The Multinational Monitor



Bauxite and Tourism Are Still Not Selling In Jamaica

by Cynthia Brown

Make it Jamaica. Again." - Prime Minister Edward P.G. Seaga's tourism plug reflects an economic strategy that has brought predictably good results from the international financial community and the U.S. government in the seven months since Seaga took office. Landing aid, though, is only half the battle for Seaga; his economic plans depend on increased foreign investment in the bauxite and tourism industry-which may not be forthcoming.

Beginning last December, Seaga's conservative Labor Party government and the International Monetary Fund (IMF) set out to restructure Jamaica's economy away from public ownership and an emphasis on social services and towards a privately dominated, restricted-consumption economy. In the process, the IMF helped Jamaica obtain substantial new government loans, foreign commerical bank support, and multilateral assistance. An agreement with the Fund itself was concluded in April, giving Jamaica $647 million over three years-or 450% of Jamaica's quota, the maximum permissible-under unusually easy terms. The Fund did not insist on specified wage guidelines, nor did it "suggest" currency devaluation strings which created severe political problems for the Manley government. (The IMF also agreed to loan $48 million in "compensatory financing" to cover a "shortfall in receipts from exports and tourism in 1980," an IMF press release said.)

But the agreement's easy terms do not mean that Jamaica will escape the austerity policies associated with traditional IMF "stabilization" programs. Rather, austerity is a central tenet of Seaga's own program, which the Fund has endorsed. By the time agreement was reached, Seaga had already cut back the public sector, as the IMF would have demanded-laying off several hundred employees and dismantling the Special Youth Employment program, which had served some 10,000 young people. In a workforce of approximately one million, unemployment stands at 35%. And as yet, the government has produced no concrete jobs program.

As for public sector wages, Seaga reportedly told the Fund he would not accept foreign restraints; his party, like the opposition, PNP, relies heavily on a well-organized labor base. But since the agreement, he has announced that unless civil servants stay within the limits of a 9% increase this year, the government's only alternative will be to lay off 10,000 of them. With inflation at about 30% and food prices alone up 25% from August to January, Seaga's inflexibility on wages is sure to increase domestic hardship and labor unrest.

Western Aid Pours in

Seaga's first priority on taking office was Jamaica's foreign exchange crisis. He inherited a foreign debt of $1 billion and a foreign exchange gap of $150 million.

By February, after only three months in office, Seaga had received more in confirmed loans-$134 million-than Manley received in his last two years. Among the donors were the Inter-American Development Bank ($23.5 million), a consortium of four commercial banks headed by Citibank ($40 million in short-term credits) and the U.S. government ($60 million).

The money kept flowing in. At a March meeting of the Caribbean Group for Cooperation in Economic Development-composed of the U.S., Canada, and several Western European and Latin American countries-official lenders pledged at least $350 million to Jamaica during the next year, contingent on the signing of the IMF agreement. The amount of aid was reportedly three times as much as Seaga had expected.

Then in April came the IMF's $700 million package-the linchpin of Seaga's aid plans. Following the IMF's lead, a consortium of 25 commercial banks, led once again by Citibank, agreed in early July to provide $71 million in medium-term loans and at press time negotiations to refinance $120 million of Jamaica's $500 million commercial debt were nearly completed. (The banks had refused to renegotiate Jamaica's debt with Manley after he broke off discussions with the IMF.)

Aside from getting Western aid, Seaga has also simply been lucky. The Jamaican economy, dependent on foreign oil for virtually all of its energy needs, was paying 11 times more in 1979 than in 1973 for the same amount of oil. This was one of Manley's uncontrollable financial problems. Now, the current lower price of crude is a fortuitous accident which may alleviate some of the oil pressure on the economy.

In addition, loans from Venezuela and Mexico, which were negotiated by the Manley government, are now coming to fruition; Venezuela has given $83 million and Mexico $58 million to assist in oil purchases.

Key Foriegn Investors Hesitate

If the backbone of Seaga's economic program is foreign exchange support, its body is foreign investment. Here too, Seaga has found organized assistance, in the form of a joint U.S.-Jamaican committee on investment, headed on the U.S. side by Chase Manhattan's David Rockefeller [see box for list of com mittee members). Reagan announced the formation of the group after Seaga's January visit, and a senior advisor in the State Department has been assigned to it. The blue-chip American group visited Jamaica in March for talks with its private sector counterpart and plans to return for another meeting in late July.

The Jamaican government is pleased with foreign investor interest to date. "There are 333 new investment projects for a total of $1.3 billion now being studied," Seaga told the Journal of Commerce in early July while he was visiting the U.S. to talk with bankers and businesspeople.

In the crucial areas of bauxite and tourism, however, Seaga faces some problems. In the bauxite industry-the major earner of foreign exchange-Seaga has been lobbying, with mixed results, to get companies to boost investment.

Reynolds, Kaiser, and Anaconda -which make up the Aluminum Partners consortium in Jamaica-have announced their "intention to raise production," Dave Klinger, public relations officer for Reynolds confirmed. "We look for an increase in demand in the' fourth quarter (of 1981), and in 1982, we are looking for a big jump in demand," Klinger explained.

Alcoa is not so upbeat. In late June, it announced a cutback of 100,000 metric tons per year-about 20%-in its alumina production due a "softening of the market," , says Bob Larson, spokesperson for Alcoa. And its plan to double bauxite refining capacity on the island was dealt a blow in early July when three Norwegian partners in the project-accounting for about half of the financing-pulled out. Alcoa had "no comment" yet on whether the plans would go on, though Prime Minister Seaga told the Journal of Commerce that "Alcoa and Jamaica are looking for a new third partner for the venture, the scope of which will not be reduced."

One difficulty in finding additional partners for the project rests with the bauxite levy. Alcoa-and other alumina companies have been pressing Seaga to lower the levy on bauxite production, which currently stands at 7%. Alcoa's letter of intent for its bauxite expansion project stipulated, that a satisfactory agreement on the levy would have to be reached by year's end before the project would proceed. The levy issue places Seaga in a bind: if he agrees to lower the levy, Jamaica will receive less per unit of production of bauxite; if he holds firm, Jamaica may not find companies willing to increase investment, thus cutting into the country's potential bauxite revenues.

As a short term means of increasing bauxite returns, Seaga has proposed a speed-up in mining production. This, however, will not sit well with the labor unions, nor is it particularly attractive to the companies already holding vast reserves in a buyers' market.

The tourism sector is generally regarded as Jamaica's best hope for a quick boost in foreign exchange and new jobs, but it too has a long way to go. The Weekly Gleaner which normally reflects its daily parent paper's support for Seaga, reported in early June that a sampling of hoteliers and shopkeepers in hotel areas in the north coast tourist areas showed near-desperation. Some hotels are suffering from the lowest occupancy rate in their histery, examples ranging from 14% to a high of 45% with the bulk in between. Air arrivals declined 16016 in January and 24% in February from 1980 levels for those months, according to the Jamaican Tourism Board. The Cleaner reported that shopkeepers are "reeling under the situation." No figures have been given on advance bookings for this summer, though Seaga contends that the decline has "bottomed out."

The Jamaican government has laid blame for the tourist slump, Jamaica's worst in 25 years, on the political violence of last year's election campaign, which led to over 600 deaths, and on years of government management of hotels, which the Manley government took over when their owners more or less abandoned them in the mid-70s. Ironically, Jamaica's violent image abroad is at least partly due to Seaga's strident campaign warnings of anarchy and revolution-an image he has now inherited and will require some time to reverse.

As in other sectors, the government's approach to tourism is to encourage private ownership, on the theory that the government cannot afford to own hotels and private initiative can better produce needed jobs. Seaga has offered eight of the 14 government-owned hotels up for sale or lease, and has invited major hotel chains-including Marriott and Sheraton-to Jamaica to consider bidding on them. Neither Marriott nor Sheraton has come to any decision yet, though both have expressed interest.

Even if Seaga succeeds in boosting foreign investment in tourism, his hopes for that industry to solve Jamaica's unemployment problems may be misplaced. To some extent, tourism does provide employment locally, but a full-capacity tourism industry provides only about 15,000 direct jobs. Even adding estimated indirect employment, the effect on national unemployment would amount to less than 2%-hardly the panacea for Jamaica's high unemployment. So far, with conditions at their low point, the only jobs announced in this sector have been for foreign managerial expertise in the hotels.

Seaga is facing discontent, moreover, from several sectors, notably labor and manufacturers. Jamaica's small businessmen recently complained that the market is flooded with cheap imports and they cannot compete. And in early June the government was faced with no less than four strikes in one week, two of them by public sector workers, over wage issues. Evidently, the expectation of a decent standard of living, which Manley promoted and Seaga utilized to gain office, may not coexist easily with the IMF program and potential investors' demands.

As of yet, it is too soon to predict how the conservative program will fare. Seaga has received more help than even he anticipated from his allies abroad-a marked contrast to the treatment these sources gave Manley-and this has helped Seaga both economically and in terms of image. But aid may not be enough. The foreign investment upon which Seaga's economic program hinges has not yet materialized. And Jamaica's drawbacks for investors-labor activism and its high degree of politicization-may continue to deter foreign capital.

Even if Seaga is successful in luring foreign investment, he may in the process antagonize the populace that elected him. He will have to be nimble indeed to juggle unrest and expectation with one hand, while he beckons invitingly with the other.

Cynthia Brown is a freelance journalist specializing in Latin American and Caribbean affairs.

U.S.-Jamaica Business Panel

On February 24, 1981, the White House press secretary announced the formation of the "U.S. Business Committee on Jamaica," with the following members:

David Rockefeller, chairman,
Chase Manhattan as chairman of the committee

Frank Borman, chairman,
Eastern Airlines

Charles Bludhom, chairman,
Gulf and Western Industries

John C. Duncan, chairman,
St. Joe Minerals

W.H. Krome George, chairman,

Howard C. Kauffmann, president,
Exxon Corporation

Cornell C. Maier, chairman,
Kaiser Aluminum and Chemical

Seymour Milstein, chairman,
United Brands

David P. Reynolds, chairman,
Reynolds Metal Company

Curt R. Strand, president,
Hilton International

Table of Contents