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Jamaica remittances seen at risk in Trump era

Published:Friday | January 6, 2017 | 12:00 AM

Jamaica and the wider region's remittances are set to enter a period of uncertainty under the new United States administration to be led by Donald Trump, according to a new research paper.

Remittances and tourism are Jamaica's largest earners of foreign exchange. The period of uncertainty comes as the island achieved one of its best regional topping performances in 2016, according to the document entitled

Capital Flows to Latin America and the Caribbean: Recent Developments was prepared by Economic Affairs Officer Helvia Velloso under the supervision of director Ines Bustillo at the Washington offices of Economic Commission for Latin America and the Caribbean (ECLAC), a regional United Nations body.

The research paper does not call Trump's name, who is hawkish on labour and immigration. He will be inaugurated as president on January 20.

"Several countries in Central America and the Caribbean are reliant on remittances from friends and relatives in the US, notably Honduras, El Salvador, Haiti, Jamaica, and Guatemala. If US policy shifts towards more nationalism and protectionism, migration and remittances are likely to drop. The region is bracing for a period of uncertainty," said the ECLAC paper.

"It is still too early to assess the impact of potential changes in policy direction in the US on real activity in LAC economies."

US president-elect Trump campaigned on a promise to increase jobs for Americans while reducing the available jobs for foreign workers, especially for those without legal documentation.

The ECLAC authors see interest rates rising in the US and spreading as a consequence of uncertainty.

"The potential adoption of pro-growth and inflation-inducing policies including tax cuts and infrastructure spending at a time when the US economy is close to full employment is expected to affect the low interest rate environment that the world has got used to and shake the market out of a decade-long period where low interest rates became the norm," they said.

Net remittances to Jamaica for the first six months of 2016 rose to US$1.01 billion, which represented a growth of US$26.3 million, or 2.7 per cent, compared to 2015, according to latest Bank of Jamaica data. Most of the island's remittances come from the US, followed by the UK, and The Cayman Islands.

Jamaica was one of only three countries in the Americas to receive a rating upgrade in 2016 within a market characterised by downgrades, according to the paper. From January to October of 2016, there were nine positive sovereign credit rating actions in Latin America and the Caribbean against 27 negatives. The deterioration of the credit quality of most nations in the hemisphere came amid a tightening of the spreads on emerging market instruments, according to the document.

"The number of sovereigns that have been downgraded this year so far eight is almost three times the number of sovereigns that were upgraded (Jamaica, Argentina, and Honduras)," stated the ECLAC paper.

In February, Fitch upgraded Jamaica's rating to B from B-, with a stable outlook due to improved fiscal surpluses and external finances. Then in November, rating agency Moody's upgraded Jamaica's rating to B3 from Caa2, with a stable outlook. Jamaica's spreads tightened by 83 basis points to 386 from 469 basis points between January and October 2016.

There were five debt issuances in the Caribbean between the review period in 2016, including Jamaica, which raised US$364 million at 8.0 per cent. The five issues totalled US$2.6 billion, or 2.0 per cent, of the total issuance from the Latin America and the Caribbean region as a whole.

"In August, in an effort to build the longer-dated part of its curve and retire short-term debt, Jamaica reopened its 2039 bond to add US$364 million. Jamaica has US$500 million outstanding on its 2039 bonds, which will amortise through three equal instalments in 2037, 2038, and 2039. The bond was initially issued in March 2007," the research paper said.