MARCH 1983 - VOLUME 4 - NUMBER 3
Jamaica Under Seaga
Despite his overtures to big business, the multinationals are staying awayby Suzanne Soracco and Tim Shorrock
When Edward Philip George Seaga ran for Prime Minister of Jamaica two years ago, he promised to deliver his country from its severe economic problems through a program based on foreign investments, free market policies and a new agreement with the International Monetary Fund (IMF). But despite claims by the Jamaican government and the IMF that the country has undergone a "striking turnaround," the results for many of Jamaica's workers and its unemployed have been discouraging.
In the months following Seaga's election, the new Prime Minister moved swiftly to restore Jamaica as a suitable site for investments by multinational corporations. One of his first acts was to negotiate a $650 million loan with the IMF, a move that alleviated Jamaica's immediate foreign exchange shortage and made possible a tremendous increase in imports of food and luxury consumer goods.
In February 1981, Seaga travelled to the U.S. President Reagan warmly received him in Washington, and promised full support for Seaga's attempt to develop Jamaica through private initiative. With Reagan's blessing, Seaga flew to New York, where he helped inaugurate the U.S. Business Committee on Jamaica, chaired by banker David Rockefeller. In the next year and a half, Seaga also made trips to Japan and Western Europe in search of foreign capital.
Throughout his travels, Seaga has trumpeted "the new Jamaica" as an example for other Third World nations to follow, and has strongly criticized the socialist experiments of his predecessor Michael Manley. In a speech last year to a business school in Texas, Seaga referred to the Manley years as "the most unproductive, frightening and unforgettable in our history." "There is no better example than Jamaica," he said, "to illustrate how the forces of personal motivation, of enterprise and of freedom of choice combine to generate economic growth or, conversely, how the diminution, or perceived degradation of these forces, combine to assault the quality of life."
A turn towards export-led development
1981 - Seaga's first year in office-was Jamaica's "worst year since the depression," according to the Prime Minister. The bauxite industry, the country's chief foreign exchange earner, was in a state of near collapse, with production levels down to 25% of capacity due to the depressed world market. Traditional agricultural exports, primarily bananas and sugar cane, also suffered. The surge in imports made possible by the IMF adjustment loans hurt domestic producers. Overall growth was around 2%.
In response to these hard times, the Governor-General of Jamaica, Sir Florizel Glasspole, publicly called upon the Seaga government to "tell the facts of Jamaica's economic life just as it is" in order to let the people have "a clear picture of what lies before our island home." Ian Murphy, a prominent Kingston businessman, put it more grimly: "We are at economic war,", he told this reporter in an interview. To bring the country out of its crisis, he said Jamaica had to be put on a war footing: "It's going to be blood, sweat and tears as far as I'm concerned."
To fight this "economic war," Seaga has enlisted the support of the U.S. Business Committee on Jamaica, and investment committees have been formed in Canada, West Germany and Venezuela. To attract corporate investments, Seaga has addressed such groups as garment manufacturers in Atlanta and electronic executives in the Silicon Valley of California. He has also been one of the staunchest public supporters of President Reagan's Caribbean Basin Initiative (see accompanying story).
In July 1982 the Jamaican government formed Jamaica National Investment Promotion, Inc (JNIP). Its purpose, according to Seaga, "is to attract investments to all areas of the economy and to guide these investments into production in the shortest possible time." JNIP also functions to "smooth the bureaucratic snags which investors might otherwise encounter."
Since its inception, hundreds of investment proposals have been received by the JNIP. To date, however, only 122 projects have reached the start-up stage, representing $135 million in investments. Most of these projects are joint ventures with local Jamaican businessmen.
One of the largest of these is a $25 million banana export project, a joint venture of the Banana Producers Association of Jamaica, the Jamaican government and United Brands Company. United Brands' investment-for which the company is seeking Overseas Private Investment Corporation guarantees-is $1 million; the company's chairman, Seymour Milstein, is a member of the U.S. Business Committee on Jamaica and co-chair of its Agricultural subcommittee. The joint venture will initially farm 2,000 acres of bananas for export to the United Kingdom.
In 1982, U.S. companies provided a total of $46. million in investments to Jamaica. The model for much of these ventures is Jamaica Needlecraft Ltd., the wholly- owned subsidiary of Maidenform Inc., which is geared for export to the U.S. market. The Seaga government has targeted the apparel industry for major expansion, and has hired the Singer Sewing Machine Co. and Kurt Salmon Associates - described by the JNIP as "an international management consultancy firm with years of experience in the apparel industry" - to assist in enticing U.S. manufacturers to set up off-shore production bases on the island. The companies and the government are counting on a $3.35 an hour difference in labor costs to entice investors (see chart on page 17).
But despite Seaga's overtures to the multinationals and recent visits to the island by David Rockefeller and a delegation from the Overseas Private Investment Corporation, the hoped-for flood of investment has not materialized. This is a fact acknowledged by the government. In an advertising section in Institutional Investor magazine sponsored by the Jamaican government, an analyst wrote: "Most of these investments... have been in the $1 million to $2 million range, a source of disappointment to Jamaican officials... High interest rates and the world's recession have not made it easy to attract major new enterprises.
"In addition," the article continues, "it must be admitted that investors still fear the region's political and economic uncertainties. ..`One has to convince people that the favorable changes that are taking place in Jamaica are for real and will stay,' says David Rockefeller..."
But attracting foreign investment is not the government's only problem. Bauxite production-the country's major foreign exchange earner-is in serious decline, and Seaga and the multinationals that control this industry have been forced to turn towards the U.S. government for their salvation.
Five companies operate mining and refining facilities on the island: Reynolds, Kaiser, Alcan, Alcoa and Anaconda. Last year production fell to 6.35 million tons, the lowest level in history: over 1,200 workers were laid off. To help the country and the companies recover, the U.S. purchased 1.6 million tons of bauxite ore from Jamaica for its strategic mineral stockpile. In January the Reagan Administration announced another purchase of 1 million tons for 1983 from the subsidiaries of Reynolds and Kaiser. (Traditionally Jamaica has supplied 45% of the U.S.' bauxite ore imports).
Jamaica has also resorted to "counter-trade" agreements with General Motors and Chrysler Corporations to get rid of its unsold bauxite and alumina (a product of bauxite). In exchange for the commodities, Chrysler will offer Jamaica pick-up trucks and vans, while GM will supply the country with motor vehicles, heavy equipment and machinery from its subsidiaries in England, Japan, West Germany and Australia.
In addition to these "creative trading schemes," Jamaica has become the second-largest per capita recipient of U.S. aid. In 1982, this aid amounted to $143 million, including $50 million from the $350 million support fund provided under the Caribbean Basin Initiative. Jamaica is also the largest overall recipient of loans and loan guarantees from the Overseas Private Investment Corporation (OPIC), which in January, 1983 sponsored a delegation of 14 leading U.S. business executives from the U.S.
Jamaica's debt now exceeds $2.2 billion-a dramatic increase over the $770 million debt left by Manley. Unemployment is conservatively listed as 26% of the work force. In the last two years, over 43,000 people have left Jamaica out of a population of 2 million-the highest number of emigrants in Jamaican history.
But it is possible that the most serious repercussions for Seaga will come from the conditions imposed on Jamaica by the IMF's structural readjustment program.
The projections on which the program was based now appear wildly optimistic: a tripling of sugar production by 1983; banana exports to rise from the all-time low figure of 22,000 tons in 1981 to 150,000 tons (production of both sugar and bananas was lower in 1981 and 1982 than in 1980); bauxite and alumina to reach full production levels, with plant expansion, by 1986.
At the same time the IMF imposed an austerity program which dictated cutbacks in public sector employment; accordingly, some 2,000 jobs have been lost. In an effort to make the sugar industry "viable," the cooperatives established under Manley were disbanded, two increases in the domestic price of sugar have taken place, and 900 sugar workers were laid off last fall.
Public expenditures as a percentage of GDP have been frozen by the Seaga government, and credit for consumers and manufacturers of the domestic market have been curtailed. At the same time, the local market has been flooded with foreign-made goods against which local manufacturers cannot compete.
Another IMF requirement was the devaluation of the currency. At the beginning of January, 1983, Seaga announced the establishment of an official parallel market for currency at the commercial banks, a move designed to bring needed American dollars into the central bank. (The arrangement allows banks to buy and sell currency at rates lower than the official exchange rate.) But the move has brought protests from bordering countries dependent on the Jamaican market, because their exports are being priced at the higher level of exchange, making them less competitive with Jamaican goods.
Finally, the IMF required that Jamaica abandon its import-substitution industries and move as quickly as possible into an export-oriented economy. This marks a major change from the past, when Jamaican industries-pharmaceuticals, paint, chemicals, furniture, textiles and footwear-exported from a secure domestic market base.
Dissatisfactions with these policies and the impact of the IMF agreement can be heard at many levels of Jamaican society. A poll published last November in the country's major newspaper showed that Michael Manley's Peoples National Party still had the support of 53% of the population, and that Manley himself is viewed as the best leader for the country.
But the present government's backers in the U.S. think differently. Last month, Seaga was honored by President Reagan with the Freedom Foundation's American Friendship medal for his "furtherance of democratic institutions" and "courageous leadership in the cause of freedom for all people." After the ceremony, the prime minister flew to New York to meet-once again-with the U.S. Business Committee on Jamaica
But at that meeting U.S. officials were less optimistic than Reagan. Speaking to both Seaga and the assembled businessmen, National Security Advisor William Clark praised the Prime Minister's efforts to date-but warned that "it is essential that internal economic structures are to be further reformed if we are to generate still more confidence in the international community in Jamaica."
This ominous statement implies further cutbacks in public spending, further price increases and a reduction of public sector employment-in return for more investment by the multinationals. What has occurred in Jamaica under Seaga so far, however, casts doubt on the viability of this strategy.
Suzanne Soracco is a New York-based journalist. Tim Shorrock is the editor of the Multinational Monitor.