VZCZCXRO9724
RR RUEHGR
DE RUEHKG #0770/01 1101836
ZNR UUUUU ZZH
R 201836Z APR 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 2660
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1818
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 000770 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ECON EFIN JM
SUBJECT:  JAMAICA'S CURRENT ACCOUNT WORSENS 
 
REF: KINGSTON 555 
 
¶1. Summary:  Influenced by the surge in the prices of oil 
and food imports, Jamaica's current account deficit almost 
doubled during 2005.  The current account deficit 
increased by USD 465.1 million to USD 974.5 million, just 
under ten percent of the country's GDP.  The 20 percent 
jump in imports also fueled deterioration (USD 642.6 
million) in the trade deficit to USD 2.6 billion, as 
exports remained stagnant.  The current account woes, 
however, were tempered by a jump in receipts from 
remittances and tourism.  While the country has been able 
to safely finance the current account through external 
capital, any falloff in this financing source, without a 
corresponding increase in exports, could precipitate a 
decline in the Net International Reserves (NIR), and by 
extension depreciation of the local currency.  End 
summary. 
 
----------------- 
Import Bill Soars 
----------------- 
 
¶2. Jamaica's current account deficit widened by USD 465.1 
million to USD 974.5 million at the end of December 2005. 
At this level the current account deficit was just under 
10 percent.  The expansion was largely due to a 20 percent 
jump in imports to USD 4.2 billion, reflecting soaring oil 
prices and, to a lesser extent, food imports.  Jamaica's 
oil bill climbed by almost 50 percent to USD 1.4 billion 
reflecting a 36 percent increase in the price of crude oil 
as well as a temporary closure of the local refinery, 
which led to the import of expensive refined products. 
Food imports jumped by 15 percent, as demand increased to 
fill the void left by the devastation of the agriculture 
sector following a series of natural disasters. 
 
----------------------- 
Exports Remain Stagnant 
----------------------- 
 
¶3. Exports, amounting to USD 1.6 billion, continued to 
lag.  Exports were stymied by the sluggishness of 
traditional products (e.g. sugar, bananas), which suffered 
from a combination of dwindling production, industrial 
unrest and adverse weather conditions.  However, bauxite/ 
alumina continued to benefit from increased demand from 
China.  Non-traditional exports also recorded growth of 
20.6 percent reflecting higher beverage and mineral fuel 
exports.  Exports of mineral fuels (largely ethanol, which 
enjoys duty-free access to the U.S.) amounted to USD 110.1 
million due to expanded output and increased demand and 
price for the environmentally-friendly product. 
Conversely, the once dynamic apparel sector, which peaked 
at around USD 288 million in 1995, declined by a further 
10 percent to USD 9.4 million.  Stagnant exports combined 
with soaring imports fueled a deterioration in the trade 
deficit to USD 2.6 billion or USD 643 million more than in 
¶2004.  The current account deficit was moderated by a 
robust growth in receipts from tourism and remittances, 
which rose by USD 171 million to USD 1.5 billion. 
 
--------- 
Who Pays? 
--------- 
 
¶4. The current account deficit of USD 974.5 million was 
financed by a combination of external loans and foreign 
direct investment (FDI) of USD 1.2 billion.  This suggests 
that the country is depending heavily on the rest of the 
world to finance its current consumption.  The residual 
external financing of USD 229 million was used to build up 
the stock of NIR, which ended the year at USD 2.1 billion 
or just over 27 weeks of goods imports.  External 
borrowing and official investment during the year amounted 
to USD 351.5 million and represents loans raised on the 
international capital market during the year.  Private 
investment (portfolio and foreign direct investment) of 
USD 863 million was actually USD 141 million above the 
amount recorded in 2004, reflecting massive FDI in the 
tourism and to a lesser extent bauxite/alumina sectors. 
 
¶5. Comment:  With oil prices remaining relatively high, 
Jamaica could register increased imports and by extension 
a further widening in its trade and current account 
 
KINGSTON 00000770  002 OF 002 
 
 
deficits during 2006.  Ongoing and new FDI, while positive 
in the long term, could also have a short-term impact on 
the trade and current accounts given the expected surge in 
machinery and equipment imports.  The ongoing cement 
crisis (reftel), necessitating increased imports of the 
product, will only magnify this problem.  The rising trade 
and current account deficits require the country to either 
find creative ways to grow exports or hope for continued 
buoyancy in remittances.  Even a combination of these 
effects will only slow the deterioration and the GOJ will 
have to continue sourcing external loans to supplement the 
current wave of FDI.  However, if financing from the rest 
of the world (official or private investment) should 
decline, it could force the GOJ to draw down on its stock 
of NIR or risk a massive depreciation in the local 
currency to correct the trade and current account 
imbalances.  End comment. 
 
TIGHE