Jamaica’s recovery

Jamaica’s high prime lending rate of 20.75 percent, which is more than twice that of Trinidad and Tobago’s 8.75 percent, is one of the factors which will continue to impact negatively on its economic recovery following on hurricane Ivan. It will limit the ability of Jamaica to fund its recovery, particularly because of the enormity of the damage to the infrastructure, housing and the manufacturing and agricultural sectors done by the hurricane. Jamaica’s Prime Minister, PJ Paterson, appreciating this, has appealed to the United Nations in a move to internationalise aid to his country. However, should the prime lending rate be appreciably lowered for a six to 12-month period, for example, this would encourage householders whose homes were damaged by Ivan to effect early repairs, as well as small manufacturers and stores to do the same.

This would generate employment in the construction industry, in addition to spurring on the early return to business of small manufacturers, hardware and haberdashery stores and the resumption of work by their employees. In turn, the lower cost of borrowing could lead to manufacturers embracing the opportunity to purchase new plant and machinery and make their concerns more competitive in, at least, the domestic market place. Already, the RBTT Bank Jamaica plans establishing an initial line of credit of J$150 million (approximately US$2.5 million) at two percent below the 20.75 per cent prime lending rate until December 31. The initiative, almost modest, should be followed by other banks operating in Jamaica and expanded both in terms of percentage cut and the time during which the customer benefit would operate.  Admittedly, today’s prime lending rate in Jamaica is way below the 1998 level of 39.3 percent, but is still too high, and is a result of the lack of liquidity in the system.

Had there been liquidity, the Bank of Jamaica — Jamaica’s equivalent of the Central Bank of Trinidad and Tobago — would have reduced the banks’ cash reserve ratio, which would normally enable the banks to reduce their interest rates. Jamaica’s relatively high prime lending rate and its modest liquidity both add up to the troubling situation that the Caricom country does not appear to be in a position to repair the damage to its housing, industry, agriculture and infrastructure and enable it to get back on its feet, economically, without international aid. Despite this, however, Jamaica rather than have a tunnel vision approach to the disaster caused by hurricane Ivan in the Caribbean, in which it suffered greatly, is nonetheless examining in what way it can assist Grenada, the worst Ivan-hit member of the Caribbean Community of Nations.