May 8, 2001

Mr. Horst Köhler
The Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. During the fiscal year 2000/01, Jamaica has maintained a strong fiscal effort, which has resulted in a stabilization of debt levels and a resumption of growth, as well as increased confidence in domestic and international markets. Despite some shortfall in fiscal revenues, the fiscal targets under the Government's economic programme, monitored by the Fund staff, were met through continued restraint in non-interest expenditures, while preserving social safety net expenditures. Accompanied by prudent monetary policy, the program succeeded in further reducing inflation, and allowed an orderly adjustment of the exchange rate. Public sector reform was pursued, including the privatization of the electricity company and further restructuring in the financial sector, with the divestment of Union Bank.

2. However, the pace of interest rate reduction during 2000/01 was slower than projected while the assumption by the central government of third-parties' liabilities, together with other factors, limited the reduction in the public sector debt. In consequence, larger interest payments are now projected for 2001/02, necessitating an adjustment in the fiscal objectives for the fiscal year 2001/02. Further fiscal adjustment will be undertaken—by way of strengthened tax administration and enforcement measures, and some increase in local fees—while public sector expenditures will be strictly contained, although social safety net expenditures will be kept constant in real terms. The government will also strictly limit the issuance of central government guarantees to third parties and the assumption of any additional debt. The program includes the divestment of the remaining FINSAC assets, as well as further public sector reform.

3. The attached table presents the adjusted macroeconomic targets, consistent with the Government's economic and financial policies for 2001/02. Over the medium term, a critical target is the decline of public debt and a substantial reduction in debt servicing costs, enabling the country to achieve a sustained recovery and releasing resources for capital expenditures and poverty alleviation. In support of these objectives, the Government requests that Fund staff continue to monitor the execution of this programme until March 2002. The Government of Jamaica is ready to adopt any additional measures in order to achieve the targets set under its programme. The authorities will provide to the Fund all the information necessary to monitor the programme, and will review it with the Fund staff no later than end-September 2001, and end-March 2002.

Yours truly,

Table 1. Jamaica: Quantative Targets for Key Variables in the Staff -Monitored Program for 2001/02 1
	Actual 2		Targets
									Revised            Original
	Mar. 2001		Jun. 2001		Sept. 2001		Dec. 2001		Mar. 2002
(In millions of Jamaica dollars; end of period)
Net domestic assets of central bank 3	-29,462		-31,758		-32,458		-27,524		-34,294		-23,601
Overall balance of selected public enterprises 4	2,888		-1,050		-300		1,250		2,400		4,599
Primary balance of the central government (indicative) 4	39,768		3,400		11,900		23,500		38,500		40,706
Overall balance of the central government 4	-3,153		-10,700		-13,800		-15,000		-10,000		-7,516
(In millions of U.S. dollars; end of period)
Net international reserves of the Bank of Jamaica	1,286		1,336		1,336		1,336		1,386		1,155
Foreign short-term commercial borrowing 4 5	n/a		50		50		50		50		0
Foreign medium and long-term commercial borrowing 4	566		275		275		400		400		400
1 As defined under the original SMP (EBS/00/152, 7/21/2000), Appendix I pages 27-28. The adjusters (pg. 28) are no longer necessary or appropriate and have been dropped. Implementation of capital expenditures will be reviewed in September. 2 Provisional figures, estimated outturn for the selected public enterprises. 3 Using an accounting exchange rate of J$46.6 per dollar, and the cross-currency exchange rates against the U.S dollar as of March 31, 2001. The original SMP target for March 2002 (of J$ -18,559) has been adjusted to reflect these changes. 4 Cumulative figures for fiscal year to date. The original SMP target for the central government balance for 2001/02 (surplus of J$4,390 mill.) excluded interest payments on FINSAC securities, then estimated at J$11,906 mill. The revised targets include cash interest payments on FINSAC securities, which have been assumed by the central government. 5 Defined as trade credits to selected public enterprises. See also Jamaica Letter of Intent, July 19, 2000