UPDATE 2-IMF board OK's $932 million loan program for Jamaica

Wed May 1, 2013 6:09pm EDT

Related Topics

* World Bank, IADB also committed funds to total $2 bln

* Aim to help Jamaica reduce debt burden, boost growth

* Analysts say government has hard task ahead

By Anna Yukhananov

WASHINGTON, May 1 (Reuters) - The International Monetary Fund's executive board on Wednesday approved a $932.2 million four-year lending agreement with Jamaica meant to help the Caribbean country start to reduce its heavy debt burden.

The money will complement about $510 million in planned funds from both the World Bank and the Inter-American Development Bank, which together will bring Jamaica's loan package to nearly $2 billion. Jamaica will get $207 million in IMF funds immediately.

Jamaica's ratio of government debt to GDP hovered at around 140 percent last year, according to the IMF's latest assessment of the country's economy. Jamaica has also grappled with a drop in international reserves and a sharp slide in the Jamaican dollar.

The country's high debt service payments have limited the government's ability to provide services needed to achieve sustained rates of growth, the IMF has said.

"The main objective of the program is to put public debt on a firmly downward trajectory and thereby create a virtuous cycle of debt sustainability and higher economic growth," David Lipton, the IMF's first deputy managing director, said in a statement.

Jamaica's 2010 loan agreement with the IMF lapsed after the government failed to meet performance targets, and some analysts have expressed skepticism about a new program.

"We're agnostic. We think it is a very positive first step," Gabriel Torres, the lead Moody's analyst for Jamaica, said of the loan program, adding that "it will require a lot of commitment."

Moody's currently rates Jamaica's debt as B3, above default but still posing a high credit risk. Fitch's rating is CCC, while Standard & Poor's raised its rating from default to CCC-plus after Jamaica completed a domestic debt exchange with a high level of participation.

In addition to the debt exchange, Jamaica has already made some other reforms in preparation for the program, such as agreeing to a wage freeze for government workers and proposing a budget with a primary surplus of 7.5 percent of GDP.

The IMF said these actions were signs the government was serious about change.

"Although the risks to the program are high, the implementation of the prior actions, the frontloaded nature of the reform agenda, and the envisaged collaboration with development partners should help foster the successful implementation of the program," the IMF's Lipton said.

As part of the program, Jamaica will have to make structural reforms, improve price competitiveness and reduce government spending and the debt while still improving social protection programs.

Carl Ross, managing director at Investments Oppenheimer, said the loan was clearly important for Jamaica, which has had trouble accessing debt markets and has a high current account deficit. But the government has a history of breaking its fiscal promises in the face of outside shocks, such as storms, commodity prices or weaker global growth.

"It's very difficult for any country to sustain primary surpluses of that order of magnitude," he said. "I think it's not going to be easy."

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