Identifier
Created
Classification
Origin
06KINGSTON925
2006-05-12 14:50:00
CONFIDENTIAL
Embassy Kingston
Cable title:  

JAMAICA'S FY 2006/7 BUDGET DEBATES: MORE THAN

Tags:  ECON EFIN JM 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHKG #0925/01 1321450
ZNY CCCCC ZZH
R 121450Z MAY 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 2791
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L KINGSTON 000925 

SIPDIS

SIPDIS

STATE PASS FOR WHA/CAR (BENT),WHA/EPSC (SLATTERY),
EB/IFD/OMA (JUNCKER)

E.O. 12958: DECL: 05/12/2016
TAGS: ECON EFIN JM
SUBJECT: JAMAICA'S FY 2006/7 BUDGET DEBATES: MORE THAN
MONEY AT STAKE


Classified By: Political/Economic Counselor Mark J. Powell, reasons 1.4
(b) and (d)

-------
Summary
-------

C O N F I D E N T I A L KINGSTON 000925

SIPDIS

SIPDIS

STATE PASS FOR WHA/CAR (BENT),WHA/EPSC (SLATTERY),
EB/IFD/OMA (JUNCKER)

E.O. 12958: DECL: 05/12/2016
TAGS: ECON EFIN JM
SUBJECT: JAMAICA'S FY 2006/7 BUDGET DEBATES: MORE THAN
MONEY AT STAKE


Classified By: Political/Economic Counselor Mark J. Powell, reasons 1.4
(b) and (d)

--------------
Summary
--------------


1. (C) In the just-concluded yearly Parliamentary sparring
match that Jamaicans refer to as the "budget debates," the
governing People's National Party (PNP) and the opposition
Jamaica Labor Party (JLP) presented sharply divergent views
on the best way to pull the country out of the economic
doldrums. The administration presented a typical election
year budget with increased spending, but with no new taxation
measures. The focus of capital spending will be on
education, housing and national security, while continuing a
policy of fiscal restraint in order to bring the country's
debt ratio to a level more conducive to economic growth.
There appear to be growing divisions within the PNP, however,
between Prime Minister Portia Simpson Miller and her
grassroots supporters, and opponents within the party who are
unimpressed with her tenure thus far.


2. (C) Summary (cont'd): The JLP, on the other hand, focused
on debt reduction as the vehicle for recovery. Both the
Opposition Spokesman on Finance, Audley Shaw, and the
Opposition Leader Bruce Golding harshly criticized the PNP's
"concealment" of the use of funds saved under the PetroCaribe
oil agreement with Venezuela, and instead advocated using
PetroCaribe and international financial institutions for debt
reduction to spur productive investment. In contrast to the
PNP, the JLP leaves this budget season a more unified and
persuasive political force. End summary.

--------------
Background
--------------


3. (U) The "budget debate" in Jamaica is more of a formulaic
"point-counterpoint" series of presentations. In mid-April,
the Minister of Finance and Planning announces government
expenditure plans. This is followed by review from the
Parliamentary Standing Finance Committee (SFC),who generally
agree to the totals. One week later, the Finance Minister
presents his projections for revenue during the fiscal year,
which runs from April to March. After this, the Opposition

spokesman for Finance and the Opposition Leader offer their
alternative economic and policy models for the country. The
last word, however, belongs to the administration, with a
speech by the Prime Minister, and a final wrap-up by the
Finance Minister.

--------------
PNP: No New Taxes
--------------


4. (SBU) On April 21, Finance Minister Omar Davies announced
government expenditure plans amounting to JMD 358 billion
(USD 5.5 billion),with capital expenditure doubling to JMD
29 billion (USD 446 million) over the 2005/6 figure.
Following SFC approval, on April 27, he forecast revenues of
JMD 222.2 billion (USD 3.4 billion),with tax receipts
accounting for 87 percent, with the remainder coming from the
sale of a fourth cellular license. His catchphrase of "No New
Taxes," combined with increased expenditure, is a classic
budget recipe considering the forthcoming general election
which many expect to be held some time between July and
September.


5. (U) Explaining how he would account for the JMD 136
billion (USD 2.1 billion) shortfall between revenue and
expenditure, Davies explained that the country's bauxite
levy, the sale of the GOJ's 20 percent share in the Jamaica
Public Service Company, and leftover funds raised on the
international capital markets in February 2006 would combine
with JMD 112 billion (USD 1.7 billion) in domestic loans.
Similarly, a 20 percent increase in tax collection in the
coming fiscal year would be realized by aggressive measures
to improve Jamaica's 58 percent tax compliance rate. (Note:
In early June, two USG officials from the Treasury Office of
Technical Assistance plan to visit Jamaica to conduct a needs
assessment for the GOJ tax office. End note.)

--------------
Division in the Ranks?
--------------


6. (C) On May 10, a well-placed private sector contact told

Econoff about a rumor that Davies had not wanted to present a
budget of this nature; that he had several new tax measures
planned to increase revenue. According to the contact,
however, new Prime Minister Portia Simpson Miller insisted
that he remove them from the budget, arguing that they would
be politically untenable with an election imminent.
Furthermore, contacts suggest that this tampering may be a
symptom of deeper divisions within the normally unified PNP.
There have also been rumors that some of the PNP
heavyweights, who generally favored Minister of National
Security Peter Phillips in the recent party leadership race,
have been dissatisfied by what they see as Simpson Miller's
"underperformance" since her inauguration on March 30.

--------------
But a Unified Message on Spending
--------------


7. (U) In his address, Davies highlighted three areas in
particular for special attention: education, housing and
national security. (Comment: In fact, Jamaica's need to
spend 60 percent of its budget on debt servicing and its
year-on-year recurrent expenditures mean that capital
spending is always hamstrung. End comment.) Education
enjoyed the largest addition: JMD 3.6 billion (USD 55.4
million),of which JMD 2.65 billion (USD 40.8 million) will
facilitate rehabilitation and upgrading of schools. Davies
also specifically noted JMD 1.5 billion (USD 23.1 million) in
capital spending for the Ministry of National Security (MNS),
of which JMD 1.1 billion (USD 17 million) is dedicated to
technology upgrades. This is a significant step up from the
JMD 400 million (USD 6.1 million) devoted to MNS in the last
fiscal year.


8. (SBU) These priorities meshed well with Prime Minister
Portia Simpson Miller's presentation before Parliament on May

9. In her first major policy speech since her inauguration
40 days ago ) a number of biblical significance that she was
quick to seize upon ) Simpson Miller solidified her base but
failed to win many new converts. Her theme was characterized
in the media as "More for the Poor," and she highlighted
education, housing and early childhood development. Emboff
spoke to Courtney Williams, an official from the Ministry of
Finance (protect),who noted that Simpson Miller's priorities
came as no surprise, given her "self-bestowed role as Country
Mother."

--------------
Opposition Jamaica Labor Party: It,s the Debt
--------------


9. (U) On May 2, Opposition Jamaica Labor Party (JLP)
spokesman on finance, Audley Shaw, announced a bold plan to
restructure Jamaica,s debt by using funds saved under the
PetroCaribe oil agreement with Venezuela. Shaw argued that
the GOJ should use the savings from the deal, which he
estimated at JMD 18 billion (USD 277 million) for this fiscal
year, to retire more expensive debt. This would decrease the
amount of revenue that must be dedicated to servicing costs
each year and allow more to be spent on productive investment
that would spur economic growth. Shaw blasted the PNP's lack
of transparency in its allocation of PetroCaribe savings,
calling it a "social spending slush fund."


10. (U) He further suggested that the GOJ borrow a block of
funds from multilateral institutions, using low interest cost
funds such as these to replace the expensive debt instruments
that Minister Davies has been inclined to utilize. Once debt
costs were under control, Shaw continued, he would pursue an
export-oriented industrial policy, diversifying the economy
into new sectors such as agri-business, health tourism, and
business process outsourcing. He noted that these
fast-growing areas had proved the perfect remedy for
Singapore, Ireland and, closer to home, Costa Rica.

--------------
Golding Solidifies His Leadership
--------------


11. (SBU) On May 4, Opposition leader Bruce Golding gave what
was widely regarded as the speech of his career. He also
focused on the difficulties faced by a Government which, in
order to satisfy its creditors, must spend such a large share
of its revenue on debt servicing that it was left "in a
position where it (is) no longer capable of fulfilling the
functions for which Government exists." He used this as a
lead-in to renew calls that he has voiced before to set
constitutional limits on debt and deficits, although even


JLP-affiliated Embassy contacts admit that such limits are
unlikely, and were perhaps intended to make for "good sound
bites" for the media.


12. (U) Golding, as is typical of opposition leaders in these
debates, also used the opportunity to criticize the PNP's
record over its 14-year reign. He asked, for example, why
the Jamaican economy had only grown by four percent
cumulatively in the decade 1995-2004, when there had been USD
4.4 billion in foreign direct investment over the same
period. He argued that his party was equally committed to
fiscal austerity measures (Davies' signature phrase),but
opined that taken in isolation, they were actually
"impediments to growth." He reiterated that the only way
forward was to bring Jamaica's debt problem under control;
only then could the country become a productive player in a
globalized world.

--------------
Comment
--------------


13. (C) The stakes of this budget season are especially high.
With the upcoming general election, this was the first
chance for Simpson Miller to make a wide-ranging policy
speech to show her path forward for Jamaica. In the same
vein, recent polls had shown a convincing PNP victory in the
elections, so the JLP's Golding needed to impress the
electorate, presenting them with a clear and credible
alternative. It would appear in the immediate aftermath that
the JLP won this round. The historically divided party
appears to be rallying around their new leader, just a few
weeks after Econoff was told that if Golding didn't "produce
the goods, he,s finished." The PNP's program, on the other
hand, lacked imagination, and is perceived ) at least by the
Kingston intelligentsia ) as a "more-of-the-same" budget
intended to win at the polls. That being said, Simpson
Miller's audience was not these economic and political
elites; she was, in the words of one contact: "preaching to
the choir(quite literally." It was the grassroots activists
that ensured her elevation to PNP leader, and whom she wants
to continue to court. At the very least, then, these past
two weeks seem to have closed some of the gap between the
parties, and if the JLP can capitalize on the momentum, may
have a chance to end the PNP-owned longest streak of election
victories in Jamaican political history.
ROBINSON