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Caribbean Islands Balance of Payments and Debt
Jamaica has displayed a negative balance on its current account
each year since 1963, primarily the result of large trade deficits.
Capital account surpluses were generally not large enough to offset
current account deficits, thus producing overall negative balance
of payments. In the 1970s and 1980s, balance-of-payments shortfalls
were financed increasingly through very large capital inflows in
the form of concessional loans from multilateral and bilateral
lending agencies. The IMF was the largest source of balance of
payments support.
In the 1980s, the greatest source of payment deficits appeared
in the merchandise trade portion of the current account (see table
__, Jamaican Balance of Payments 1981-85, Appendix A). As trade was
liberalized and export prices depressed, unprecedented trade
deficits appeared during the first five years of the 1980s. The
terms of trade for Jamaica quickly declined, with large shortfalls
in expected bauxite exports causing the greatest damage to the
merchandise trade deficit and the economy as a whole. Jamaica's
service balance progressively became positive as increased tourist
receipts steadily bolstered invisible exports. The largest portion
of the service account lowering surpluses was the considerable
amount of investment income, or profits, repatriated abroad. Net
transfers were generally positive, as funds received from regional
and international organizations were greater than contributions.
Surpluses on the capital account in the 1980s were generally the
result of official capital flows, in the form of balance-of-
payments support, rather than private investment capital. Although
new foreign capital was invested in Jamaica, significant foreign
investment left the island, especially in 1983. As a result,
official capital movements accounted for over 90 percent of the
surplus on the capital account in the first five years of the
1980s. Net international reserves, with the exception of 1984,
continued to decline in the first half of the decade after a
previous decline from 1974 to 1979.
Jamaica's rapidly growing debt dated back to the oil price
increases and expansionary fiscal policies of the 1970s. The
balance of payments crisis experienced in the mid-1970s, however,
was only the start of a spiraling debt crisis. From 1980 to 1986,
Jamaica's total debt doubled, making the island one of the most
indebted countries in the world on a per capita basis. Jamaica's
debt peaked in the mid-1980s at US$3.5 billion and was not expected
to exceed that level into the 1990s. Seaga's 1987 debt rescheduling
negotiations with the IMF and the Paris Club (see Glossary)
resulted in generous grace periods and at least a short-term easing
of the crisis. Nonetheless, Jamaica's debt loomed large and
unmanageable; by 1983, the total debt surpassed 150 percent of GDP.
As noted above, debt servicing accounted for over 40 percent of
government spending by 1985. Similarly, debt servicing as a ratio
of exports reached levels higher than those in virtually any other
Latin American nation.
Jamaica's strategy for managing its indebtedness primarily
involved rescheduling and export-led growth (see Glossary).
Although the rescheduling goal was generally achieved by the late
1980s, the export-led growth strategy, as outlined in the
structural adjustment policies, had not been successful. Exports
showed little dynamism in the 1980s, suffering from unfavorable
terms of trade. Modest growth in nontraditional exports, at least
by 1987, was unlikely to reduce significantly the huge national
debt. In May 1987 Jamaica initiated another strategy of selling
government equity shares in tourism and manufacturing for the
private purchase of a portion of the country's foreign debt. Debt
to equity swaps, as they are called, were not perceived to relieve
a significant percentage of the debt, however. No definitive
strategies to overcome the debt crisis had been devised by the late
1980s.
Data as of November 1987
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