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Thursday, April 22, 1999 Published at 18:14 GMT 19:14 UK

Business: The Economy

Jamaica's economic troubles

Holiday snaps from Jamaica

Jamaica. Lush island of heart-aching beauty, destination for honeymooners and sun-seeking tourists.

A paradise. And an economic nightmare.

Beyond the high walls of all-inclusive tourist resorts, Jamaica's economy is a mess.

[ image: Crime is ripe in Jamaica's capital Kingston]
Crime is ripe in Jamaica's capital Kingston
The riots now tearing through Jamaica's capital Kingston are bound to deliver yet another blow to its fragile economy.

Things are bad enough as they are. In the capital Kingston, uncovered manholes make sidewalks to dangerous obstacle courses.

More serious is the decay of the island's infrastructure. Leaking water mains leave many of the country's 2.63 million people without reliable supplies of drinking water, causing health problems.

The roads are pot-holed, parts of the capital look more like a shanty town.

Two-industry economy

The country depends on two industries: Tourism and bauxite, deposits mined to make aluminium.

Bauxite accounts for more than half of Jamaica's exports (53%), but plummeting commodity prices have hit the industry hard.

This has caused a drop in tax revenues, just at a time as the government is struggling to service debts of $3.2bn (£2bn). The increases in fuel duties, which have triggered the riots, were seen as necessary to make up the shortfall.

[ image: Prime Minister J.P. Patterson has worked hard to cut inflation, but the economy has suffered in turn]
Prime Minister J.P. Patterson has worked hard to cut inflation, but the economy has suffered in turn
The foreign debt burden amounts to $1,216 for every man, woman and child living in Jamaica - a sum just below half of the country's annual Gross Domestic Product per head.

The costs of inflation

For years, the country was suffering under rampant inflation - 25.6% in 1995 and 15.8% in1996.

To fight escalating prices, the government of Prime Minister P.J. Patterson implemented tight monetary and fiscal policies.

Interest rates of 40% stabilised the exchange rate and 1997 was the first year that saw inflation in single digit figures again, at 9.2%.

But it came at a high price for the island nation.

  • The high costs of borrowing choked economic growth. During 1996 and 1997 the economy actually shrank.
  • Many companies collapsed under their debts and went into receivership, were closed or downsized.
  • Internal debt escalated.
  • Money was not invested in productive sectors but was put in short-term, high-interest investments on the financial markets.

At the same time Jamaica suffered under trade liberalisation in a different part of the world.

The lowering of trade barriers in the North Atlantic Free Trade Area, the common market set up between the USA, Canada and Mexico, drew a lot of business away from the island's economy.

The riots now are a result of attempts by the government to improve the island's infrastructure. Higher fuel taxes are to finance better public transport.

The rioters are not willing to pay.

Tourism worries

It is of little surprise that the economic hardship has boosted two unwelcome industries - crime and the drugs trade.

Even more worrying is the fact that these two are now threatening Jamaica's other mainstay, tourism.

Nearly two million people visit the island every year, earning it 45% of its foreign exchange and providing one in every four jobs.

[ image: This is the backyard of a tourist's s paradise]
This is the backyard of a tourist's s paradise
But the tourism boom of the 1990s has somewhat bypassed Jamaica. Other Caribbean countries see growth rates of 7% and more.

In Jamaica the number of visitors is climbing just 1-2%.

The reason is crime. The big cruise ships dropping anchor in Montego Bay are not coming as often as they used to, because tourists are tired of being harrassed by beggars, drug dealers, pimps and criminals.

Prime Minister Patterson has warned his countrymen not to "kill the goose that lays the golden egg".

The riots will do little to improve Jamaica's image as an island paradise.

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