Jamaica approached the International Monetary Fund in 1979 as a result of its chronic balance of payment issues. This problem was triggered chiefly by the oil crises of the mid-seventies and the bauxite industry’s declining revenues. As a result, producers cut production in response to a Government imposed ban on bauxite as a form of retaliation.
The government then began borrowing at a rapid pace from the Central Bank and overseas institutions in an attempt to facilitate and maintain previous levels of spending. By 1977, only US$30 million was available from the US$120 million in 1975 and Government had run out of reserves after trying unsuccessfully to ration its supply.
A series of controls that were imposed and aimed at stemming the outflow of reserves, simply resulted in a large parallel foreign exchange market and the government was eventually forced to devalue the currency.
With the arrival of the 1980’s, Jamaica saw accelerating inflation, falling output, a severe foreign exchange crisis, and political and social tensions.
Within the five month period between the end of 1987 and May of 1988, there was a 95% devaluation of the Jamaican dollar. In addition, the external debt increased steadily throughout the 1980s reaching US$4.5 billion in 1989, or equivalent to 125% of GDP.
By the nineties, the situation continued to be unfavorable for Jamaica with balance of payments problems still existing, depressed growth due to the falling export