JAMAICA: SEPTEMBER 2009 ECONOMIC UPDATE

UNCLAS SECTION 01 OF 02 KINGSTON 000782 SENSITIVE SIPDIS STATE FOR WHA/CAR (JMACK-WILSON)(RALVARADO)(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 USTR FOR KENT SHIGETOMI E.O. 12958: N/A TAGS: ECON EINT EAIR EAGR ECIN EFIN EIND ELAB EMIN ENRG ETRD, PGOV, PREL, IBRD, IMF, TRGY, JM, XL SUBJECT: JAMAICA: SEPTEMBER 2009 ECONOMIC UPDATE KINGSTON 00000782 001.2 OF 002 Olint's Legal Woes Increase -------------- ¶1. (U) David Smith, the head of failed foreign-exchange trading club Olint TCI, has found himself on the wrong side of the law in the Turks and Caicos Islands for the second time this year. The Olint boss and his wife have been slapped with several additional charges including money laundering and accepting money under false pretence. The embattled Smith, who built quite a reputation in Jamaica, the wider Caribbean, and the U.S., was previously arrested in the British dependency on fraud charges including theft, false accounting, and presenting false documents. Smith, who was denied bail, has been remanded until late October, but his lawyers have made an application to a higher court for bail. Government Yields to Cement Importers -------------- -------------- ¶2. (U) The GOJ has brokered a deal with the local manufacturers of cement, Caribbean Cement Company (CCC),to allow importers to satisfy 15 percent of the country's annual cement demand. Under the agreement to be approved by CARICOM, importers would be able to bring in up to 120,000 tons of cement without attracting the Common External Tariff (CET). CCC, which has just invested USD 100 million to double capacity, enjoys protection under the CET, which imposes an automatic 40 percent duty on the importation of cement from non-CARICOM member states. The decision has been greeted with mixed reactions, with those in support of local manufacturing arguing that this is yet another example of the unfair treatment being meted out to an already moribund sector. However, others suggest this is a winning compromise, as the imports will provide competition to the local monopoly while maintaining a valuable supply line in the event the cement company returns to the supply problems which brought construction to a halt four years ago. Electricity Company Expands Output -------------- -- ¶3. (U) Jamaica Public Service Company (JPS),the sole provider of electricity in Jamaica, is investing almost USD 10 million in two projects to add 11 Megawatts (MW) of generating capacity. In the first instance, JPS will add 10 MW by maximizing output from its combined cycle plant through the installation of an Air Inlet Cooling System. The project was constructed by local contractors and managed by JPS engineers who worked with General Electric to design the system. The second project will see the company rehabilitating a small hydro station to supply power to the National Water Commission. The local monopoly also has received approval from the Office of Utilities Regulation for two renewable energy projects to install almost 10 MW of hydro and wind power. The first two projects will be financed through a combination of retained earnings and loans. Government's Ambitious Development Plan -------------- -------------- ¶4. (U) The JLP-administration, in a bid to fulfill one of its major campaign promises, is embarking on an ambitious plan to convert 500 acres of land just outside of Kingston into an industrial park. Minister of Industry and Commerce Karl Samuda appears confident of the success of the plan, suggesting he already has secured expressions of interest for the first 100 acres. He said another 100 acres were reserved for local businesses and a further 50 dedicated to an Information and Communications Technology (ICT) zone. Samuda said the country currently has demand for over 500,000 square feet of ICT space. In addition to ICT businesses, the 500 acre facility is expected to house free zone assembly plants, light manufacturing facilities, and warehousing. Tourism Sector to Benefit From Increased Airlift KINGSTON 00000782 002.2 OF 002 -------------- -------------- ¶5. (U) Airlift to Jamaica is expected to increase by about 70,000 seats this winter season, which runs from January to April. This is expected to give a further boost to the country's tourism industry, which has remained resilient even as its competitors face a steep fall off. Most of the new flights are expected to provide connections out of several emerging tourism markets in Europe. In addition, British Airways, which now flies to Kingston, is planning to resume flights to the tourism hub of Montego Bay with improved connectivity from major gateways in Europe through Gatwick Airport in the UK. American Airlines is also about to introduce a flight out of Phoenix, which will see all the major hubs out of the U.S. being covered. Central Bank Slashes Rates -------------- ¶6. (U) Following concerted pressure from Ministry of Finance officials and manufacturing interests, the Bank of Jamaica reduced interest rates three times in the month of September. In the most recent reduction, the bank shaved a further 100 basis points (1 percentage points),bringing 180 day instruments to 17 percent. The reduction in rates comes on the back of the continued moderation in inflation, the stability in the exchange rate and the relatively robust build-up in the stock of Net International Reserves (NIR). The NIR, which now stands at USD 1.95 billion, was recently bolstered by USD 303 million in Special Drawing Rights from the IMF. Final Preparations For Air Jamaica Divestment -------------- -------------- ¶7. (U) The debt-strapped national carrier, Air Jamaica, has begun preparations for its long overdue divestment. The airline, which should have been divested by the end of June 2009, started laying off up to 300 ground staff and pilots at the end of September. The workers will initially be sent on leave without pay and after 120 days will be offered a redundancy package or re-employment, if required. In providing a progress report on the divestment, PM Golding told Parliament that the preferred bidder had completed its due diligence in early September and Cabinet will now make a decision on the sale. The airline, which had presented a new business plan earlier this year to avert a shutdown, carries USD 1 billion in accumulated debt. European Union Provides Grant To Jamaica -------------- -------------- ¶8. (U) The Government of Jamaica has received USD 40 million from the European Union for budget support. The support could not have come at a better time for the cash-strapped Jamaican government, facing one of the most challenging economic environments since the 1970s. The EU grant was provided in response to the GOJ's efforts to implement a number of reforms. According to head of the EU, Ambassador Marco Mazzochi-Alemani, the reforms ranged from debt management to transparency in public procurement. Parnell