Identifier
Created
Classification
Origin
08KINGSTON770
2008-09-03 12:22:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kingston
Cable title:  

JAMAICA: AUGUST ECONOMIC REVIEW AND STORM GUSTAV

Tags:  ENRG EAIR AID EINV ECON ETRD IADB IBRD IMF TRSY XL 
pdf how-to read a cable
VZCZCXRO4230
RR RUEHGR
DE RUEHKG #0770/01 2471222
ZNR UUUUU ZZH
R 031222Z SEP 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6724
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 KINGSTON 000770 

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO)
WHA/EPSC (MROONEY)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: ENRG EAIR AID EINV ECON ETRD IADB IBRD IMF TRSY XL
JM
SUBJECT: JAMAICA: AUGUST ECONOMIC REVIEW AND STORM GUSTAV

REF: A) KINGSTON 761
B) KINGSTON 760
C) KINGSTON 21
D) KINGSTON 755
E) KINGSTON 703
F) KINGSTON 570
G) KINGSTON 726

UNCLAS SECTION 01 OF 03 KINGSTON 000770

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO)
WHA/EPSC (MROONEY)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: ENRG EAIR AID EINV ECON ETRD IADB IBRD IMF TRSY XL
JM
SUBJECT: JAMAICA: AUGUST ECONOMIC REVIEW AND STORM GUSTAV

REF: A) KINGSTON 761
B) KINGSTON 760
C) KINGSTON 21
D) KINGSTON 755
E) KINGSTON 703
F) KINGSTON 570
G) KINGSTON 726


1. (SBU) SUMMARY:

-- Tropical Storm Gustav has damaged infrastructure on the island
and caused at least 14 deaths (reftels A and B). Agriculture also
sustained damage, mainly in the eastern parishes of Portland, St.
Thomas and St Mary. It is too early to accurately estimate the
total financial costs of repairs across the island; septel will
follow.

-- Air Jamaica faces competition from low cost airline Airone
Ventures based in Barbados. The Government of Jamaica (GOJ) refused
Airone's request in early 2008 for a license to operate out of
Kingston (reftel C).

-- Edward Wegel accepted the position as CEO of Air Jamaica and
assumed formal control on September 1. The airline seeks to maintain
its target of being privatized by March 31, 2009, and is expecting a
new block of funding from the GOJ.

-- Prime Minister Golding hopes to roll out E10 ethanol fuels by the
end of September, although gas station owners tell him his timeline
is too short.

-- Goodyear Tire has partnered with Tropical Battery to serve as its
distributor for tires on the island. Goodyear will continue to
operate a marketing and administrative office in Kingston to serve
its Caribbean customers.

-- Governor of the Bank of Jamaica says inflation will likely hit
15-17 percent for the year. He also said there has not been any
impact felt in commercial banks as a result of the collapse of
several alternative investment schemes.

--------------
Tropical Storm Gustav
--------------


1. (U) Jamaica was hit with tropical storm Gustav on August 28-29.

The Embassy was closed to the public on both days. Initial
assessments are still coming in, but as of Sept 3, there are 12
confirmed deaths and seventy-two communities have been affected.
The Gleaner newspaper reported that, at its peak, there were more
than 2,000 people in storm shelters. The major Hope River Bridge
was destroyed; a temporary structure for pedestrian crossing has
been erected to connect Kingston to the eastern parish of St.
Thomas. Completely rebuilding the bridge could take as long as 24
months. Another major crossing in the Bog Walk Gorge linking
Kingston to the North coast was severely damaged in the storm and is
closed to traffic. Damage to agriculture was sustained mainly in
the eastern parishes of Portland, St. Thomas and St Mary,
particularly to banana and plantain crops.


2. (U) Prime Minister Bruce Golding appointed Transport and Works
Minister Mike Henry as head of a task force to spearhead restoration
work to be done across the island. Henry told reporters from the
Observer newspaper that JD 8 billion (USD 115 million) is needed to
repair roads from damage caused by Gustav. NOTE: It is too early to
accurately estimate the total financial costs of repairs across the
island; septels to follow. END NOTE. Henry said Cabinet is looking
into potential funding sources, such as multilateral agencies.
However, he said he was not very hopeful about receiving an
international loan, since Jamaica may not qualify as Gustav was not
a category one hurricane.


3. (U) Opposition Leader Portia Simpson Miller told reporters from
the Observer newspaper on September 1 that she urged the government
to declare the eastern tip of Jamaica as a disaster area. She said
the response to the storm must be bi-partisan and that the
government should make every effort to include other national
stakeholders, including the Opposition, in responding to the
disaster.

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


4. (SBU) Airone Ventures Limited hopes to be the first low-cost

KINGSTON 00000770 002 OF 003


airline to begin service in April 2009 to several regional (Cayman,
Grenada, Curacao and Antigua) and then to US destinations including
Miami, Orlando and New York. Originally, Airone intended to base
its operations out of Jamaica, but was denied a license by the GOJ
(reftel A). The GOJ based its refusal on concerns about divesting
Air Jamaica and not wanting to create more competition for potential
buyers of the beleaguered national carrier. Airone since has moved
operations to Barbados; it is not yet clear whether the GOJ will
allow Airone to operate service in and out of Kingston.


5. (U) Airone was started by Irish entrepreneurs, including cell
phone service provider Digicel's vice-chairman Leslie Buckley.
Airone will continue to have a close partnership with Digicel, which
includes plans to sell airline tickets from Digicel outlets and to
use cell phones to provide customers with ticketing and other
airline information. The airline will start with two 160-seater
Boeing 737-700 planes with the hope of adding 25 new Boeing
aircraft. Airone would like to add service between Jamaica and
Central and South America. Air Jamaica's non-executive chairman
Shirley Williams said in an interview with Sun Herald newspaper that
Airone's offers could be a case of predatory pricing, which would
cut into Air Jamaica's revenue flows and hinder its ability to stem
losses.


6. (SBU) Edward Wegel, a U.S. citizen, accepted the position of CEO
of the airline, after being selected over Canadian David Ban Miller
for the top job. Williams told reporters that the beleaguered
airline has administrative expenses that are 43 percent of its total
expenses, which is significantly above the industry norm of 15
percent. Williams vowed to take steps to reduce the costs, but
conceded that this would require cooperation with the airline's
employee unions. Air Jamaica finalized a lease agreement with
Turkish airlines in late July to sub-lease two of its A340 aircraft.
The planes had been used on Air Jamaica's London route; the lease
expenses for the two planes were USD 1.2 million per month. The GOJ
still hopes to privatize the airline by March 21, 2009. A contact
in Air Jamaica told Econoff the airline will receive another block
of funding from the GOJ, which will help finance operations.

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


7. (U) PM Golding said on August 3 that he wants to push forward on
a directive to make E10 (10 percent ethanol) fuel mandatory at all
fueling stations by the end of September. Golding faced resistance
from gas station owners who said the timeline is unrealistic. Errol
Edwards, president of the Jamaica Gasoline Retailers' Association,
told The Gleaner newspaper on August 4 that preliminary work,
including preparing the islands gas stations, has yet to be done.
Golding highlighted the recent partnership with Infinity Bio-Energy
of Brazil, saying "new capital is being injected into the sugar
industry... and less of the country's sugar cane would be going into
sugar and more into ethanol." NOTE: With rising world oil prices,
Jamaica is continuing to look at opportunities for renewable energy,
including ethanol and biofuels, (reftel D). END NOTE.

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


8. (SBU) Goodyear Tire announced on August 31 that Tropical Battery
will take over as distributor for its tires on the island. Tropical
is a distributor of its own brand of automotive batteries, Castrol
motor oil and automotive products. It operates seven company-owned
retail stores and supplies products to more than 900 other
distributors across Jamaica. Goodyear will continue to operate a
marketing and administrative office in Kingston to serve its
Caribbean customers.

--------------
Budget / Tax Revenue / Debt / Inflation
--------------


9. (U) The Bank of Jamaica (BOJ) Governor Derrick Lattibeaudiere
told reporters on August 20 that Jamaica appears to be weathering
external shocks. Although this assessment was before the damages
caused by tropical storm Gustav, he had lowered his growth forecast
to 1.2-2.2 percent for the fiscal year 2008-2009. Lattibeaudiere
predicted an inflation rate of 15-17 percent for the year, in
comparison to 16.8 percent last year. He added that the BOJ's
policies are right at the moment in order to contain inflation and
maintain a stable currency. He noted, however, "The real problem is
that the global economy has not been kind to us...The downward
revision from our previous forecast is due to the slowdown in global

KINGSTON 00000770 003 OF 003


growth."

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


10. (SBU) As the collapse of the alternative investment schemes,
most notably Olint and Cash Plus, continues to work its way through
the economy, the BOJ remains optimistic (reftel G). BOJ Governor
Derrick Lattibeaudiere told reporters at his quarterly briefing on
Aug 20 that Jamaican banks had not suffered from the collapse of
several unregulated investment schemes: "I haven't seen any movement
that would cause us concern...we haven't seen that macro-economic
impact." He conceded there may be reduction in personal consumption
and spending for some Jamaicans. NOTE: Econoff has been told by a
few prominent business owners that they are more concerned about the
collapse of Olint and fear it will take two to three more months to
work through the economy before its impact will be known. END
NOTE.
HEG