Shocks And Strategies:
Jamaica And The Caribbean Development Bank

by George Reid

Jamaica's first decade of independence, 1962-72, was a period of steady growth, in which GNP expanded at an annual rate of 5.3 percent in response to investments in bauxite, alumina, and tourism, within an environment of financial stability. During the 1970s, Jamaica experienced an economic decline brought on by both external shocks and domestic policy responses: in 1980, real GDP was 18 percent below the 1973 level.

The new administration led by Edward Seaga adopted a two-prong strategy for dealing with the problem: stabilization through reducing the overall public sector deficit and correcting the disequilibrium in the balance of payments; and longer-term revitalization of the private sector.

Jamaica And The CDB

This is the background against which George Reid undertook a study of Jamaica and the Caribbean Development Bank (CDB). His report asks why the CDB, with its local knowledge, could not have contributed more to the process of thinking though the adjustment options facing Jamaica in 1972-91, when successive governments of Michael Manley and Edward Seaga were worrying over strategies for negotiating with the Washington-based multilateral financial institutions-the International Monetary Fund (IMF), the World Bank, the Inter-American Development Bank, and the United States Agency for International Development.

During those two decades, Jamaica's economy was struck by external shocks to its bauxite production and experienced a spiraling decline in manufacturing as it lacked foreign exchange for industrial inputs. During Seaga's efforts to obtain external assistance while carrying out measures of structural adjustment and deficit- cutting at a pace acceptable to Jamaican conditions and interest groups (including trade unions), Reid writes of the "the interplay of strategies" in which the country tries to "persuade the lending institution to provide resources without adhering to all the attendant conditions." This, he adds, was risky: in Jamaica's case, the IMF canceled its Standby Agreement, the World Bank suspended lending, and the Paris Club suspended negotiations.

Reid concludes that the CDB's reluctance to enter into policy discussions can be traced to the fact that borrowing countries control the majority of shares in the Bank and that the CDB Board of Directors are part-time advisors. He also raises a separate set of questions: Why did the CDB channel a large portion of funds through two Jamaican finance institutions whose focus was on credit projects? Why could it not deal more directly with the private sector (with improved appraisal methods to avoid likely defaulters)? Why had it not developed a significant pipeline of projects in its largest borrowing country?

About The Book And Author

Published in 1995, this study is part of a larger project on the multilateral banks, launched by the North- South Institute in 1991 and supported by the Canadian International Development Agency, the Ford Foundation, the Swedish Ministry for Foreign Affairs, the Norwegian Ministry for Foreign Affairs, the Netherlands Ministry for Development Cooperation, the Inter-American Development Bank, the Caribbean Development Bank, the African Development Bank, and the Asian Development Bank.

George Reid is a former director of finance and economic affairs in the Barbados Government, and is Executive Director for Barbados at the Inter-American Development Bank.

Available at a cost of $12 from:Renouf Publishing Co.