KINGSTON, Jamaica – As we all know, the world is going through a serious financial and economic crisis – in its extensiveness and complexity perhaps worse than anything we have ever experienced. Most of the major economies of the world are heading into recession. Some already are- like the USA, Germany, Italy and Japan. We in Jamaica are not able to escape the impact of this global crisis.
We have had to deal with global crises before:
.The oil crisis in 1973; another in 1979/80 and yet another in 1990 after the Gulf war
.The collapse of the alumina market in 1985
.The recession in the US economy in 1982/83 and the devastating effect it had on our economy, especially in tourism.
But we have never had to deal with crises on all of these fronts all at one time. That is what we are facing today. It has pulled down economies much stronger than ours. The economy of Iceland which had the 6th highest per capita income in the world is in shambles and it had to be rescued by the IMF. Our bonds have not been downgraded – the rating agencies have only said that the outlook is negative. But powerful economies like Russia and Brazil have had their bonds downgraded by the rating agencies.
Economies all over the world are in turmoil and no one knows how long it will last or whether the worst has passed.
2008 has, indeed, been a difficult year. We were battered in the first half by high oil prices and rising food prices which drove up the cost of living. We all felt it, but the poor, the unemployed and working class, felt it the hardest.
Then, in the second half of the year came the Wall Street crash which ricocheted all across the world, including here in Jamaica. In the last six months, the alumina market on which our bauxite sector depends has virtually collapsed. Our tourism sector has been affected as many of those who would want to holiday in Jamaica, can no longer afford to do so because they have lost their jobs or have seen their savings and investments wiped out in the global meltdown.
Our exporters are hurting because consumers abroad have had to cut back on their consumption expenditure. Even producers and suppliers in the local market are hurting because they are no longer able to get credit from their suppliers and overseas banks to purchase their raw materials or finished goods.
How have we in Jamaica responded to this global tsunami?
First, we had to ensure that our banking sector and financial institutions were secure because banks were crashing in the United States, Britain and other parts of Europe. Where necessary, we stepped in to assist. Our banks are sound and well regulated but a few of our securities dealers were faced with margin calls as the liquidity crisis in the US pressed heavily on the value of Jamaican bonds.
The Bank of Jamaica provided US$168 million in liquidity support to these dealers to safeguard the integrity of our financial system.
These margin calls and the uncertainty about what the future holds combined to put pressure on the foreign exchange market. The BOJ made US dollars available from the NIR to meet the demand but, as it turned out, this was not just a supply and demand problem.
Indeed, the amount of foreign exchange available to the market this year is greater than last year. But everyday we are bombarded with bad news about the calamity taking place in the global financial markets. In times of calamity, markets get nervous. People instinctively take precautions. As a result, countries the world over have seen their exchange rates depreciate as the global crisis unfurls, many of them with currencies that are supposed to be much stronger than ours. Since the beginning of September, the Jamaican dollar has devalued against the US dollar by 10%. But in that same period, many other countries experienced even worse devaluations. These include the:
. Euro 11%
. India 12%
. Russia 13%
. Canada 17%
. Britain 22%
. South Korea 22%
. Sweden 24%
. New Zealand 27%
. Australia 29%
. Mexico 29%
. South Africa 30%
. Brazil 46%
We had to take strong measures to stem the slide of the Jamaican dollar. The BOJ had to apply the brakes. No one likes to hike interest rates. But we had to protect the dollar. Once the authorities are satisfied that stability has returned to the foreign exchange market, the interest rates can be rolled back.
The capital markets, on which we have relied heavily in recent years for foreign exchange financing, have been virtually shut down. But there is no need to panic. There will be more than enough foreign exchange to meet our needs; including repaying our debts that will become due.
From before the last elections we signaled our intention to re-engage with the multilateral institutions like the World Bank and IDB. They offer cheaper money for longer terms. Even before we became government, Audley Shaw and I went to Washington and outlined to them, our economic strategy. Since the elections these discussions intensified and they are now fully back on board.
As Minister Shaw told you in a broadcast on November 23, since April we have secured US$350 million from these multilateral agencies. For the rest of this fiscal year we will secure a further US$600 million to meet our foreign exchange needs with most of it coming in within the next 6 weeks. Adequate foreign exchange flows have been identified for the next fiscal year when debts due for repayment will be significantly less than was the case this year and hence the government’s own foreign exchange needs will be much less than last year’s.
We are going to weather the storm. Thank God we took the decision to re-engage the multilaterals. If we hadn’t done so, we would have had nowhere else to turn and we would have been faced with total disaster.
Now that we have addressed the financial sector, we also have to deal with the real sector – that part of the economy where people work and are fearful that they might lose their jobs; where businesses are struggling to survive; where people are feeling the pinch and are having difficulty in paying their mortgages; where jobs are not available because investment is in retreat and people need help to start something to create their own jobs.
We don’t have the luxury that wealthy countries have to pump huge sums of money to stimulate the economy in these tough times. We didn’t inherit any surpluses to allow us to make money run. We have been running fiscal deficits for many years. We are burdened with huge debts – one trillion dollars worth. But we must do what we can. We must provide leadership and it is our job to navigate our way through this storm.
The bauxite/alumina industry is in a precarious position because, as I told you, the market for alumina has virtually collapsed. The demand for alumina is driven largely by the housing and automobile industries both of which have come to a standstill. The price of alumina has fallen to less than a half of what it was in July. Inventories are piling up all over the world and ships laden with alumina are having difficulty finding places to offload their cargo because storage sites are full to the brim. Plants are being shut down in different parts of the world.
We have been in intense discussions with the bauxite/alumina companies here in Jamaica and the unions which represent the workers to try to avoid the closure of any of our alumina plants which would result in hundreds of workers being laid off. The government has had to offer certain concessions and we may not be able to avoid a cutback in production but we are doing everything possible to keep the plants in operation and save the jobs of the workers in the industry.
The discussions have been going well and we hope that shortly we will reach agreement with UC Rusal in respect of Alpart, Kirkvine and Ewarton. The situation will have to be kept under constant review based on developments in the world market. At the present time, there is no immediate danger to the operations at Jamalco and St. Ann Bauxite Company but we are in constant dialogue with those companies as well.
The tourism sector is going through tough times as the effects of the global crisis set in. In the face of this downturn, the government has ramped up its advertising and marketing programme. The major hotel operators have done likewise and I commend them for their efforts. These initiatives are paying off.
Despite the gloom in the market, stopover arrivals up to the end of November are 5% above last year’s although some level of price discounts have had to be offered. But smaller hotel properties are hurting and 2009 is going to be even more difficult for everyone. The government must provide some support to the industry at this time to keep it going and to save the jobs that might be lost.
.Hotels currently pay GCT at the rate of 8 ¼%. In order to assist the sector, effective January 1, this will be reduced by a half to 4.125%. This will be for a period of 6 months at which time the situation will be reviewed.
.The Development Bank of Jamaica will make available a special loan facility of J$500 million to provide working capital to players in the tourism sector some of whom are experiencing cash flow problems. Loans will be offered to a maximum of J$50 million at an interest rate of 10% for a period of two years. This is in addition to the $100 million already being provided by the Tourism Enhancement Fund.
The manufacturing sector faces difficulties resulting from the downturn in demand for their goods and the drying up of credit facilities. We have to support them. We have to help them to save the jobs of their workers.
.Effective January 1, the Customs User Fees payable on capital goods and raw materials will be removed.
.Effective January 1, also, the time allowed for depreciating the cost of capital equipment will be reduced from 2 years to 1 year.
.Government procurement policy will be adjusted to provide a 10% margin of preference to Jamaican-owned companies. In other words, preference in the award of contracts will be given to a Jamaican-owned company over a foreign-owned company if the bid submitted by the Jamaican-owned company is not more than 10% above that of a foreign competitor. It may cost us a little more but we have to support our local manufacturers and suppliers.
The small business sector is vital to the economy. It employs the largest number of people but it is particularly vulnerable to the economic stress we are undergoing. Small business people need our support.
.The DBJ will be allocating $350 million through the Jamaica National Small Business Loans Ltd. to provide additional funds for lending to small businesses and micro-enterprises.
.$150 million has been provided to the Jamaica Business Development Centre for on-lending at 10% to small businesses and micro-enterprises that are unable to meet the full collateral requirements for conventional loans. These must be for the production of goods or the provision of services – not trading.
.An additional $150 million will be provided at similar rates through designated Credit Unions for similar purposes.
.All government agencies will be mandated to ensure that at least 15% of their total procurement is reserved for small business and micro-enterprise suppliers. These are defined as businesses or enterprises with an asset base of less than $30 million.
.All businesses with annual sales above $1 million are required to register under the GCT and submit monthly returns. As of January 1, only businesses with annual sales more than $3 million will be subject to GCT requirements. This will benefit approximately 2,800 small business operators.
While we have targeted sectors such as bauxite/alumina, tourism, manufacturing, small businesses and micro-enterprises for special treatment, we have decided to implement a number of measures to provide some general relief and stimulus throughout the economy.
.We have negotiated a US$300 million facility with the IDB to provide loans to the productive sector to be made available through commercial banks and the EX-IM Bank. I expect to sign this agreement in January and the disbursement of these funds by the IDB will commence in that same month.
.In 2002, the tax on dividends paid by companies listed on the stock exchange was abolished. Only about 60 companies are so listed. All other companies are required to withhold tax on dividends paid. Effective January 1, we will abolish the tax on dividends paid by all locally owned companies to help them to keep going, to protect the jobs of their workers and to encourage them to invest even in this difficult times.
.In April, we reduced the transfer tax on property transactions from 7 ½% to 6 ½%. Effective January 1, transfer tax will be further reduced to 5% to provide some stimulus to the real estate market and construction sector.
At the personal, individual level, we know you are feeling the pressure. You were battered by the sharp rise in inflation in the first 8 months of this year. Thankfully, inflation has been slowing down. In September it was down to 0.6%, in October 0.3% and in November inflation actually recorded minus 0.3%. But inflation would have jumped back up if we hadn’t taken steps to stop the slide in the Jamaican dollar.
As previously announced, the income tax threshold will be increased effective January 1 to $220,272 providing a little more relief especially low income workers.
We know that many workers are fearful of losing their jobs at this time and despite our efforts in key sectors, some layoffs will be unavoidable as the global turmoil continues. Here again we are not unique. Over 2 million people in the US have lost their jobs since the start of the year – 1.2 million in the last three months and 533,000 in November alone.
While we cannot prevent some amount of dislocation and distress here at home, we must do what we can to help.
.The HEART Trust/NTA has developed a special programme to retrain workers who are laid off and to guide them toward alternative job opportunities or start-up of their own businesses. I urge those employers who may be forced to lay off workers as well as the trade unions which represent them, to contact the HEART Trust/NTA and to work with that agency to help their workers to equip themselves for alternative employment or start their own small businesses.
.One of the first concerns a worker has when he loses his job is how he is going to pay his mortgage and whether he will lose his house. The NHT will offer a range of measures to assist persons who have lost their jobs or whose income flow has been disrupted.
These involve suspension of mortgage payments, reduction in monthly payments, rescheduling of mortgage payments, extension of the mortgage period and reduction in interest rates. The exact treatment to be applied will vary from case to case and will be dependent on the peculiar circumstances of each borrower. I encourage those NHT mortgagers who are experiencing hardship at this time not to just sit back and allow their arrears to pile up. Contact your nearest NHT office. Talk with them. They stand ready to work with you to find a way to work it out. I have instructed the NHT to assign adequate personnel to deal with those borrowers who may need to seek this assistance. But I urge those who are not so affected to pay their mortgages. That is the only way we will be able to assist those who are in difficulty.
.Private mortgage lenders such as the building societies have indicated to me that they, too, are willing to work out arrangements with their borrowers who are in difficulty but have pointed out that they are restricted because any mortgage which is in arrears for more than 90 days is classified as a non-performing loan and must be reported to the regulatory authorities. Strict limits are imposed on the amount of non-performing loans they are allowed to have on their books. We want to give them more space to help those borrowers who are in distress. We will be increasing the period after which non-performing loans are booked from 90 to 180 days. This will remain in place until the current economic crisis is behind us.
I know that at this time there are many Jamaicans who depend on packages sent to them for Christmas from relatives abroad. Many of them will have difficulty in paying the duties to clear their goods. We want to offer them a little relief. As of tomorrow, barrels and packages containing personal effects with an assessed value not exceeding US$3,000 and which are cleared or arrive in the island before December 31st will be allowed to be cleared duty free.
We are in what I hope is the final stage of our negotiations for the privatization of the government-owned sugar industry and we now await confirmation from the group of investors in order to facilitate the formal handing over. On that basis, we will, this week, be paying out to the sugar workers 14 weeks’ notice pay amounting to some $800 million with a commitment to make full redundancy payments early next year.
We are still saddled with a backlog of damage to our roads and infrastructure caused by the hurricanes and flood rains we experienced this year. The budget is extremely tight and there is a limit to how much of this we can take on at this time. However, we have authorized additional expenditure of $2.4 billion to undertake urgent repairs to our roads, drains and gullies. Work has already started in several parts of the island. This will provide much needed employment in these tough times.
The Constituency Development Fund which was introduced in April is also financing meaningful projects in each constituency, improving the quality of life and creating jobs. I urge all Members of Parliament to select and monitor their projects carefully to ensure value for taxpayers’ money and maximum benefit to the communities.
I have spoken this evening about the challenges we face as a result of the global crisis and the immediate measures we are able to take to provide relief to vulnerable sectors of the economy and offer some stimulus to help us weather the storm. But our focus cannot only be on weathering the storm. We must look ahead and prepare ourselves because, like everything else, this crisis had a beginning and it will certainly have an end.
There are things we must do now to position ourselves so that when the crisis has passed and the recovery begins, we can be at the head of the line. Some of these will involve far-reaching policy and structural changes to make Jamaica more business and investment friendly, improve our human and institutional capacity and make ourselves a more productive and competitive economy.
These are things we needed to do in any case. In the face of the global crisis we need to do them more than ever. There are a number of initiatives we have been working on all of this year and they will inform the preparation of the budget for the next fiscal year and the programmes we will pursue.
Now is not a time to curl up or panic. Our eyes must pierce through the fog to see those things that might not now be within our grasp but are within our reach. Even in times of trial and adversity, there are opportunities that we must seize and capitalize on.
An important element of this is building a strong consensus among the critical stakeholders in the economy – the Government, Private Sector, Trade Unions and the Opposition – on where we want to go and how we plan to get there. I am very pleased, therefore, that formal discussions on a Social Partnership commenced last week. On the success of those deliberations rests much of our hopes for success in the future.
We are a nation that has been struggling for a long time. When the world was enjoying unprecedented growth and prosperity, we were left behind. Now that the world is in a crisis, our challenges are even greater. But we are a tough people who have been through tough times many times and we will come through again this time. If we pull together, if we build a national coalition with one agenda to put Jamaica on the right path we can face this crisis and the future that lies in front of it with courage and confidence.
Yes, we can, for there is no mountain too high, no ocean too wide, no obstacle too immovable, no force too fierce, and no dream too impossible that we can’t achieve the greatness that God has given us the power to achieve. Yes, indeed, we can, Yes, indeed, we must and yes, indeed, we will.
May God bless you and your families especially in these harsh times and may God bless Jamaica, this land we love.
