THE JDX PROGRAM, WHAT’S NEXT – part 3

The Next Step

It is highly likely that the Jamaican dollar will come under pressure since the earnings on US$ denominated instruments, were not affected by the debt swap program.  This will occur after existing bonds have matured and government seeks to replace these with new bonds.
It is therefore prudent that the government take immediate steps to reduce the demand for foreign exchange by doing the following.

Imported oil currently accounts for the largest use of foreign exchange in the country, and while the bauxite industry shutdown has saved us billions, we have not come up with a way to decide if we are better off with that industry being closed Vs being opened.

It is therefore prudent that the government take immediate steps to reduce the demand for foreign exchange by doing the following.

  1. Institute a 5-yr. ban on all motor cars, pickups etc with a gasoline engine whose size exceeds 3000cc.
  2. A similar 5yr ban should be placed on pickups, cars, minibus with a diesel engine size greater than 4.7L.
  3. Ban all heavy duty trucks equipment with an engine size greater than 8.0L.
  4. Restrict import license on agricultural imports on items such as carrots, Irish potato, tomato, ginger, etc for a period of 5yrs. How I see this working is importers will be given a quota, which should be the difference between what we are producing locally and the demand for the produce plus an additional 15-20% which would take care of things like drought or a natural disaster. We have to be very creative here so we do not violate any WTO rules.
  5. Provide duty free concession for all renewable energy products.
  6. Use savings from oil to provide incentive for company’s to manufacturer solar water heaters, solar electric panels and other manufacturing process that seeks to bring energy saving products to the market.
  1. 7. Stipulate that manufacturers and large commercial complex substitute 10% of their energy usage by using renewable or energy saving technologies by the year 2015. This means that over the next 5 years manufacturers, commercial building etc will seek to replace 10% of existing energy consumption with the use of renewable or other energy saving products.
  1. 8. Investigate Geo thermal plants at Rockfort, Milk River bath in clarendon and Bath fountain area in St Thomas.
  1. 9. Companies who meets this mandate will be provided with certain tax relief on the investments required in order to achieve the level of energy efficiencies attained. That is if a company had to invest say $10m to retrofit their operations to become an energy complaint or “green plant/business” then they can claim over the next 5 years tax write off which is equivalent to a portion of their investment which was used to gain compliance. They would off course would be subject to an energy audit by the Governmental inspectors, which would be setup to ensure compliance. Too often in Jamaica we make these offering to business only to see them claim write off for “investment” which never made its way into the business itself.

The tax write off should be on a graduated scale for example, if renewable or energy retrofit equate to the stipulated 10% that has been set out, then the company can claim up to 40% of what they spent.
If they achieved say 30-40% savings using renewable or other energy conservation technology, they can claim up to a maximum of 90% of what they spend over a five year period.

We have dug ourselves into a hole and we now need to find a way out, before its too late.

THE JDX PROGRAM, WHAT’S NEXT ? part 2

If Jamaica is to get out of the economic malaise that it has found itself in, then the IMF loan, the JDX program and increased taxes must be part of a bigger plan, and that’s were the link is missing i.e. the “bigger plan”.

A few analyst have made it clear that the country will suffer long term from this latest move and that pension funds as well as security dealers etc are going be negatively impacted.
I have reviewed the situation myself and thought how is this any different from the financial meltdown in the 1990’s. Is it not the same dumb policies that got us in trouble now, had us in trouble back then.
Was it not high interest rate, a propensity to invest in papers, plus tying up of long-term assets, which were being used to meet short-term liabilities. As with the pension fund it’s a little different as in this case its, long-term liabilities being funded with short to medium term assets.

Banks, near banks, securities dealers and pension fund administration really learned very little from what occurred in the 1990’s and if it was not for very strict rules that were implemented by the FSC, many of these institutions would have failed once again.

The Jamaican experience with Cash Plus, Olint, Lewfam, Swiss Cash, Worldwise, Mininvestment, Capital Blu, Forex Millionaire Club, May Daisy, CARIEF and all the other high investment yield products was a disaster.

Jamaicans home and abroad collectively lost over $150B (my estimate) from these paper shuffling ponzis, despite the fact that the interest rate they advised (10-15% per month) was ridiculous and could NOT have been achieved by any stretch of imagination.

So between the financial crises in the 1990’s and the Ponzi bust up in late 2007 (I did not even consider Bear Stearns or Lehman Brothers) Jamaicans have racked up losses of close to $300b, over the last 20 years!!

It therefore is proof that an economy cannot grow simply by shuffling paper around, and neither can it grown when you freeze wages and raise taxes.
It is therefore very clear to me that what needs to be happening, is we need to improve our ability to manufacture and export, while reducing imports.

THE JDX PROGRAM, WHAT’S NEXT ?

So the government of Jamaica has got the banks, securities dealers and other persons holding GOJ Debt instruments to agree to a debt swap.
The GOJ with their back against the wall virtually forced holders of debt to accept the debt swap or face the risk of loss of principal or higher taxes on income interest.

While the banks have been the unwilling bride, they have all agreed and we are left to see how will they react, seeing that over the years they have grown their balance sheet by gouging themselves on GOJ papers.
It was reported that pensioners are likely to be significantly affected, and there is even talk of Jamaica losing “face” on the international market as a result of its actions.

The question is what were the alternatives available to the government and is this best of the worst of all the choices.
Nothing is life is without a downside, and thus the downside of this is people will not earn as much as they had expected in the short term.
Banks and near banks will no doubt use their creativity to extract more from the its willing customers, who refuse to rebuff the advances of the banks when it come to the funds in their accounts.

I say that because the banks has sought to add new charges, increase present cost for the services it provides, without offering any significant improvement in the service it offers.
It is therefore up to the consumer to start treating the services of the bank as they would do any other service sector or product.
Consumers need to take a very close look at their accounts, and work out the cost of doing business with these banks.
We need to make sure we are getting value for money, and don’t be shy to change banks if they continue to charge high fees without offering any new value for the money they are asking from you.

The two major commercial banks made collectively $22 Billions dollars in profit in 2009, despite we being in the biggest recession this country has ever seen, so don’t think they are not planning to improve on this performance this year.

The JDX has recently come under fire from certain sectors of the financial world as well as political commentators, and as usually the case in Jamaica very few have offered an alternative.
Scotia as well as other banks have since sought to get from government a commitment to reduce waste and be financially responsible with the potential wind fall it is about to receive.

I have stated in a previously article that the borrowing from the IMF alone will not cure Jamaica’s problem and neither will the JDX, so one is left to ask what is the long term plan.

Where is the plan with clearly defined steps that will seek to reduce our dependence on borrowing over the next 15- 20yrs?
It is presumed that the JDX will result in banks lowering their borrowing rates, which will in turn be passed unto the borrowing public including business.
Even though this seems logical, our banks have over the years been very reluctant to lower their loan rates as they seek to gouge more and more out of the public at every opportunity they get, and I suspect this will be the same this time around.

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