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