JAMAICA: FINANCE MINISTER ON MULTILATERALS, ECONOMIC

UNCLAS SECTION 01 OF 02 KINGSTON 001058

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH)
WHA/EPSC (MROONEY)(FCORNEILLE)
EEB/ESC/IEC/EPC (MMcMANUS)
INR/RES (RWARNER)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: EFIN ENRG EAIR EINV ECON ETRD KCOR KIPR IADB IBRD
IMF, TRSY, XL, JM
SUBJECT: JAMAICA: FINANCE MINISTER ON MULTILATERALS, ECONOMIC
PERFORMANCE

REF: A) KINGSTON 1028
B) KINGSTON 1016
C) KINGSTON 1001


1. (SBU) Ambassador Johnson and econoffs met with Audley Shaw,
Minister of Finance and the Public Sector and his Financial
Secretary Sharon Crooks on December 12. Shaw highlighted the
importance of re-engaging the multi-laterals adding that the
Inter-American Development Bank (IDB) was the most receptive and
expeditious in its approach to helping the island. He complained
that he was promised USD 200 million from the World Bank (WB) but
was told he will only receive USD 100 million.

Praise for IADB
--------------


2. (SBU) Shaw confirmed that the IDB has already provided USD 200
million in loans and was in the process of providing another USD 300
for liquidity support to commercial banks adding, "the IDB has
pulled out all the stops to work with us." He also said the IDB
President, Luis Alberto Moreno, will be visiting Jamaica in January
to address a Caribbean-wide conference on crime, his second visit in
less than a year. He also noted that the top leadership of all the
multi-laterals have visited in the last year -- a sign of
confidence


3. (SBU) He said the WB also has good intentions and in combination
with the Caribbean Development Bank (CDB) has provided almost USD
200 million in loans, bringing the total amount provided by
multilaterals to USD 400 million. He lamented that the WB had
agreed to provide a further USD 200 million in January, which would
have been used to pay down a balloon payment due on a Euro bond due
in February.


4. (SBU) However, he said he was informed by Pamela Cox - Deputy
Head that they had to reduce figure by 50 percent due to increased
demands. Shaw made it clear this was not acceptable since the
commitment was made in writing and the country needed the money. He
also said the funds were not a problem as the WB was "quite liquid."
He served notice he was planning to appeal to WB President Robert
Zoellick in writing adding he would be seeking Post's support on
this effort. He said he will provide Post with a copy of the letter
when it is sent.

IMF Visit
--------------


5. (SBU) Regarding the recent visit by Dominique Strauss-Kahn,
Managing Director of International Monetary Fund (IMF),Shaw made it
clear that, at this point, Jamaica did not need the assistance of
the IMF. However, he said if economic conditions worsen, he stands
ready to go to the IMF and access a stand-by facility in the amount
of USD 500 million. Shaw said that Strauss-Kahn also said Jamaica
did not have the fiscal capacity to provide a fiscal stimulus
package at this time. However, Prime Minister Bruce Golding has
announced a fiscal stimulus package.

Good Governance Reforms
--------------

6. (SBU) Shaw said the GOJ is undertaking several efforts to improve
good governance and reduce GOJ costs. These include: (A) reform in
procurement procedures (amendment to Contractor General's Act); (B)
implement tax reforms, several based on a recent assessment
conducted by the U.S. Treasury office of Overseas Technical
Assistance (OTA); and, (3) rationalize the public sector through
attrition, mergers, closure, retrenchment and redeployment.
He commented, "These are not conditionalities imposed by outsiders,
but self-imposed measures for good governance." He also said his
Ministry is working with four policy reform matrices from EU, CDB,
IDB and WB that are focused on cross cutting themes to bolster good
governance policies.

Current Economic Performance
--------------


7. (SBU) Regarding current economic performance Shaw said that
margin calls are still impacting the foreign exchange market. He
said although USD 130 million was still available from the Bank of
Jamaica (BOJ) some securities dealers were not tapping into the
facility apparently because they did not want the BOJ to get
information on their dealings. He said fundamentals especially in
the banking system are still sound, with non-performing loans about

KINGSTON 00001058 002 OF 002


2.7 percent (benchmark is 8-10 percent). (Comment: According to
the BOJ, non-performing loans are nearing USD 112.5 million, growing
47.7 percent over last year for the September quarter, partially due
to the collapse of several alternative investment schemes earlier in
the year (reftels) END COMMENT.

Tourism and Divestiture
--------------


8. (SBU) Tourism is expected to hold at 5 percent growth this year
but could fall by up to 10 percent next year. Remittances remain
resilient with a modest increase for the year. Shaw also expects
divestment of the former sugar estates to be imminent (reftels).
Echoing other comments heard in the Ministry, he said Air Jamaica
(AJ) has four serious bidders. New management at the airline has
already improved service with delays down by over 50 percent. Also
51 percent of all passengers to Jamaica still fly AJ. The GOJ's
goal is to divest but if this is not successful, it will have to be
shuttered, a position Shaw said was telegraphed by PM Golding. Shaw
did admit the divestiture process could "overshoot the runway a
little" and miss the proposed deadline of March 31.

Fiscal Stimulus Announced
--------------


9. (SBU) Shaw said a new fiscal stimulus would be announced on
December 14 by PM Golding (which was subsequently done) to include:
(A) Real estate transfer taxes will to be reduced one percent to
five percent; (B) Accelerated depreciation for capital equipment can
be taken in one year instead of two; (C) Remove double taxation on
dividends; (D) General Consumption Tax (GCT) on tourism sector will
be reduced from 8 percent to 4.1 percent (NOTE: - GCT is 16.5
percent elsewhere); (E) Access to increased credit by small
businesses; and (F) make personal effects will be customs duty free
for December.
HEG