Identifier
Created
Classification
Origin
08KINGSTON490
2008-05-29 19:07:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kingston
Cable title:  

JAMAICA: MAY ECONOMIC REVIEW

Tags:  ENRG EAIR EINV SENV ECON ETRD KIPR IBRD IMF TRSY 
pdf how-to read a cable
VZCZCXRO6273
RR RUEHGR
DE RUEHKG #0490/01 1501907
ZNR UUUUU ZZH
R 291907Z MAY 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6397
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0104
RUEHMD/AMEMBASSY MADRID 0316
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 04 KINGSTON 000490 

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (JTILGHMAN) (VDEPIRRO)
WHA/EPSC (LKUBISKE)
EEB/ESC/IEC (GGRIFFIN)
EEB/TPP/IPE (JHALLOCK)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: ENRG EAIR EINV SENV ECON ETRD KIPR IBRD IMF TRSY
XL, JM
SUBJECT: JAMAICA: MAY ECONOMIC REVIEW

REF: A) KINGSTON 021
B) KINGSTON 427
C) KINGSTON 263
D) KINGSTON 363

UNCLAS SECTION 01 OF 04 KINGSTON 000490

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (JTILGHMAN) (VDEPIRRO)
WHA/EPSC (LKUBISKE)
EEB/ESC/IEC (GGRIFFIN)
EEB/TPP/IPE (JHALLOCK)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: ENRG EAIR EINV SENV ECON ETRD KIPR IBRD IMF TRSY
XL, JM
SUBJECT: JAMAICA: MAY ECONOMIC REVIEW

REF: A) KINGSTON 021
B) KINGSTON 427
C) KINGSTON 263
D) KINGSTON 363


1. SUMMARY:

-- Air Jamaica may face more labor problems, as the Government of
Jamaica (GOJ) says airline workers will not receive a pay increase
this year and workers threaten to strike.

-- The Energy Minister looks to roll out ethanol-based fuel to
consumers and the Finance Minister lowers taxes on fuel efficient
cars.

-- Consulting firm KPMG will assess the potential for creating an
international financial services center in Kingston, and the
Minister of Commerce and Industry predicts he can cut in half the
time that it takes to export goods from Jamaica.

-- Jamaica will establish an Embassy in Brazil, as the two countries
improve economic and political ties.

-- Tourism figures are on the rise, even as the GOJ is embroiled in
a dispute with major Spanish investors in the hotel sector.

-- The GOJ has stepped up arrests of those selling pirated DVDs and
the Jamaican Intellectual Property Office has embarked on a two-year
project to strengthen Geographic Indications.

-- The dubious Caribbean Real Estate Investment Fund collapsed, and
Cash Plus faces lawsuits from those who lost money in the failed
investment scheme.

-- The International Monetary Fund released its report on Jamaica
indicating the island faces a difficult global environment and
increased socio-economic challenges.
END SUMMARY

--------------
Aviation/ Air Jamaica/ Transportation
--------------


2. (SBU) Labor unrest is likely at Air Jamaica in the wake of the
sudden postponement of a meeting scheduled for May 22 to discuss the
contentious issue of wage increases for employees. At a time when

the GOJ is trying to divest itself of the beleaguered airline,
unions are seeking a 15 percent pay increase. The meeting postponed
until June 10, is intended to look at ways in which Air Jamaica can
cut costs and possibly use the savings to raise workers pay.
Minister Without Portfolio Senator Don Wehby, from the Ministry of
Finance and Public Service, announced that Air Jamaica staff would
not be given a pay increase because of the ongoing financial
problems at the airline (reftel A). Losses reached nearly USD 173
million in 2007. Employees of Air Jamaica threatened on May 26 to
engage in wildcat strikes if there is no word in the next two weeks
from the airline's management regarding their demand for a new wage
package. COMMENT: As Air Jamaica continues to incur losses, a
strike may work to the advantage of the GOJ. The strike could
provide justification for firing excess Air Jamaica staff, which
would better position the airline for private sector purchasers.

--------------
Environment/ Renewable Energy/ Energy
--------------


3. (U) On May 16 Clive Mullings, Minister of Energy, announced he is
seeking legislative approval for an ethanol-based fuel (E10) plan
for a roll out date of October 2008 to make E10 available to
consumers. Jamaica is looking for a supplier of equipment needed to
dispense E10 at local gas stations. The GOJ anticipates the move
will cut more than USD 30 million annually from its energy bill.
The initiative will require the state refinery Petrojam to retrofit
its loading and storage facilities as well as fuel pumps at gas
stations. Jamaica's annual costs for imported fuel could reach USD
3.5 billion if rates stay above USD 130 per barrel. Demand is
growing at a rate of four percent per year. As world oil prices
continue to rise, the introduction of 10 percent ethanol is one of
several initiatives to reduce Jamaica's dependence on crude
imports.


KINGSTON 00000490 002 OF 004



4. (U) Finance Minister Audley Shaw announced on May 10 that the GOJ
will remove the Special Consumption Tax on small motor vehicles
(those with engines smaller than 1,000 cubic centimeters) and
introduce escalating levels of tax according to a vehicle's fuel
consumption level. The GOJ also will implement a 10 percent tax
reduction on diesel vehicles. Shaw told reporters from the Gleaner
newspaper, "Every step of the way we intend to put in policies that
are going to be supportive of energy conservation." He added that a
comprehensive conservation policy would be rolled out later in 2008,
to include a 15 percent reduction in GOJ offices, with an "energy
czar" in each ministry to monitor consumption.

--------------
Foreign and U.S. Investment
--------------


5. (U) The GOJ has contracted with the consultancy and auditing firm
KPMG to assess the potential for establishing an international
financial services center in Jamaica. Minister Without Portfolio Don
Wehby discussed the program on May 13 at the monthly investors forum
held by Mayberry Investments and attended by Emboffs. The GOJ's
Jamaica Trade and Invest office will work with KPMG to meet with
public and private sector stakeholders to assess the viability of
the plan. The GOJ hopes to have the assessment completed by
mid-July. The GOJ has been trying to diversify the economy away from
agriculture, bauxite and tourism, and hopes that financial services
will be an option.


6. (U) A World Bank study on doing business in Jamaica reported that
it takes up to 21 days for products to be exported from the
country--compared to five days in Singapore, six days in the U.S.,
and nine days in Panama. In response, Minister of Industry,
Investment, and Commerce Karl Samuda announced on May 22 that he
will work to remove the bureaucratic and other associated challenges
which delay Jamaican exports. Samuda predicted he could cut export
times in half within the next two years, adding that this would give
Jamaican businesses a chance to grow and develop.


7. (U) On May 21 the GOJ announced it will establish an embassy in
Brazil as Jamaica continues to strengthen economic and political
ties between the two countries. Prime Minister Bruce Golding said he
held talks with Brazilian President Lula da Silva about deepening
areas of cooperation during the recent European Union, Latin
American and the Caribbean summit in Peru. Brazil has taken a
particular interest in Jamaica's failed sugar estates. The
Brazilian firm Infinity BioEnergy was the sole bidder for the assets
of the Sugar Company of Jamaica (SCJ),which owns Bernard Lodge,
Monymusk, Frome, Hampden, and the Saint Thomas sugar factories. The
GOJ is expected to absorb the estimated USD 225 million in debt held
by SCJ. The GOJ is hoping to complete the privatization efforts
with Infinity by June.

--------------
Tourism Sector
--------------


8. (SBU) A regulatory violation relating to construction of a fourth
floor of a Spanish-owned hotel in Montego Bay has escalated into a
public backlash against Spanish investors (reftel B). The GOJ
called for an investigation of an extra floor on a hotel being built
by the RIU Hotels and Resorts which the GOJ claims is a breach of
RIU's building permit. The GOJ also contends that the unauthorized
fourth floor is in the flight path of aircraft landing at Sangster
International Airport. Prime Minister Bruce Golding told reporters
that the Police Fraud Squad would be called to investigate after a
"revised plan" allowing for the fourth floor was found to have been
signed by a St. James Parish Council official.


9. (SBU) The dispute quickly gained traction in the press and among
popular opinion as Jamaicans accused Spanish investors of
disrespecting local laws and Jamaican rights. Editorials in the
local press criticized the investors, including a column by John
Maxwell entitled "WE ARE NOT FOR SALE." Surprisingly, GOJ officials
appear to have jumped on the bandwagon. The response from the GOJ
over a regulatory issue which would usually be dealt with on an
administrative level may have a chilling effect among some foreign
investors (reftel B). The Gleaner newspaper reported that at least
one Spanish investor, Excellence Group, is putting plans to
construct a 2,000 room hotel on hold until they can better assess
the country's investment climate. COMMENT: Given the effort of the
GOJ to attract foreign investment particularly Spanish hotel firms,

KINGSTON 00000490 003 OF 004


it is surprising that they allowed this dispute to escalate to the
national level. Butch Stewart, the owner of Sandals resort, a
competitor of Spanish-owned firms, also owns the Observer newspaper,
which may explain that newspaper's coverage portraying the Spanish
in a negative light. END COMMENT. Daryl Vaz, State Minister in the
Office of the Prime Minister, met with officials at the Spanish
Embassy in an effort to quell investors' fears. Spanish Ambassador
Jesus Silva told the Gleaner newspaper on May 18 that "Spanish
investments in tourism have provided 12,000 direct and 30,000
indirect jobs, accounting for the largest job creation process in
Jamaica's recent history."


10. (U) The Tourism sector remains robust despite the economic
slowdown in the U.S. Over 70 percent of visitors to Jamaica are
from the U.S., and preliminary data from Jan-March 2008 shows an
eight percent increase in the number of arrivals. Jamaica and the
Caribbean remain one of the most price-competitive destinations, and
Jamaica's competitiveness has increased as its currency has slid
evenly with the weakening U.S. dollar. There has been an increase
in visitors from Canada as its currency appreciates against the U.S.
and Jamaican dollars.

--------------
Budget / Tax Revenue
--------------


11. (U) The Ministry of Finance and the Public Service is reporting
a strong response to the tax amnesty initiated in April. Minister
Audley Shaw said USD 29 million already has been collected. The
amnesty continues until October, but the amount of the penalties and
taxes to be forgiven declines with each successive month (reftels C
and D). The amnesty is part of Shaw's bold efforts to reform the
tax system and improve revenue collection.


12. (U) On May 19 the rating agency Standard & Poor's (S&P)
reaffirmed Jamaica's "B" rating for long-term and short-term
sovereign debt. The report noted that the outlook remains stable
and credits the GOJ's commitment to fiscal discipline, debt
reduction, and economic growth reinvigoration. The report states
that Jamaica's real GDP growth, which averaged 1.6 percent over the
past decade, continues to be constrained by a crowding out of the
private sector because of the government's high borrowing needs,
labor-market rigidities affecting productivity, high security cots,
and external shocks.

--------------
Intellectual Property Rights
--------------


13. (U) The GOJ has stepped up its crack down on pirated DVDs. On
May 20 police arrested 12 people accused of selling pirated copies
of DVDs in the Half Way Tree section of Kingston. Those arrested
were charged with breaches of the Copyright Act. The Head of the
Organized Crime Division Superintendent Fitz Bailey told reporters
from the Gleaner newspaper that "the police are taking a zero
tolerance approach to this type of crime and would be stepping up
the pressure." Three of the persons arrested were repeat offenders.



14. (U) On May 26-30, the Jamaica Intellectual Property Office
(JIPO) hosted the visit of Felix Addor, the Deputy Director General
of the Swiss Federal Institute of Intellectual Property (IPI). Mr.
Addor's visit is part of the official launch of the Geographic
Indications (GI) Project in Jamaica. The two-year project was
provided USD 730,000 by IPI to establish a functional and effective
protection system for GIs in order to contribute to a better
positioning of Jamaican products in international markets. The GOJ
passed the Protection of Geographic Indications Act in February 2004
which established the legal framework for the protection of products
designated under the GIs regime. Emboffs attended the launch, at
which JIPO Executive Director Carol Simpson said she hopes the
project will create awareness of the importance of GIs in Jamaica
and in contributing to the economic success of genuine Jamaican
products.

--------------
Alternative Investment Schemes
--------------


15. (U) The Caribbean Real Estate Investment Fund (CARIEF),one of
the alternative investment schemes being investigated by the

KINGSTON 00000490 004 OF 004


Financial Services Commission, collapsed on May 6. The scheme,
created by CEO Anthony Tharpe in 2005, promised financial returns
from real estate investments of 100 to 1000 percent over a
three-year period. CARIEF had about 70 members who paid a USD 1,200
membership fee, as well as more than 60 investors who provided a
minimum investment of USD 2,800. Some investors appear to have
provided sums as high as USD 250,000. CAREIF solicited investments
from members of the Jamaican Diaspora in North America.


16. (U) Lawsuits are being filed against the failed Cash Plus
alternative investment scheme and its CEO Carlos Hill. Hill and his
brother Bertram were granted bail and released from prison on May 3.
The Gleaner newspaper reported on May 25 that Miami-based law
professor David Rowe has filed a USD 1.7 million suit against Cash
Plus and Carlos Hill. On May 22 Jamaican Justice Donald McIntosh
ordered Hill to disclose his assets by June 19 or face six weeks in
jail. Hill also is being sued by Kingston businessman Alexander
Haber for USD 420,000. Recovery of any substantial amount of funds
is unlikely. The court-appointed receiver has found that Cash Plus
was not operating as a legitimate financially viable entity. The
scheme has only USD 42,000 in cash and will only be able to pay a
maximum of 16 cents on the dollar to its creditors. The receiver
also discovered that Cash Plus used 70 per cent of the funds it took
in overall to pay interest to investors in order to keep the pyramid
scheme going. The scheme appears to have had between 35,000 and
45,000 individual investors (reftels C and D).

--------------
Multilateral Donors
--------------


17. (U) On May 13 the International Monetary Fund (IMF) released its
report on Jamaica. The IMF report indicates that a difficult global
environment is contributing to increased socio-economic challenges
for Jamaica. The report said this environment includes natural
disasters, the global economic slowdown, and increases in global oil
and food prices. The IMF says these factors have contributed to
slower economic growth, rising inflation and a widening current
account deficit. The report also said that the growth of
unregulated investment schemes promising implausibly high rates of
return is a worrisome financial development with potentially adverse
macroeconomic consequences.
JOHNSON