Jamaica and the IMF

Jamaica has never fully recovered from the 2nd oil crisis and other pieces of bad luck in the late 1970s. It is now in it’s 4th year of the latest IMF-led restructuring program. A December mission offered an optimistic prognosis, noting unemployment is at an 8-year low. The most recent full Article IV review (the IMF does one for all member countries) is from June 2016. It includes a wealth of information. Here you can see recent macroeconomic importance, and a summary of what (in the short term) drives the economy. But there’s other analysis. A recent working paper looks at the impact of migration, the loss of human capital and the benefit of remittances. But there’s also crime, another paper. Both migration and crime, of course, reflect interactions with the US, as that’s where most people go, and that’s where the drugs go.

Is Jamaica representative of the Caribbean? What of small countries with similar ties to Europe, such as Tunisia or Morocco or Serbia? We also have Mexico, which is qualitatively different in scope and the range and complexity of global links. In Europe, there’s Turkey. How important are remittances? Brain drain?
Trade ties? Interactions, social and political, that may interfere with economic development?

About Mike

Prof of Economics, Wms School of Commerce, Washington and Lee University, Lexington VA
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24 Responses to Jamaica and the IMF

  1. the prof says:

    I’ve not included South Asia – we can ask Prof Silwal about Nepal and India. For East Asia, Hong Kong receives a lot of migrants, the Philippines sends many. Another case would be Papua New Guinea and Australia.

  2. Ezequiel Piantoni says:

    The key problem for Jamaica is not Jamaica’s fault, just a mere bad luck. Jamaica depends heavily on agriculture (as seen in the second graph), but agriculture depends on the weather. Therefore, when the weather does not present the conditions needed for cultivation, such as bananas, the economy suffers. The IMF restructuring plan, as well as the capital received historically low yields global bonds offered, should focus on diversifying Jamaica’s economy so that does not depend so heavily on the weather.

    • the prof says:

      More than agriculture: undiversified agriculture.

      Another topic we’ll look at later this term: how has farming done over time? How many in your extended family are farmers? How many would have been farmers in 1880 (in whatever country your ancestors might have lived)?

  3. reamest18 says:

    I find it interesting that the article does not mention/include impacts of tourism. The Caribbean is a destination for travelers from the US and around the world. Montego Bay almost solely relies on the hospitality industry being the home to a Margaritaville amongst other resorts. In 2014, I joined my church on a mission trip to Jamaica and was struck at contrast of the white sands of the resorts with the poverty outside the resort walls. Jamaica certainly has an uphill battle, but it is encouraging to see signs of improvement.

    • the prof says:

      Tourism may not require high levels of education, but does require lots of human capital (on-the-job training). The Homestead in Bath County (keep going past Goshen Pass on US39) historically was quite seasonal, and had many Jamaican staff during their summer high season, who could return home for the winter high season in Jamaica.

      However, I’ve never read any of the research literature on this sector. A paper topic?

  4. ahny19 says:

    The stalled regional growth of the Caribbean since 2000 reflects the rising public debt and poor fiscal performance that has characterized the Jamaican economy for decades. However, despite the country’s challenges of low growth and poor job generation that can be found throughout the Caribbean, Jamaica is in many ways an outlier relative to the region. The growth rate for PPP-based GDP per capita for Jamaica have been persistently low among the region, which Jamaica’s GDP per capita being only half that of Barbados and a third of the Bahamas. Total Foreign Direct Investment and domestic investment in Jamaica is also among the lowest of the region and is predominantly concentrated in tourism, indicating the country’s lack of competition throughout its sectors. Jamaica is also distinct for the absence of transparency in its public sector and protection of freedom of expression and association.

    As the phenomenon of outward migration for countries such as the Caribbean is straining the home country’s supply of human capital and adversely affecting domestic productivity, I was surprised upon learning of the importance of remittances. Initially, I anticipated the IMF article to solely address the detriments of Jamaica’s effective brain drain, and although labor is certainly a main contributor to economic growth and the article described the discrepancies in education between Jamaican-born emigrants and women in the home country, the transfer of resources from emigrants facilitate private consumption and also support financial sector stability and fiscal revenues. It was striking to learn about the financing and stabilizing effects remittances have on the Caribbean, even helping to reduce inequality and poverty. Nevertheless, the IMF found that the negative impacts of brain drain outweigh the growth gains from remittances particularly for the Caribbean. The relatively high percentage of emigrants among the Caribbean population is concerning particularly upon considering the profile of the average emigrant. For Jamaica’s women, 50% of those living in the U.S. have at least a college degree which is double the attainment rate for women in the home country. As the severe lack of economic opportunities and stalled job generation continue to encourage emigration and promote crime among Caribbean’s youth, it’s imperative for the IMF to integrate preventative measures in the country’s broader reforms.

    • the prof says:

      Comparing Caribbean countries is interesting. Jamaica’s population is 2.9 million, Barbados is 280,000, the Bahamas 390,000 but across multiple islands. Even in the British Caribbean there’s a lot of heterogeneity. Cruise ships can keep a modest city working (Barbados) but are insufficient for Jamaica, topography matters too.

  5. mesisklism19 says:

    Jamaica is a heavy importer of industrial goods like fuel and heavy machinery while it exports commodities like sugar and rum, linked with its popular tourism industry. Unfortunately, this means their ties to developed countries heavily impact Jamaica’s economy and fluctuations in oil and machinery prices can lead to heavy unemployment and inconsistent in Jamaica. Since unemployment often correlates with crime, that could contribute to the issue. Unfortunately, when crime rates increase, tourism decreases, only rubbing salt in the wound. This trend seems to be common in the Caribbean, where tourism dwindles due to crime and inconsistent growth and weather hampers agriculture.

    I do wonder what effect drug trade/use has on these countries. Jamaica seems to be less violent in its drug problem than Mexico or South America.

    Many caribbean islands are also just geographically “unlucky,” with hurricanes battering them on a regular basis.

    What’s more, Jamaica and much of the caribbean does not have the opportunity to develop like Turkey, Serbia, or Morocco do. With its limited natural resources and desire to remain rural (to please its tourists and farm sugar), jamaica simply isn’t the place to host a growing, industrialized economy. Because of this, emigration is further crippling its growth.

    • the prof says:

      Two comments refer to “luck” – we all chose the right parents. What can be done for those who chose parents in unlucky locations? As we’ll see later, disease burdens are systematically higher in tropical climates, albeit amenable to public policy. I don’t think that’s an issue for the Caribbean, but it certain is for some countries.

      The drug trade is US-dominated. Being an island though makes the reverberations of what goes on here much smaller than when there are overland connections. I don’t know whether much ganja makes it to the US…

  6. nshimyumukizas18 says:

    Jamaica can be representative of some countries in the Caribbean. Cuba, for example, its economy was affected by the migration of skilled workers to the United States during the Castro years which resulted in a huge loss of human capital. Jamaica would also represent countries like Morocco, Tunisia, and Serbia in terms of Tourism. However, Morocco, Tunisia, and Serbia are growing into more technological and industrial economies which is not the case for Jamaica whose economy relies heavily on agriculture. The IMF, through its restructuring program, should help Jamaica to become less dependent on agriculture.

    I was surprised how important remittances are, especially for developing countries. According to the World Bank, remittances contributes over 30% GDP for some countries. Remittances contributed about 16.5% of Jamaica’s GDP. Thus there is no doubt how important remittances are for economic development.

    • the prof says:

      Remittances are a big deal some places, irrelevant others. Industrialization is limited by geography and by domestic markets – setting up business in Jamaica would only make sense if you can export much / most / all of what you make. Mexico’s much more attractive, shipping by train or truck is cheaper and faster / more reliable than shipping by boat, particularly when you don’t have the scale to have a half dozen container ships a day.

      • pezzij19 says:

        I agree with much of what nshimyumukizas18 except I think that the difference between Morocco, Tunisia, Serbia and Jamaica goes further than only the changing of economy/geography which Professor referenced to. The geography is something that should be highlighted, with differences between island vs. mainland location. However, there are similarities where each nation has a significantly large market to export and trade with, and with all relatively cheap labor.

        However, there are other significant differences as well that I believe make them unfit for comparison. Not that Jamaica is completely foreign to political unrest, but Tunisia did recently go through a revolution in the last decade that lead to a significant impact on Tunisia’s economy and tourism with the recent terrorist attack on a main tourism beach/resort (https://www.cia.gov/library/publications/the-world-factbook/geos/ts.html). Morocco, though with a significant portion of their workforce in agriculture, has a large service and industrial sector that make up far more of the GDP unlike Jamaica (https://en.wikipedia.org/wiki/Economy_of_Morocco). Additionally, Morocco’s population is far larger and the economy has had more stable growth than Jamaica with a generally stable government as well.

  7. cashj18 says:

    Jamaica is representative of the Caribbean as a whole, although it does not fit in as well with Tunisia, Morocco, Serbia, or Turkey. They have a much stronger link with Europe, where Jamaica likely has a much stronger link with the United States. Tunisia, Morocco, Serbia, and Turkey are also all not as agricultural as the Caribbean is, including Jamaica. The makeup of their economies is very different, and their successes and hardships stem from different places. For example, the Caribbean would be hurt if there was a spring season without enough rain, whereas Turkey would be much more affected by a banking crisis.

  8. rietanob18 says:

    Jamaica’s IMF led restructuring program appears to be helping the country significantly with economic growth. However, as displayed here, Jamaica is vulnerable to hindrances outside of its control such as weather impacting agriculture. Nonetheless, what the country is aware of and needs to maintain and further a focus on is the issue of crime and migration. The IMF program cites crime as a potential issue, saying: “…high crime, could generate policy reversal” (5). People from Jamaica migrate to the US, and drugs do the same. The impoverished and unemployed people in Jamaica, having limited opportunity to make money, turn to crime. Specifically, Jamaica’s youth, and the youth of other Caribbean nations, once deciding to enter the world of crime, struggle to escape and end up facilitating this “vicious cycle” that further depresses the economy. The youth of the nation are a representation of the future, and despite unemployment falling, if the youth are involved in negative activities, they will hold back Jamaica’s economy from achieving its potential.

    • the prof says:

      Yes, crime has similarities in many countries, male youth unemployment. Worse, there are the children (ex)soldiers. I’ve never seen anyone try to break out a set of countries where crime is of macroeconomic importance, and not just microeconomic importance. In Brazil I know of violence in Rio, but have never heard horror tales about Sao Paulo or Manaus. In the US, there are neighborhoods in certain cities, but seldom is crime an issue for a city as a whole (though in the city of Detroit it has a pretty pervasive impact, if only as a drain on fire/police, but it doesn’t dominate the performance of the metropolitan area).

  9. John Gaugin-Rosenthal says:

    Jamaica’s fundamental hindrance to economic development lies in low levels human capital and, consequently, low worker productivity in profitable industries. This ultimately prevents major industries in Jamaica to become well-established and flourish. Those who find themselves fortunate enough to have higher human capital seek opportunity in the United States or other developed countries (brain drain) to support their families back home (remittances). The brain drain would become irrelevant if Jamaica had more opportunity as citizens would much rather remain close to their roots. So, in order to dismantle the devastating poverty trap that dominates Jamaica, the country should prioritize the development of education and incentivizing enterprise (lower taxes and higher subsidies on sole proprietorship and small LLC) as it generates employment and boosts production.

    • John Gaugin-Rosenthal says:

      I would also add that Jamaica is representative of the Caribbean; its economy relies on tourism and agriculture, just as Union Island relies on Conch farming and Anguilla relies on fishing and offshore banking. Most nations in the region have poor infrastructure which makes trade and transportation of goods and labor very ineffective and costly. Investing in infrastructure will surely do some good, but where does the government get that money and how does it do so without taking away from the aforementioned goals (education and enterprise subsidies)? Such a small and impoverished nation can’t attack more than a few issues on its own…

      • the prof says:

        Does Jamaica have OK infrastructure – do people live “off the grid” in terms of electricity / cell phones? Are there no roads?

        Yes, Jamaicans are on average poorer than US residents, but who isn’t? From a global perspective are they truly “impoverished”?

        • John Gaugin-Rosenthal says:

          I would say that Jamaica’s infrastructure is much like the rest of the Caribbean; most infrastructure spending is concentrated on areas of the island which are densely populated by tourists. Most of the Caribbean is equipped with cell phones, electricity, automobiles, wifi…etc., and Jamaica is no different. Jamaica is perhaps not impoverished relative to many African and Asian regions, but they are certainly an underdeveloped nation as is most of the Caribbean.

    • the prof says:

      OK, but does Jamaica really have such low levels of human capital? Cf. comments on out migration. And if there are modest economies of scale, doesn’t that mean Jamaica could in any case end up with only 1-2 industries?? If Jamaica were to seek more human capital, how could it be productively used?

      • John Gaugin-Rosenthal says:

        I should be more precise. Jamaica has low human capital relative to developed nations, which makes it difficult to compete at an international scale and establish wealth-generating industries. For example, the tech boom propelled us and gives us an advantage to this day. Jamaica lacks the funding and human capital to establish such industries and compete at the international level, which is where many developed countries receive income in our globalized system.

  10. Chris DuPont says:

    I think it’s an interesting prospect to compare Jamaica to other Caribbean countries, however I personally think it’s a stretch to think about the economic growth of the Caribbean as a whole by solely analyzing Jamaica. Like the article mentions, Jamaica suffered from strokes of bad luck hindering economic development while other countries in the Caribbean have not suffered the same fate. Additionally, the high levels of crime seen throughout Jamaica’s history is not indicative of the Caribbean as a whole and as such has led Jamaica down a different economic path than many other Caribbean islands which are traditionally much more safe.

  11. wonderlicc18 says:

    “Bad luck” here sounds a lot like a case of unfortunate history.

    I spent one summer working in the Dominican Republic for a Shepard Internship. What I quickly learned about the country was the sectorial difference between the economy of the coastline and the economy of the interior. Though the situation today looks like the natural development of seaside markets responding to tourist demand, the history itself is highly political. Though I’m not sure what Jamaica’s postcolonial government looked like, the newly independent Dominican Republic fell prey to not one but two autocratic parties, each led by a brutal dictator. These governments, seeing the environmental meltdown in neighboring Haiti, subsidized petroleum imports in order to incentivize gas-lit fires over and against wood ones. While this move may have saved the Dominican forests and jungles from over-lumbering, it created a group of dominant merchants who sold to rural populations in the interior, populations once capable of near-total material autonomy. All of this is to say that the political history of the Dominican Republic is, to me, intimately involved with the formation of sectors and the distribution of wealth we see today. I wonder if Jamaica’s developmental past was also marked by authoritative decisions that gave ownership and opportunity to certain groups. I also wonder if the “reforms” mentioned in the IMF report are designed in collaboration with the ruling Labor Party. If so, how can fair and equitable policies be recommended and enforced while granting the country’s sovereignty its due?

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