a
fourth of total revenue);  customs duties account for only 10% (Chart I.5).
23. Despite the creation of FINSAC in 1997 and the elimination of the need for the Central
Government to finance directly the rescue of troubled financial institutions, the deficit increased tosome 9.5% of GDP in FY1997/98.  This excludes financial sector assistance, provided by FINSAC
estimated  to have reached J$74 billion, or some 33.5% of GDP.  The increase in the deficit was due
to lower-than-expected revenue, caused by the weakness of economic activity, as well as to an
increases in interest payments and the wage bill.
24. Public debt, which rose steeply in the 1980s (peaking at over 200% of GDP in 1986) and
continued to be very high in the early 1990s, declined  between 1993 and 1996, from 135.5% of GDP
to 94.5%.  There has been a substantial increase in domestic debt, as a result of the reliance on the
                                                     
20The Bank of Jamaica;  Press Releases, 21 August 1997.
21The fiscal year runs from 1 April to 31 March.
22IMF, Press Information Notice, 2 October 1997.Jamaica WT/TPR/S/42
Page 11
issuance of local registered stocks to cover financial needs and to sterilize capital inflows.23  Domestic
debt increased from 24.6% of GDP in 1992 to 46% in 1997, while external debt fell from 111.6% of
GDP in 1992, to 53.5% in 1997.  External debt service has fallen accordingly, from 27.1% of exports
of goods and services in 1992 to 19.7% in 1997.  However, due to the increase in domestic debt, and
to high domestic interest rates, total debt serv icing remains high, accounting for 24.8% of GDP in
FY1997/98.24
Box I.2:  Jamaica's financial sector crisis
− December 1994:  Failure of the Blaise group, comp rising a merchant bank, a building society and an
industrial and provident fund society.  Total lia bilities are estimated at US$33 million; the group is
insolvent by about US$18 million.
− June 1995:  The Century National Bank (CNB) - Jamaica's fourth largest commercial bank - is faced with
financial problems, posting an asset deficit of around US$30 million. It is bailed out by the BOJ, which
advances US$100 million at an interest rate of 33% (at least twenty percentage points below marketrates).
− November 1995:  Two smaller merchant banks declare bankruptcy.
− July 1996:  The Century Financial Entities, which includes CNB, is closed.
− January 1997:  The Financial Institutions Adjustme nt Company (FINSAC) is created to reorganize,
supervise, capitalize and strengthen the financial sector .  It receives the equivalent of 5.3% of GDP in
funds, which are raised through the sale of LRS in the domestic market. FINSAC expects to be fully
repaid by the end of 2001.
− February 1997:  There is a run on the Eagle Bank, part of Eagle Financial Network.  The BOJ provides
credits equivalent to 6% of GDP.
− March 1997:  The Eagle Financial Network is taken over by the Government and sold to FINSAC for
J$1.
− May 1997:  Insurance Company Life of Jamaica sells  60% of its stake in Citizens Bank and 30% of its
stake in Canadian Imperial Bank of Commerce to FINSAC.  Another insurance company, Island Life,
trades 26.5% of its shares in exchange for an injection of capital from FINSAC.
−  June 1997:  The financial group Dyoll Group Limited announces that it would trade equity for capital
from FINSAC.
− October 1997:  The Banking and Financial Institution Acts are amended to redefine the capital base to
allow for the imposition of minimum solvency standards and risk-based criteria.
Source: Information provided by the Jamaican authorities.
                                                     
23According to the Bank of Jamaica, local register ed stocks (LRSs), which accounted for about three
quarters of domestic debt, represented 27.5% of  GDP in 1996, up from 16.2% in 1992.
24The prepayment of a portion of domestic debt caused a 25.8% increase in amortization payments and
a 5.9% increase in total debt servicing during the first quarter (April-June) of FY1997/98, with respect to the
same period the previous year.WT/TPR/S/42 Trade Policies Review
Page 12
(3) EXTERNAL PERFORMANCE AND TRADE PATTERNS
(i) Balance of payments
25. Jamaica has a structural trade deficit, resulting from its small manufacturing base, where
exports of apparel are predominant, its reliance on alumina/bauxite, which accounts for roughly 50%
of total merchandise exports, and a strong dependence on imported raw materials, oil and capital
goods.  Some of the fastest growing export sectors have a large import content and the correlationbetween imports and exports is high.  Imports of goods and services represent nearly 60% of GDP,
heavily outweighing exports.  Imports of goods are more than twice the value of exports (Table I.3).
Imports expanded by 6.5% in 1997, while exports stagnated
25;  export weakness was mainly due to a
further decline in the clothing sector, triggered by  diminishing competitiveness, and by the drought,
which affected agricultural exports.  During the 1990s, imports have grown more rapidly than exports.Between 1990 and 1996, imports expanded by around 50% in value terms, while exports increased by
                                                     
25In 1995, both imports and exports grew at high rates: 29.7% and 17.8%, respectively.  In 1996,
imports expanded by 3%, while exports contracted by 3.5%.  The 1996 slow-down of imports is partly a resultof  contraction in the manufacturing sector, which caused  a 1.4% drop in imports of raw materials, while capital
goods and consumer goods expanded by 10.1% and 6.7%, respectively.  Export figures were affected by a 10%
decline in apparel exports, and by lower aluminium prices.Source :  Ministry of Finance.Per cent
Total:  J$57,894 millionIncome taxes
32.6
Production and 
consumption taxes
26.7
Property 
taxes
0.8Customs duty
10.3Other trade taxes
17.2Bauxite levy
4.8Non-tax revenue
6.2Capital revenue
1.3Chart I.5
Sources of fiscal revenue, 1996Jamaica WT/TPR/S/42
Page 13
around 20%.  The real appreciation of the Jamaican dollar (Chart I.4) was a contributory factor;
causing a loss of competitiveness for exports, while increasing that of imports.  As a result of the
imbalance between export and import performance, th e trade deficit has increased steadily during the
1990s (Table I.3 and Chart I.6).
Table I.3
External performance, 1991-97
(US$ million, unless otherwise indicated)
1991 1992 1993 1994 1995 1996 1997a
Merchandise trade balance -424.3 -475.6 -804.7 -648.7 -989.6 -1,116.3 -1,271.0
  Exports f.o.b. 1,150.7 1,053.6 1,075.4 1,219.5 1,436.8 1,386.9 1,387.6
  Imports f.o.b. 1,575.0 1,529.2 1,880.1 1,871.5 2,426.4 2,503.2 2,658.6
Services (net) -84.6 146.7 233.6 191.7 189.5 340.6 299.3
  Foreign travel 710.4 794.2 878.4 854.0 939.6 952.4 961.7
  Investment income -478.9 -348.2 -240.2 -284.3 -296.9 -177.5 -196.2
  Other private services -315.8 -299.3 -404.6 -378.0 -453.2 -434.3 -466.2
Balance on goods and services - 508.6 -328.9 -571.1 -457.0 -800.1 -775.9 -971.7
Transfers (net) 252.8 339.8 376.9 475.3 607.8 636.4 641.7
   Private 153.3 248.2 306.4 447.2 550.1 583.8 606.3
   Official 99.5 91.6 70.5 28.1 57.7 52.6 35.4
Current account balance -255.8 10.9 -194.2 18.3 -192.3 -139.3 -330.0
Direct investment, net 133.0 142.0 78.0 117.0 167.0 ... ...
Capital account balance 150.6 326.3 307.6 319.2 212.0 410.5 178.0
External debt 4,459.2 3,678.0 3,687.2 3,651.8 3,451.9 3,231.9 3,277.7
Foreign exchange reserves (net) -356.3 -50.7 70.8 408.3 418.6 694.9 540.5
External debt/GDP (%) ... 111.5 123.4 94.2 83.1 56.0 52.9
Percentage of exports of goods and services
Debt service ratio ... 27.1 22.6 20.0 18.8 18.0 19.7
J$ per US$  (period average)
Exchange rate 12.85 23.01 25.68 33.35 35.54 37.02 35.58
Nominal effective exchange rate (index;
1990=100)42.0 33.3 33.9 28.5 33.2 ...
Real effective exchange rate (index;  990=100) 89.9 80.9 91.5 96.5 119.9 ...
a Preliminary.
… Not available.
Source: Data provided by Bank of Jamaica;  and International Monetary Fund, International Financial Statistics (various issues).Jamaica WT/TPR/S/42
Page 15
currency appreciation), exceeded US$300 million a year during 1992-95, picking up further to
US$622.7 million in 1996.  The capital account surplus thus remained high, peaking at
US$410.7 million in 1996, leading to a substantial accumulation of net foreign exchange reserves,
which stood at the equivalent of three months of imports at end-1996.  However, in 1997, the capital
account surplus recorded a sharp reduction (to US$178.0 million), triggered by a decline in net private
capital flows caused by a shift in portfolio demand, from domestic towards foreign currency deposits.As a consequence, net foreign exchange reserves fell.  In response to a signal by the Central Bank that
it would not let interest rates fall substantially, reserves once again started to increase, along with
capital inflows, in December 1997.  By the end of 1997, Jamaica's foreign exchange reserves stood at
two and a half months of imports.
(ii) Evolution, composition and direction of trade
30. Jamaica's merchandise trade increased by over 10% a year between 1990 and 1995;  growth
slowed significantly, to 0.4% and 4.5% in 1996 and 1997 respectively.  Exports gathered momentum
in 1994 and 1995, increasing by 13.4% and 17.8%, respectively.  Exports f.o.b. totalled
US$1,386.9 million in 1996, 3.5% less than in 1995.  In 1997, there was a stagnation of exports
(US$1,387.6 million).
31. Exports have suffered in the past few years from diminished competitiveness, linked to
relatively high production costs, and a fall in international prices of alumina and bananas.
Non-traditional exports, particularly the clothing industry, which increased its exports considerably
between 1980 and 1992
26, may also have been negatively affected by the improved trading conditions
for other producers, particularly Mexico, under NAFTA.  Exports of apparel declined by 15% in
1996, and currently represent less than 20% of total exports (Chart I.7).  High interest rates may also
have affected exports by shifting investments away from export-oriented industries into high-yieldingshort-term financial instruments.
32. In 1997, traditional exports totalled US$948.1 million, some 68.3% of total exports.  Alumina
remained the major foreign exchange earner, with US$653.4 million in 1997, a 7.6% increase over the
previous year, representing 47% of total exports.  Exports of bauxite/alumina combined accounted for
52% of total merchandise exports in 1997.  Other main traditional exports include sugar(US$101.9 million, or 7.3% of total exports in  1997), bananas (US$46.1 million, 3.3% of total
exports), coffee, rum, citrus products, cocoa, pimento and gypsum.
33. Non-traditional exports reached US$407.0 million in 1997, accounting for 29.3% of total
exports, down by 10% on the previous year.  Among non-traditional exports, which are relatively
undiversified, miscellaneous manufactures account for almost 60% of the total value(US$235.2 million in 1997):  the main item within this category is clothing.  Other non-traditional
exports include food (US$74.7 million), chemi cals (US$39.5 million), beverages and tobacco
(US$27.2 million), crude materials, mineral fuels and vegetable oils.  Non-traditional exports
expanded by 45% over the five-year period 1992-96, twice as fast as exports of traditional goods.
Exports of chemicals doubled during the period but suffered a setback in 1996 and 1997 as receipts indomestic currency fell due to the appreciation of the Jamaican dollar, and financing costs increased.
At the end of 1997, non-traditional exports stood at 15% below their 1995 value.
                                                     
26Davenport (1995).WT/TPR/S/42 Trade Policies Review
Page 16
Chart I.7
Product composition of merchandise trade, 1992 and 1996
19921996
(a)    Ex ports
Agriculture
23.9Other manufactures
5.5
Clothing
14.8
Other 
mining
1.0
Ores and other minerals
54.8Mining
55.8Manuf.
20.3Agriculture
24.4Other manufactures
5.4
Clothing
18.6
Manuf.
24.0
Mining
51.7
Ores and other minerals
51.2
Total:   US$1.0 billion Total:   US$1.4 billion
(b)    Im ports
Chemicals
12 8Other mining 
1.1Fuels
17.9Mining
19.0Other 
1.6 Agriculture
16.4
Machinery & 
transport 
equipment
22.1Textiles and 
clothing
10.0Other 
manufactures
8.1
Manuf.
62.9Agriculture
20.4Other
2.8Other 
manufactures
9.3Textiles and 
clothing
10.6
Machinery & 
transport 
equipment
26.7
Other semi-
manufactures
9.3Fuels
15.2
Other mining
0.8Manuf.
65.0 Mining
16.0
Chemicals
12.8
Total:   US$1.8 billion Total:   US$2.9 billion
Source :  UNSD, Comtrade database (SITC Rev.3).Per cent
Other 
mining
0.5
Other semi-
manufactures
9.9Jamaica WT/TPR/S/42
Page 17
34. Jamaica's importance as an export processing centre, particularly for clothing, has increased
during the 1990s.  Re-exports equalled US$44 million in 1996, twice the 1992 level, and accounted
for 3.2% of total exports.
35. The United States is Jamaica's most important trading partner, accounting for 36.7% of
domestic exports in 1996 (Table AI.1).  The second largest destination is the European Union (EU)
with a share of 31.2% (Chart I.8);  the main single market for Jamaican exports within the EU is the
United Kingdom.  Other important destinations include Canada (12.1%), Norway (6.7%), the
CARICOM (4.2%) and Japan (2.3%).
36. Imports c.i.f. were US$3,106.7 million in 1997, some 6.5% higher in value terms than in 1996
(US$2,916.4 million).27  This was an improvement on the 3% increase observed in 1996, but well
below the 30% increase achieved in 1995.  Import growth in 1995 and early 1996 was triggered by thelarge wage settlements that occurred in 1995 and by high private transfers, both of which increased
disposable income, by the appreciation of the Jamaican dollar;  and by slack domestic production.  In
late and 1996 and during 1997, all these factors continued to play a role in import growth.  Imports of
consumer goods have progressed more rapidly during the 1990s than other imports and currently
account for 25.6% of total imports;  imports of motor cars increased twelve-fold between 1992 and1996.  Raw materials and intermediate goods accounted for around half of total imports (US$1,535.6
million) in 1997:  they have lost share during the 1990s, increasing by 30% between 1992 and 1997,
compared with a general import expansion of around 75%.
28  Imports of capital goods reached
US$541.4 million in 1996, or 18.6% of total imports;  machinery and equipment retained the largest
share (US$274.4 million), accounting for sligh tly more than half of the total value.
37. More than 50% of Jamaica's imports in 1996 originated in the United States (Table AI.2).
The second largest provider is the EU, with 11.2% of the total followed by CARICOM, Japan,
Canada, Mexico and Venezuela.  The EU is the only region with which Jamaica has consistently
posted a trade surplus.
38. Jamaica runs a substantial trade deficit with CARICOM.  While exports totalled
US$55.3 million in 1996, 8.3% lower than in 1995, imports were US$288.5 million, 13.2% higher
than the previous year, leading to a trade deficit of US$241 million.  Preliminary figures for 1997show an increase in the deficit to US$277.5 million, due to a 14% reduction in exports and a 12.7%
increase in imports.  The main CARICOM trading partner is Trinidad and Tobago, which supplies
over 80% of imports, is the destination for almost a third of Jamaica's exports, and accounts for over
90% of Jamaica's trade deficit with CARICOM.  Other important trading partners in CARICOM are
Barbados, Dominica and Guyana.
                                                     
27There is large difference between the value f.o.b. of imports mentioned in the balance-of-payments
section and the value c.i.f. reported in customs statistics.  This difference, accounted for mainly by freight andinsurance costs has been increasing in the past few years, exceeding US$400 million in 1996.
28Despite slower-than-average growth rates, imports of raw materials and intermediate goods remain
extremely large: they represent a quarter of Jamaica's GDP and around 110% of total merchandise exports.WT/TPR/S/42 Trade Policies Review
Page 18
Chart I.8
Merchandise trade by main origin and destination, 1992 and 1996
1992 1996
(a)    Ex ports
United States
37.1Other Europe
11.5
America
56.0
EU15
25.8
Canada
11.6 Other America
7.2United States
36.7Other 
2.6
Other Europe
8.7
America
54.2
Other America
5.4Canada
12.1EU15
31.2Africa
3.3
Total:   US$1.0 billion Total:   US$1.4 billion
(b)    Imports
Venezuela
4.0Other 
America
9.0America
77.4Other 
5.4
United States
16.4
Canada
4.2Mexico
6.4EU15
9.9East Asia
7.3United 
States
52.3Other
6.5East Asia
8.0
EU15
11.2
Mexico  2.6
Canada
3.0Venezuela  
2.3
Trinidad and 
Tobago
8.3Other America
5.8
America
74.3
Total:   US$1.8 billion Total:   US$2.9 billion
Source :  UNSD, Comtrade database (SITC Rev.3).Other 
2.0Africa
4.8Per centJamaica WT/TPR/S/42
Page 19
(4) ECONOMIC OUTLOOK
39. According to the authorities, inflation is likely  to continue falling as tight monetary policy is
maintained.  While GDP contraction should halt, expansion is likely to be only moderate in the near
future, particularly considering the high interest rates.  The worsening of public finances is a negative
element for future growth: combined with tigh t monetary policy it may lead to further real
appreciation of the Jamaican dollar.  If interest ra tes remain high, capital inflows will continue, but the
authorities fear that the current account deficit may widen if more attention is not given to
diversifying exports and enhancing their competitiveness.