JAMAICA'S "FINANCE MINISTER IN WAITING" ROLLS OUT

C O N F I D E N T I A L KINGSTON 001127

SIPDIS

SIPDIS

STATE FOR WHA/CAR (RBUDDEN),WHA/EPSC (JSLATTERY)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR A FAIBISHENKO

E.O. 12958: DECL: 07/19/2017
TAGS: ECON PGOV PINR PREL XL JM
SUBJECT: JAMAICA'S "FINANCE MINISTER IN WAITING" ROLLS OUT
ECONOMIC PLAN

Classified By: Classified by DCM James T. Heg for reasons 1.5 (b) and (
d)

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SUMMARY
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1. (C) In a private meeting with DCM and EMBOFFS, JLP Shadow
Finance Minister and member of Parliament Audley Shaw
outlined a slew of policies, including a new debt management
program and tax reforms, to restructure the Jamaican economy.
After 18 years in opposition, "Jamaica's Finance Minister in
waiting", Audley Shaw, is convinced the Jamaica Labor Party
(JLP) will be mandated by the people of Jamaica to resurrect
the nation's economy. Shaw confirmed that, to date, he is the
only JLP member to be publicly promised a ministry by
Opposition Leader Bruce Golding in the event the party is
elected. Any restructuring of the economy will require
difficult decisions with uncertain political implications. A
change in government will also bring increased expectations.
If not managed properly, the high expectations, coupled with
the current atmosphere of dissatisfaction, could very well
find the JLP repeating the familiar circumstances of 1983,
when the party became highly unpopular because of measures
imposed to head off the economic decline of the 1970's.
Although confident that his JLP party will win, Shaw evinced
concern about the effect on JLP finances of Prime Minister
Portia Simpson Miller's announcement of an unusually long
seven week campaign period before the August 27 general
election. End summary.

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Current Situation Untenable
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2. (SBU) On July 16 emboffs met with Opposition Spokesman on
Finance and Planning, Audley Shaw, to discuss the JLP's
economic plans. Expressing that Jamaica under the governing
People,s National party (PNP) was not investor or business
friendly, Mr. Shaw summarized his perceptions that the
economy had become too dependent on debt for its survival. As
a debt dependent economy, Jamaica is experiencing a crowding
out of private participation due to interest cost increases.
Shaw said that when JLP left government in 1989, the total
shock of debt was JMD 30 billion (USD 5.2 billion). By the
end of 2006, the debt soared to JMD 930 billion (USD 14
billion). Even more disconcerting was the shift in borrowing
from multilaterals such as the World Bank to commercial
borrowing at the equivalent of what he called "junk bond
rates". Mr. Shaw understands the shift from multilateral to
domestic loaners by the government to be a deliberate attempt
to avoid the scrutiny and conditionality of the
multilaterals. Shaw also asserted that the economy has been
in a state of stagnation, growing at an average rate of 0.6
percent annually over the last 18 years, below the rate of
population growth. He said at the same time 80 percent of
secondary school students are graduating without mastery of
even one subject - a state of functional illiteracy.

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New JLP Government to Restructure Economy
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3. (SBU) Shaw believes that the economy requires radical
restructuring to achieve average sustained growth rates of at
least six percent and address the ills of the current
economic situation. A JLP government that has him as Finance
Minister would embark on a four point plan to grow the
economy. (Note: Shaw confirmed that, to date, he is the only
JLP member publicly promised a Ministry by Opposition Leader
Bruce Golding in the even the party is elected. This could be
the reward for Shaw's decision not to contest the leadership
race that saw Golding become the Opposition Leader. End
note.)


4. (SBU) First, Shaw said he would formulate a debt
management strategy of increased borrowing from multilaterals
at lower interest rates. Shaw expects this strategy will free
up domestic resources for the private sector to borrow and
invest at competitive rates. The JLP plans to engage the
private sector. Currently the private sector owns most of the
public debt. In his proposed social partnership, the private

sector would accept lower interest rates. In return the
government would agree to certain economic targets. The
second layer of Shaw's plan addresses sustainable energy
policy. Investors complain about the cost and reliability of
energy. Jamaicans pay as much as USD 0.23 per kilowatt hour
for electricity. Other Caribbean nations pay as little as USD
0.13 per kilowatt hour for electricity. An alignment with the
rest of the Caribbean would reduce the cost of doing business
and increase the competitiveness of Jamaican businesses.


5. (SBU) Thirdly, the Shadow Finance Minister plans to
rationalize the bureaucracy that can currently take a year to
deliver approvals for business projects. Even the present
GoJ, he said, accepted that red tape deters a number of
potential investment projects. If Shaw has his way, a JLP
administration would reduce the bureaucracy by reducing the
approval process to a maximum of three months. Fourthly, the
reduction in bureaucratic obstacles to investment would be
accompanied by comprehensive tax reforms. Shaw thinks the
current tax burden is too high and should be reduced to free
up resources for investment and growth. In particular, he
would bring corporate income taxes in line with personal
income taxes, while increasing the personal tax threshold.
Shaw expects these reforms to stimulate investment and would
form part of his overall investment policy.

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But Can Shaw Make the Hard Decisions?
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6. (SBU) Restructuring of the Jamaican economy requires
making difficult decisions that may lead to a disgruntled
populace. When asked if his administration would be willing
to make decisions in the country's long term interest that
may be unpopular, Shaw stated that the JLP had done so in the
1980's. On the issue of public sector rationalization, Shaw
said the JLP is the only government to have downsized the
public sector (Seaga, he said, reduced government employment
from 100,000 to 70,000 during the 1980,s),and he would be
prepared to downsize again. On the related issue of
divestment, Shaw was quick to point out that there are no
"sacred cows", all public assets would be up for sale; even
politically sensitive assets like Air Jamaica (if its current
restructuring is unsuccessful) and the Sugar Company of
Jamaica would not be spared. Shaw thinks that once these
loss making entities were shed, it would lead to an automatic
lowering of the fiscal deficit. He said the most successful
public sector entities would be packaged and offered to the
public through an initial public offering (IPO).


7. (SBU) Shaw made it clear that casinos were definitely on
the agenda. He thinks casinos are vital for the future of the
tourism industry. He reiterated the JLP's plan to development
downtown Kingston as the financial center of the Caribbean.
Offshore health and education are also expected to be
important items in Shaw's master plan. When asked about his
plan to finance the JLP's free education proposal, Shaw said
it would cost about JMD 1 billion (USD 14 million) and cost
sharing at the secondary level would be eliminated. Shaw told
emboffs that combining agro-industry and tourism would be
important element of any plan for moving forward. In
particular, the JLP concentrate on green house technology and
other tourism attractions.

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JLP on Victory Course
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8. (U) contrary to what some polls were showing, Shaw seemed
confident that the JLP would win the next elections. "We are
confident of victory, as there has been a greening of the
country" Shaw said, referring to his party's color. As an
aside, he quickly asserted that corruption existed in
political polling. Shaw followed up by saying the polls were
showering a general dissatisfaction with the current
administration. He claimed that the same polls showed that
almost 70 percent of Jamaicans think the country is going in
the wrong direction.


9. (U) Shaw believes if the People's National Party (PNP)
wins the next election, Jamaica would face serious social and
economic instability. He said the PNP was not capable of

providing the required intellectual and moral leadership, and
nepotism and corruption in areas like the Universal Access
Fund (cable to follow) would continue unabated. He predicts
whistle blower legislation will become critical going forward
were the PNP to win the upcoming elections.


10. (C) After the formal discussion, DCM took the opportunity
to ask Shaw about the political situation. He reiterated
confidence that the JLP would prevail, and said "it won,t be
close" based on a constituency by constituency analysis. Shaw
said published Jamaican polls are not reliable as they are
tainted by partisan bias. Asked which constituencies would be
the most important to watch, Shaw cited Southeast and
Southwest St. Elizabeth, Central Manchester, and St. Mary,s.
As an example of how things are looking better for the JLP,
Shaw said previously they expected to win two out of three
seats in St. Mary,s but do not anticipate winning all three.
Incipient election violence was, according to Shaw, a sign of
PNP desperation. Most of the incidents so far, he alleged,
were precipitated by PNP supporters.


11. (C) The only crack in Shaw,s confidence came when DCM
asked what effect the Prime Minister,s announcement of
August 27 as the election date was having on JLP finances.
Shaw said it had strained the budget, as JLP was gearing
their effort for a late July election. DCM asked whether the
JLP,s normal donors (generally, in the business community)
might not step up and provide more funds. Shaw indicated that
they were already squealing before the election date was
announced.

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Comment
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12. (C) Shaw's presentation suggests that under a JLP
government, Jamaica would look much more to the international
financial institutions (IFI,s -- World Bank, IDB etc.) not
only for help with the debt and infrastructure problems
facing the country, but also for policy advice. The JLP does
not appear to share the PNP,s traditional and ideological
suspicion and animosity to the IFIs, which came out clearly
in P.J. Patterson,s speech July 8 in which he took credit
for the PNP for getting Jamaica out from "under the yoke of
the IMF."


13. (C) While Shaw's plan is serious and recognizes and
attempts to address the problems of the Jamaican economy, the
plan apparently does not contain contingencies for the
difficulties that could arise. For example, while social
partnerships succeeded in countries like Barbados, they are
problematic in Jamaica due to the lack of credibility
associated with government that inhibits making moral suasion
in the short term. Furthermore, any attempt at anything
resembling debt restructuring could cause jitters in the
international capital markets, where a JLP administration
will still have to take out loans. Shaw may miscalculate the
political implications of public sector restructuring and the
divestment of key, albeit loss making, assets like Air
Jamaica and the Sugar Company of Jamaica. JLP may also
underestimate the expectations of the Jamaican people. If
these challenges are not addressed, the JLP plan could
backfire and lead to the party becoming unpopular in short
order. Shaw may do well to remember that this very situation
played out in the 1980's. During the 1980's, the JLP was
forced to implement a number of measures to restructure the
economy that made the party unpopular within two years. On
the positive side, any attempt to stem the debt, slash
bureaucracy and reform the tax system can only benefit the
economy. End Comment

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Biographical Notes
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14. (U) Audley Shaw was born in Christiana, Manchester on
June 13, 1952. In 1981, Mr. Shaw graduated from Northern
Illinois University (NIU) with a Bachelor of Arts and Master
of Arts Degrees in Journalism with graduate studies in
Marketing, Finance and Public Relations. The Leader of the
Opposition appointed Mr. Shaw to the Senate in 1989. He has
served as Shadow Minister of Information and Culture, Shadow

Minister of Public Utilities and Transport and Shadow
Minister of Industry and Commerce. In March 1993 he was
elected Member of Parliament for North East Manchester. In
September 1995, he was appointed Chairman of Public Affairs
Accounts Committee(PAC) of Parliament - the watchdog of
expenditure of public funds by Government Ministries and
Agencies. In 1997, General Elections, Mr. Shaw was re-elected
to serve a second term as Member of Parliament for his
constituency. He was subsequently appointed Show Minister of
Finance. In 2002 Mr. Shaw was re-elected to serve a third
term as Member of Parliament. Mr. Shaw has served as General
Secretary of the Jamaica Labor Party and has been a Deputy

SIPDIS
Leader of the Jamaica Labor Party since 1999. Mr. Shaw is
recipient of the Donald R. Grubb NIU distinguished Alumni
Award. He is married to Maureen and they have three children.


15. (C) Shaw in person appears poised and organized in his
thinking, and likely would do well as finance minister.
However, his lack of experience on the international stage,
while understandable for member of a party out of power for
such a long time, might present him with a steep initial
learning curve, especially in dealing with debt finance
issues. With a clear free market orientation, Shaw likely
would prove more enthusiastic about U.S. programs such as the
Millennium Challenge Account than the current GOJ Finance
Minister Omar Davies, who never showed much interest.
JOHNSON