US embassy cable - 05KINGSTON425

UNCLAS KINGSTON 000425 
 
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 TRADE DEFICIT DECLINED FROM JANUARY TO 
OCTOBER 2004 
 
 
1.  In mid-February 2005, the GOJ released an official 
statement of the trade deficit numbers for October 2004. 
Such data is typically released four to five months after 
the reporting period. 
 
2. Despite the economic impact of Hurricane Ivan in 
September 2004, Jamaica's merchandise trade deficit 
improved by USD 177 million to USD 1.9 billion at the end 
of October 2004.  While merchandise imports declined 
moderately during the period, the improvement was largely 
driven by robust growth in merchandise exports.  Export 
earnings for the first ten months of 2004 increased by 17 
percent to USD 1.2 billion, while imports fell by a 
marginal 0.2 percent to USD 3.1 billion. 
 
3.  During the review period, machinery and transport 
equipment, which declined by 6.1 percent, remained the 
major imported commodity group, accounting for USD 692.4 
million, almost 24 percent of total imports.  Mineral 
fuels worth USD 689.8 million, 22.4 percent of total 
imports, accounted for the next largest portion of 
imports.  Other major categories were manufactured goods 
(USD 438.5 million) and food (USD 427.1 million). 
 
4.  The moderate decline in imports was largely due to the 
lag effect of the steep depreciation, which took place in 
2003.  The exchange rate correction made imported goods 
more expensive, thereby lowering demand for some products. 
There has also been a steady decline in the import of 
telephone and telephone related equipment, which had 
soared during the set-up and expansion phase of mobile 
companies.  Hurricane Ivan also affected imports, as major 
ports of entry were out of operation for over two weeks in 
some instances.  Fuel imports have also declined, due to a 
significant reduction in crude oil imports. 
 
5. Despite an attempt in the 1980s to diversify the export 
base, non-traditional exports continue to lag behind 
traditional exports.  From January to October, non- 
traditional exports accounted for only 21.2 percent of 
total exports, despite gaining a competitive edge from the 
2003 depreciation.  Traditional exports of USD 896.2 
million accounted for the other 78.8 percent of exports. 
Traditional exports were driven by a combination of 
buoyant bauxite/alumina production and increased world 
commodity prices, reflecting increased demand from China, 
in particular.  Sugar, which has benefited from the 
appreciation in the euro, also contributed handsomely to 
the robust performance.  Chemicals and raw materials were 
the best performing non-traditional exports.  Textiles, 
which soared to over USD 150 million prior to NAFTA, has 
fallen to USD 8.3 million, suggesting the sector has 
succumbed to competitive pressures. 
 
6.  Comment:  Jamaica's trade deficit should continue to 
improve for the remainder of 2004 and the first half of 
2005.  However, the improvement could subside thereafter, 
due to a number of factors.  Imports are expected to rise 
due to increased refined oil imports, which compensate for 
lost capacity at the fire-damaged local refinery.  Imports 
of capital goods are also expected to climb in order to 
satisfy demand in the bauxite and tourism industries 
following announcements of record foreign investment in 
both sectors.  The recent strengthening of the Jamaican 
dollar could also make imports of consumer goods more 
attractive in upcoming months.  However, the currency 
appreciation will erode the competitive gains achieved 
since 2003, and could well hamper the recovery in exports. 
Jamaica's trade balance could be boosted by the recovery 
in export agriculture and increased exports of bauxite and 
alumina following extensive recent expansion in the 
industry.  The value of sugar exports will also benefit 
from any strengthening of the euro relative to the US 
dollar. 
 
TIGHE