Speaking Notes: Hon Audley Shaw, Minister of Finance and the Public Service
JSE Fifth Regional Conference on Investments and the Capital Markets
Jamaica Pegasus Hotel
January 19, 2009
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1) Introduction: The theme of the conference is: “Revival and Renewal; Growth Frontiers for the Regional Capital Markets” and reflects the positive approach that must drive and motivate us to successfully ride the international financial turbulence that hit us hard and tested even the strongest of our economies. I welcome the opportunity share this occasion with you and to briefly provide an update on developments in the Jamaican economy. Developments that impact the our economy and which are likely to influence investments in the capital markets
2) We are at a crossroads in the development journey of our country. Our very serious economic challenges, while exacerbated by the recent global economic recession, started long before the recession began. As a Government, we acknowledge the gravity of the economic challenges that confront us and are committed not just to take strong remedial action, but to ensure that our country at long last is positioned on the path of sustained growth and development.
3) The Government’s economic reform programme is designed to raise the real GDP growth rate, reduce public debt, and institute fiscal discipline and accountability through a stronger institutional framework for the management of public finances.
4) The economic programme reflects three fundamental elements: (i) an ambitious fiscal consolidation strategy, focused on streamlining expenditure and reforming the public sector, including the divestment of non-core public bodies; (ii) a comprehensive debt management strategy that decisively addresses the debt overhang; and (iii) reforms to further strengthen the financial system. Details of this programme will be elaborated in Parliament later today. Suffice it to say, achieving these objectives requires a combination of corrective revenue and spending measures, and specific actions to reduce the interest bill.
5) Debt Management: Public Debt Exchange: On January 14, 2010, the Government launched the Jamaica Debt Exchange (JDX). The exchange is aimed at securing fiscal savings by exchanging existing high cost debt for new instruments that have lower coupons and longer maturities.
6) The debt exchange has been designed carefully, recognizing the need to avoid jeopardizing the stability of the domestic financial system. There will also be a Financial System Support Fund (FSSF) put in place to assist financial institutions participating in the JDX. All necessary measures will be taken to ensure the stability of the financial system.
7) The success of the exchange is essential to closing the government’s financing gap. It will also reduce the periodic bouts of financial market instability arising from large rollover requirements and improve the structure of the debt to ensure sustainability.
8) Already, many players in the financial market have come forward in support of this initiative and I wish to commend them for demonstrating an appreciation of the national predicament and for the confidence shown in our ability to carry forward the historic initiative including critical reforms and related monetary and fiscal commitments.
9) Public Sector reform has been a priority of this administration since taking office. The government’s three-pronged plan aims at: (i) divesting commercial entities; (ii) merging entities when feasible to bolster efficiencies; and (iii) winding-up inactive entities. Guiding the government’s approach are two fundamental principles: the priority given to reducing public debt and the need to reduce the size of the public sector, particularly through divesting activities that ought to be carried out more efficiently by the private sector.
10) In order to strengthen the financial system, the government plans to pass an omnibus banking law that will allow for more effective supervision of financial conglomerates by harmonizing the prudential standards that apply to commercial banks, merchant banks, and building societies. Recommendations made during the 2006 IMF/World Bank Financial Sector Assessment Program (FSAP) include a number of critical reforms. The government will also strengthen its debt management strategy and seek technical assistance from the IMF to look into institutional features of the government securities market in order to make it more competitive.
11) The Bank of Jamaica Act will also be amended to establish the legal framework to underpin its responsibility for overall financial system stability by December 2010. This will allow the BOJ to access data from parent or affiliate institutions that might not be a part of a conglomerate group. It will also provide a stronger basis for the BOJ to provide financial support to non-banks, if needed for securing financial system stability during periods of extreme volatility. The BOJ will develop procedures for providing liquidity facilities to primary dealers.
12) The government will reform the securities dealer sector to strengthen its ability to withstand shocks going forward. A major problem with the securities dealer sector as currently structured is that liquidity and maturity risk are held on the security dealer’s balance sheet and capital requirements are not comprehensive, as identified in the FSAP.
13) In keeping with FSAP recommendations and technical assistance from the Caribbean Regional Technical Assistance Centre (CARTAC), the government is taking steps to shift risks to investors by encouraging the development of collective investment schemes, by amending the Unit Trust Act. Amendments to this act will come into effect by December 2010. In addition, the government will continue strengthening the regulatory and supervisory framework of the securities dealers sector.
14) Highlights of the Medium-Term Macroeconomic Framework:The economic programme aims at yielding permanent growth dividends by raising growth to 2 percent by FY2011/12
– Inflation will trend down to the 6–7 percent range over the medium term.
– Fiscal policy is aimed at eliminating the overall public sector deficit over the medium term and putting the debt-to-GDP ratio on a clear downward trajectory.
– Improvements in the balance of payments over the medium term, with gross international reserves projected to remain at around 3–3½ months of imports of goods and services during the programme period and over the medium term.
– Monetary Policy: Monetary policy will aim at bringing inflation down to mid-single digit levels and maintaining it at those levels, within the context of exchange rate flexibility.
15) IMF and other multilateral support: To support our economic programme, over the past several months the Government has been in discussions with the International Monetary Fund (IMF) on securing a standby loan facility of US $1.25 billion to be disbursed over a two-year period in order to cushion the devastating effect on the economy of the sharp decline in foreign exchange earnings.
16) On January 14, 2010 the Managing Director of the IMF, Mr. Dominique Strauss-Kahn, announced the decision of the management of the IMF to approve the Letter of Intent submitted to them by the Jamaican Government, subject to final approval by the IMF Executive Board. Consideration by the Executive Board of the Fund is scheduled for January 27, 2010.
17) Underscore the extraordinary and unprecedented level of support for the people of Jamaica by our international development partners, particularly since this administration took over the Government in September 2007. With regard to the Economic Recovery Programme we have received commitments of funds from the IMF, the World Bank, the Inter-American Development Bank and the Caribbean Development Bank, of approximately US$2.4 billion – an extraordinary endorsement amounting to 20% of our Gross Domestic Product.
18) Our engagement of the multilaterals represents borrowing that is smarter and cheaper and is accompanied by measures to strengthen and right-size the economy. These include improved governance, increased transparency and accountability and macroeconomic stability.
19) In addition, A Fiscal Responsibility Framework designed to increase the accountability of public entities by requiring approval of their budgets by Parliament. Transparency will be increased through a stricter enforcement of reporting, auditing standards and the achievement of performance targets.
20) The government will deepen reforms to strengthen tax administration. Key tax policy reforms will also be undertaken. The government remains committed to significantly scale back the system of tax incentives and exemptions in order to significantly broaden the tax base, reduce distortions in the system, and allow for a phased reduction in the corporate tax rate to a more competitive level. The freeze in granting of discretionary waivers on duties and taxes is the first step in this process.
21) Central Treasury Management System.The government is pursuing the establishment of a central treasury management system (CTMS) to bring responsibility for treasury management functions under one agency.The CTMS will establish a Treasury Single Account (TSA) to improve cash management. The government plans to consolidate all general government cash resources in the TSA. The government is receiving assistance in establishing the CTMS from several multilateral agencies including the IMF. Details of this programme will be provided during my address to the parliament later today.
22) Finally this time of crisis is also a time of opportunity, for local and regional investors. For us here in Jamaica it is a time for a fresh start; a new beginning. Today theenlightened investor must be positioned to take advantage of bargain prices and lower interest rates. When the market starts to turn, as indeed it will, these are the individuals who will emerge ahead of the game.
23) There are compelling reasons why the Jamaica stock market and indeed the entire capital markets will continue to be a major source of investment opportunities. The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Particularly at this time equity financing is preferable to debt financing. It has been observed that during the financial debacle of the 90’s not one single listed company went under.
24) When Jamaicans invest in shares, it leads to a more rational allocation of resources. Funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity. In addition to the benefits for several economic sectors such as agriculture, commerce and industry, this investment provides ordinary Jamaicans the opportunity to have a stake in the ownership of enterprise and the retention of profits in the local economy, resulting in stronger economic growth and higher productivity levels.
25) The Finance Ministry welcomes the establishment of the Junior Market for small and medium sized enterprises by the Jamaica Stock Exchange. The Junior Stock Market provides an easily accessible capital market facility for small enterprises, which otherwise may not be able to raise capital through commercial loans. This initiative is critical to stimulating growth in the Jamaican economy by developing the small-and medium-sized enterprises sector. Also noteworthy are the efforts to enhance cross-border trading in the region as well as the move to develop a Regional Stock Exchange.
26) As you explore ‘growth frontiers for the regional capital markets’ I commend the Jamaica Stock Exchange for staging yet another very timely and meaningful event. It is my wish that at the end of the day all the desired objectives will be fully realized.
