JAMAICA: JUNE ECONOMIC REVIEW AND A RETURN TO THE IMF

UNCLAS SECTION 01 OF 02 KINGSTON 000517 SIPDIS SENSITIVE STATE FOR WHA/CAR (DHOFFMANN) (VDEPIRRO) (WSMITH) WHA/EPSC (MROONEY)(FCORNEILLE) EEB/IFD/OMA WHA/PPC (JGONZALEZ) INR/RES (RWARNER) INR/I (SMCCORMICK SANTO DOMINGO FOR FCS AND FAS TREASURY FOR ERIN NEPHEW EXPORT IMPORT BANK FOR ANNETTE MARESH USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA OPIC FOR ALISON GERMAK E.O. 12958: N/A TAGS: ECON ENRG SENV EFIN EAIR EMIN ASEC SOCI ETRD TRSY OPIC, AID, OAS, IBRD, WTRO, XL, JM SUBJECT: JAMAICA: JUNE ECONOMIC REVIEW AND A RETURN TO THE IMF REF: A) KINGSTON 445 B) KINGSTON 422 C) KINGSTON 315 D) KINGSTON 269 E) KINGSTON 245 F) KINGSTON 123 ¶1. (SBU) SUMMARY: -- The international rating agency Standard and Poor's (S and P) maintained Jamaica's long-term foreign and local currency debt rating at B- and its short-term debt rating at C. -- The Falmouth Port tourism and cruise facility redevelopment project has been delayed several months and will not be completed until late 2010. -- The global economic downturn has reduced Jamaica's trade deficit by 32 percent for the first two months of the year. -- The Cabinet initiated discussions on International Monetary Fund (IMF) assistance, as the Government of Jamaica (GOJ) inches closer to a new borrowing relationship with the IMF. -- Prime Minister (PM) Bruce Golding met with Pascal Lamy, Director General of the World Trade Organization (WTO),seeking to ensure that trade preferences for developing countries in the Doha Round are not eroded when negotiations resume later this year. -- David Smith, former head of the Olint investment scheme, faces a new round of charges in Turks and Caicos; and Carlos Hill, former boss of the Cash Plus investment scheme, was evicted from his home. END SUMMARY. International Credit Rating -------------- ¶2. (U) In a report dated June 11, the S and P has maintained its rating of Jamaica's long-term foreign and local currency debt at B- and its short-term debt rating at C. However, it also maintained a negative outlook on Jamaica's sovereign debt to reflect "the likelihood of a downgrade if policy actions fail to contain the ongoing fiscal and external deterioration." The S and P anticipates that Jamaica's economy will worsen, projecting an economic contraction of 3.5 percent in 2009, with another fall in real GDP of one percent in 2010. A recovery of one percent of GDP is predicted in 2011. Falmouth Port Redevelopment Delayed -------------- �00A;¶3. (SBU) The redevelopment of the historic Falmouth port is behind schedule. The project, which when completed will accommodate two Genesis-class cruise ships, was scheduled to commence in October ¶2008. However, seven months later major construction has not begun. The Port Authority of Jamaica has been in talks with the U.S. Export Import Bank (Ex-Im) for financing, but now indicates it intends to secure financing from Europe. NOTE: The GOJ says it intends to return to Ex-IM soon to seek assistance in financing U.S.-made security equipment. End Note). The major project was to be completed by May 2010, but now will not be ready before December, ¶2010. The cruise ships that were to arrive in Jamaica are being rerouted for cruises in Mexico. Trade Deficit Shrinks -------------- ¶4. (U) A decline in demand for goods and services has helped reduce Jamaica's trade deficit. Preliminary data for the period of January to February indicate the gap between imports and exports was USD 625 million compared to USD 918 million in 2008. This would indicate that the global economic downturn has caused a reduction of USD 292 million in imports, a 32 percent decrease. (NOTE: The reduction in world oil prices since last year, and to a lesser extent, the depreciation of the local currency which made imports more expensive and exports cheaper, have been fueling this decline. End Note). Return to the IMF -------------- ¶5. (SBU) The Cabinet initiated discussions on June 22 regarding possible resumption of a borrowing relationship with the IMF (reftel KINGSTON 00000517 002 OF 002 B). Finance Minister Audley Shaw will present findings on recent exploratory discussions with the IMF, and is traveling with a team from the Ministry of Finance and Public Service to Washington this week to meet with IMF officials. The trip will be followed by an IMF delegation visit to the island in early July. PM Golding has said, "the IMF will not solve our problems", saying "the solution is to produce more and import less." ¶6. (SBU) COMMENT: The GOJ has been publicly telegraphing its intent to return to the IMF, as concerns mount about the country's balance of payments and continued pressure on the Net International Reserves (NIR). Many Jamaicans still resent the austerity measures imposed on the country by the IMF during the late 1970s and 1980s. The local press has featured editorials weighing the pros and cons of a return to the IMF, and this process has allowed the GOJ to manage public apprehension of the impending decision. In reality, the GOJ has little choice but to return to the IMF, and appears to be close to working out the terms. GOJ officials tell Emboffs that a final decision likely will be announced soon. End Comment. WTO Preferences for Developing Countries -------------- ¶7. (U) PM Golding stated in a press release that he had urged Director General Lamy of the WTO Organization to ensure that trade preferences agreed upon for developing countries during the last Doha Round of trade negotiations are not eroded when negotiations resume later this year. Golding met Lamy at the WTO headquarters in Geneva on June 15. ¶8. (U) Golding said he urged Lamy to arrange a series of mini-Ministerial meetings to work toward narrowing the differences on outstanding issues prior to the next Ministerial Meeting in November 2009. Golding said he was assured by Lamy that the WTO would continue to assist Jamaica in training and capacity building to strengthen the country's ability to take advantage of opportunities within the Economic Partnership Agreement and the WTO framework. Ponzi Schemes - Olint and Cash Plus -------------- ¶9. (U) According to the Gleaner newspaper, David Smith, the former head of the Olint alternative investment scheme, has been arrested on new charges in the Turks and Caicos. Smith was arrested in February on multiple charges including use of forged documents and theft (reftel F). The four new charges include additional counts of theft, obtaining money by deception, and two counts of money laundering. He was released on USD 2 million in bail and will appear in court on August 5. The court appointed a liquidator to wind down the investment scheme, but it appears there are insufficient funds to repay investors who had given Smith millions of dollars. ¶10. (U) On June 17, Carlos Hill, the former head of the failed alternative investment scheme Cash Plus, was evicted from his upscale home in suburban Kingston. A moving company hired by the Office of the Trustee for Bankruptcy removed Hill's possessions and furniture. The eviction had been scheduled to take place two weeks ago, but the court granted an extension. Hill's fraud trial begins on July 28; his former financial officer and brother also are charged. MOSS