JAMAICA: WORLD BANK REPRESENTATIVE DISCUSSES JAMAICAN

UNCLAS KINGSTON 000230 SIPDIS STATE FOR WHA/CAR (VDEPIRRO) (WSMITH) (JMACK-WILSON) WHA/EPSC (MROONEY) (FCORNEILLE) EEB/IFD/ODF (MSIEMER) EEB/ESC/IEC (GGRIFFIN) EEB/ESC/IEC/EPC (MMCMANUS) EEB/TRA (VLIMAYE-DAVIS) INR/RES (RWARNER) INR/I (SMCCORMICK) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR ERIN NEPHEW AND RACHEL JARPE EXPORT IMPORT BANK FOR ANNETTE MARESH USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA OPIC FOR ALISON GERMAK E.O. 12958: N/A TAGS: ECON EAID EFIN EINV PREL IDB IBRD IMF JM XL SUBJECT: JAMAICA: WORLD BANK REPRESENTATIVE DISCUSSES JAMAICAN ECONOMY REF: KINGSTON 194; KINGSTON 90 Summary -------------- ¶1. (SBU) The World Bank will provide the Government of Jamaica (GOJ) with USD 400 million in concessionary loans over the next 27 months of the International Monetary fund (IMF) program, according to World Bank Special Representative to Jamaica Badrul Haque, who met with CDA to discuss developments in the local economy on February 9. In Haque's view, despite having a clear vision as to his objectives following the 2007 general elections, Prime Minister (PM) Bruce Golding has been unsuccessful in getting the public sector to implement his plans. This failure, Haque believes, has been due in large part to a lack of political will, effective communication, and technical competence on the part of the ruling Jamaica Labour Party (JLP) and the GOJ. However, Haque appears to think the GOJ finally has realized that it has no choice but to buck this trend and to face the difficult option of economic reforms. End summary. Haque Discusses Engagement in Jamaica -------------- -------------- ¶2. (SBU) Badrul Haque, World Bank Special Representative to Jamaica, visited Embassy Kingston on February 9 to discuss his organization's engagement in the country. He began by informing the CDA that the World Bank had provided the GOJ with USD 100 million during last fiscal year and that it was committing a further USD 400 million for the next 27 months. While the World Bank's by-laws did not allow it to dictate an IMF program to a creditor, Haque noted that the loan funds were contingent on the country securing an IMF agreement. Haque also said that USD 200 million of the loan could be used for up-front budgetary support, providing it was not used for negative spending. ¶3. (SBU) The World Bank loan, which attracts a rate of less than one percent and is payable over 30 years, is considered an exceptional allocation, as it is well above the limit for which Jamaica ordinarily would qualify. Haque explained that Jamaica's case had been considered favorably due largely to the GOJ's apparent willingness to pursue economic reforms. According to Haque, "the country is where it is, but it has been trying to do something to come out of it," despite the difficulties the JLP GOJ had faced in making difficult decisions amidst parliamentary opposition. "That is why it is sometimes easier to work with dictators since they do not have to seek consensus," Haque opined. Opposition to New Government -------------- ¶4. (SBU) Following the 2007 general elections that brought the JLP to power, Haque said that he felt that PM Bruce Golding had demonstrated a clear vision as to the economic policies he wanted to implement, but that he had been unable to get the public sector to share his views. Haque suggested that, after eighteen years of People's National Party (PNP) leadership, the public sector had become highly politicized, making it difficult for the new administration to chart a different course. However, he also blamed the JLP for creating some of its own problems, given its poor communications strategy. He had raised this issue with the GOJ on many occasions, Haque noted, but said that the assumption of Golding and his associates was that once an issue had been aired it had been effectively communicated. For example, Haque pointed out that the PM recently had set the date for the upcoming budget presentation in Parliament without first discussing it with his Finance Minister, Audley Shaw, who had preferred a later date. Forced to Seek IMF Assistance -------------- ¶5. (SBU) Haque told Emboffs that, given Jamaica's rocky history with the IMF, the GOJ had been hesitant to return to a borrowing relationship (Ref A). (Note: When the GOJ ended its borrowing relationship with the IMF in 1996, PM PJ Patterson had announced the decision with much fanfare. End note.) However, the onset of the global financial crisis in 2008 dried up of credit on the international market. This financing gap had been initially filled by the Inter-American Development Bank (IDB) and, to a lesser extent, the World Bank, but the failure to raise sufficient funds on the domestic market forced the GOJ to reconsider an IMF program. Haque noted that the JLP position had been helped by the PNP's latent support due largely to the fact that they were not willing to face the alternatives: default, devaluation of the currency, or both. Despite their criticism of the plan, Haque believes the PNP is in fact quietly happy with the GOJ's decision, since the politically painful reforms could well work in their favor by the time of the next general election, to be held no later than 2012. Debt Exchange Exceeds Expectations -------------- -------------- ¶6. (SBU) Turning to the now successful Jamaica Debt Exchange (JDX) agreement (Ref B),Haque informed the CDA that Citigroup had been working on the operation for almost two years. Initially, the deal had been expected to save the GOJ 0.5 percent of GDP, but had stalled after a consultant told the Banker's Association that he had been responsible for arranging 14 of the last 15 debt defaults. This had raised alarm in Jamaican banking circles, culminating in the head of the local arm of Bank of Nova Scotia informing ratings agencies that the GOJ was moving toward an imminent default. The ratings agencies - which had been briefed earlier by the GOJ on the pending debt operation and had agreed to downgrade only on the announcement - instead had reneged on the deal and had preemptively downgraded Jamaica's credit ratings. The debt operation then had been postponed and was only revived at the insistence of the IMF. Haque said that the revised operation, now expected to save three percent of GDP, was so coordinated that even the speeches associated with the exchange had been written by the Citigroup team. Comment and Analysis -------------- ¶7. (SBU) Haque, who had initially been seen as a close ally of the GOJ, has lost some credibility with the JLP in recent months because he only has been able to provide Jamaica with USD 100 million during the last fiscal year. Shaw, who had based his electoral campaign on the acquisition of multilateral funding, has been disappointed in the limited loan flows offered by the World Bank, particularly in light of the fact that the IADB had been more forthcoming with significant funding. Additionally, the GOJ has blamed Haque for the slow pace of the World Bank loan disbursement. The animosity recently spilled over into the public domain, with one of Jamaica's daily newspapers launching a scathing editorial attack on Haque. He is also viewed with much skepticism, if not outright defiance, by many public sector workers. Nevertheless, he is still sought out for technical advice by a number of public sector leaders, and the USD 400 million World Bank loan should help re-establish his good graces with the GOJ. End comment and analysis. Parnell