Tuesday, September 18, 2007


After nearly a decade of cyclical financial crisis and anaemic economic growth, Jamaica sustained a moderate growth. In 2007, the real economy grew by 3,0 percent. In 2008, the economy is expected to absorb its growth mommentum and increase the annual output by 3,1 percent.

Despite high investment in the mid-1990s, Jamaica experienced a low growth. One of the greatest contributions to fragile output performance is concerningly associated with public debt. A significant share of investment was composed by public investment crowded-out by debt service. The inefficiency and failure of public administration to target the efficiency of investment in effective terms, correlates with lagging productivity growth rate. As the study by the IMF shows, Jamaica's economic performance has been subject to macroeconomic uncertainty. Constantly untamed inflation rate revealed the dependence of the central bank in conducting the monetary policy. Macroeconomic policies asserted on the very principle of aggregate demand (resulted in a persistantly high inflation rate which reduced from double-digit rates to 6,2 percent in 2007, using the inflation targeting framework) do not exclude the possibility of financial crisis as Jamaican experience shows. Through the emulation of rules-based and credibility-asserted monetary policy, the reliance on interest rate outdated the direct money control which is an important source of cyclical inflation pressures.

Economist recently crticized Jamaica's past political frictions which led to irresponsible policy decisions and boosted the impolsion of financial crisis. The abovementioned reliance on aggregate demand consolidated the position of the fiscal policy which lacked the scope of consideration of inflation pressures.

But the news from Financial Times about Jamaica seeking to become an offshore financial center is positive and it poses a great measure of challenge in going for sustained growth and improved structural performance whose inadequte and fragile indicators Empirically, the real reason for low taxes is the advancement of general welfare and prosperity and the evidence does not seem to neglect this theorem. According to CIA World Factbook, 5 offshore tax havens and 3 onshore low tax jursidictions are among the world's wealthiest countries in effective terms of GDP per capita (PPP).

Currently, the public debt equals 133,3 percent of the GDP and the experience of lagging economic performance clearly reflects a dodgy profile of Jamaica's international competitiveness. However, with sound and competitive tax policies and first-class business environment, the sustained growth of output is estimated to reach the long-run scope as capital creation and the foreign direct investment inflows will crucially depend on the ability of economic policy and its inclination towards openness and the reduction of macroeconomic uncertainty.

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