Moontown

Lavern Clarke

The Bank of Jamaica on Friday cut interest rates by one percentage point on all its open-market securities, a move that now more closely aligns the returns on its six-month tenor with the current performance of the benchmark treasury.

With the change, the BOJ’s most expensive certificate of deposit to primary dealers is priced at 20.5 per cent, down from 21.5 per cent.

Hours later, at market close, Scotiabank Jamaica also announced it was cutting its lending rates by one per cent, effective August 3, from 21.5 per cent to 20.5 per cent to match the BOJ.

“The reduction in our lending rate at this time reflects our commitment to stimulating recovery in all sectors of the economy, at a very challenging time for retail, commercial and corporate borrowers,” said Scotia Group Jamaica President Bruce Bowen in a company statement.

“At times like these, it is critical that senior decision makers in government, business and civil society show leader-ship by working together to build confidence in the business community and general public.”

The new central bank signal rates now range from a low of 16 per cent on the 30-day CD to 20.5 per cent on the 180-day instrument (see insert).

The six-month July Treasury bill by contrast yielded 20.6 per cent at last Wednesday’s auction, which was close to a point lower than the previous month’s yield even though demand for the $400-million bond was strong. Subscriptions topped $1 billion.

It’s not clear whether the rate cut is meant as a signal to International Monetary Fund officials, with whom Jamaica is now engaged in negotiations to borrow up to US$1.2 billion, though there has been speculation that the central bank and the Ministry of Finance have had differences over interest rate policy.

BOJ governor Derick Latibeaudiere had dismissed those speculations in an interview published in sister publication Wednesday Business saying fiscal and monetary authorities often had differences, but that he and the ministry had a common position in the IMF negotiations still under way.

Analysts immediately took the performance of the July treasury bond as a signal that the central bank would pronounce on rates, and warned that investors should expect lower returns on their portfolios.

“At yesterday’s six-month T-bill auction, which was 155 per cent oversubscribed, the average yield fell to 20.6 per cent relative to 21.05 per cent in June,” said Pan Caribbean Thursday in its ‘Business Eye’ newsletter to clients.

“Of note, the current yield is 90 basis points below BOJ’s comparable rate. We expect BOJ to respond positively to this development.”

BOJ said the rate cut was pegged on signs of improvement in the monetary environment, notably the expectations that the foreign exchange market will benefit from the stand-by IMF agreement, which will, the BOJ said, “pave the way for additional inflows from other multilateral institutions and a reduction in the Government’s reliance on domestic financing”.

The latter forecast, if realised, could drive down the price on new government debt issues, if the treasury’s need is sufficiently fed by expectedly cheaper donor funds.

price adjustment

The BOJ said too that its action was pegged on the downward adjustment in prices. Annual inflation was down to 9.0 per cent in June from 24 per cent at June 2008, while fiscal inflation fell three points in the first quarter, from 12.4 per cent recorded at March 2009.

“This out-turn has been underpinned by continued stability in the foreign exchange market,” said the BOJ in a statement released Friday.

“Additionally, the BOJ’s gross foreign reserves have stabilised at US$1.6 billion.”

The central bank’s decision, announced an hour into trading Friday, appeared to have no impact on the stock market, which closed the day down 97 points at 80,117 on the broad JSE Market Index, though advancing stocks dominated losers six to four.

Analysts say the expected lower returns on securities will likely result in a boost for stock market activity, but only if more rates cuts occur this year.

“It could happen if JMA continues the pressure on Minister Shaw - Senator Wehby is out of the picture - and if the minister can persuade the BOJ,” said one analyst who requested anonymity.

“But we never try to predict what the central bank would do.”

Latibeaudiere, whose chief job includes control of inflation, uses interest rates to shield against depreciation of the JMD. The more the local currency loses value, the greater the likelihood of higher inflation, since more money is needed to buy the same amount of goods.

But as the IMF talks wind down to an agreement, the central bank says it anticipates continued stability in the foreign exchange market going forward, which would indicate it has less of an incentive to keep interest rates high.

“The prospects for continued stability in money and foreign exchange markets have been strengthened by the Government’s decision to secure a stand-by arrangement with the International Monetary Fund,” the BOJ said.

The JMD which lost 13 per cent of value last year, but has stabilised around J$89:US$1 in recent months, closed trading Friday, down one cent, at $89.10.

Jamaica Gleaner

Daraine Luton
Andre Hamilton of The Print Centre, King Street Kingston checks the quality of a just completed print job. His business is one of many struggling small businesses in Jamaica.- Ian Allen/Staff Photographer

THESE ARE tough times and small and micro enterprises are not feeling just a pinch; they are experiencing a wicked severing of a few pounds of flesh caused by the worsening recession.

The buck just does not go as far as it used to, people are losing jobs and many small businesses have been forced to the edge.

Andre Hamilton knows first-hand the recessionary pain being experienced in the country. He operates a printery in Kingston. His clientele is disappearing, not because of the quality of his work but because many people can no longer afford to do business with smaller, less efficient companies.

“There was a time when the bigger printers were not doing certain small jobs but now they are taking every, single one,” Hamilton told The Sunday Gleaner.

“The bigger printers are squeezing the smaller ones…these printers sometimes import their materials, they sometimes have better equipment and they can offer a better price,” Hamilton said.

The loss of business is a problem with which many small businesses have been grappling. No wonder they saw the facility created by Government to allow them to benefit from 15 per cent of all state contracts as a lifeline.

Hamilton, while not successful in getting jobs through this special facility, told The Sunday Gleaner that he has had so many bad experiences with government agencies in the recent past it is sometimes not feasible to do work for state agencies.

The businessman notes that “getting the contract is one thing, getting paid is another.”

He points to three recent instances where he was forced to wait for at least four months to get paid for his services.

not enough work

“If you are fortunate enough to get the contract, when you do the job you still can’t get paid. Right now, I can’t even collect from some of the people I do work for … . I don’t have enough work to even pay my overhead expenses,” Hamilton.

He added: “It is not encouraging … there are times when I thought of coming out of the business. It is a struggle.”

“Nothing is happening in business. I had a staff of 16 and now I am down to seven. I had to send them home … . I now have my staff working two days and three days,” Hamilton said.

Meanwhile, in western Jamaica, a small business operator has lamented that he, and other persons of similar standing, have not been able to benefit from construction in the hospitality sector.

“There are so many hotels being built in Montego Bay and getting jobs is highly political in most cases,” Curtis Hylton told The Sunday Gleaner.

Hylton, who has a one-stop shop construction, architecture and surveying company, said that he had been looking forward to reaping “sweet rewards” from the stimulus package but nothing of the sort has come his way.

“The stimulus package is rubbish … . I have not benefited from the so-called stimulus package that the prime minister mentioned. When it was announced I thought that it was going to help the small business but I am so disappointed, it is not funny,” Hamilton said.

This contractor told The Sunday Gleaner that he has submitted bids on two government projects this year. He said that he has not recieved any response to his bids.

Having failed to land a contract since January, Hylton fears the worse for his company’s continued existence but he said he was committed to push on.

At present, his eyes are fixed on the multimillion-dollar convention centre which is to be constructed in Montego Bay. He said many persons are looking to the project for employment and contracts and has warned that an oversupply of Chinese workers on the project, at the expense of locals, could result in a riot.

Jamaica Gleaner

Chin-Mook- File IT TOOK Government nearly six months to deliver on a promise to stimulate small businesses through a special procurement window and even after its implementation, the association representing these entities is not happy.

“Despite the presence of water in the tank, Rome is burning,” Edward Chin-Mook, president of the Small Business Association of Jamaica (SBAJ), tells The Sunday Gleaner.

Prime Minister Bruce Golding announced in December, as part of the Government’s stimulus initiative, that a system would come on stream that would allow small and micro businesses to benefit from 15 per cent of all contracts being paid for by taxpayer’s dollars.

A June 2 circular from the Ministry of Finance announced Cabinet’s approval of one aspect of Golding’s stimulus programme.

“All entities shall make their best endeavours each fiscal year to spend a minimum of 15 per cent of budget procurement expenditure with MSEs,” (micro and small enterprises), the correspondence read.

The circular also said that all government entities doing procurement should post notices of all procurements intended for the MSE on a designated Ministry of Industry, Investment and Commerce webpage.

crisis

However, the webpage, www.miic.gov.jm/msesetaside.htm, up to press time, was blank, save for its lone content which read: “to be updated”.

Meanwhile, Chin-Mook charges that Government has failed to demonstrate that it is committed to saving the small business sector, especially during this time of crisis.

“The small business association is lobbying for a unified ERP accounting system where 15 per cent of all purchases, large and small, must come to small businesses through an appropriate mechanism, enabling opportunities and stimulating new innovative enterprises,” Chin-Mook reasons.

Under the stimulus initiative, small and micro enterprises must be registered with the Companies Office of Jamaica, be tax-compliant and have assets not exceeding $30 million to benefit.

Cabinet approved a maximum of $1 million per contract for the procurement of goods. It set the maximum value for general services at $5 million and $10 million for works.

However, Chin-Mook says that the announcement has not brought the level of success that was anticipated.

“This procurement policy is being looked at as a normal, run-of-the-mill intervention. It should actually be something which is specific and you put some specific attention to it,” Chin-Mook says.

He adds: “The Ministry of Industry, Investment and Commerce along with the Ministry of Finance must combine their efforts to roll out a working model to operationalise same or it will just be another grand announcement.”

But, Reginald Budhan, the permanent secretary in the Ministry of Industry, Investment and Commerce tells The Sunday Gleaner that not only is the policy in place, but it carries less red tape than a process that was proposed by the SBAJ.

He says Chin-Mook is complaining because he wants all small businesses to go through his organisation to benefit from the intervention.

bottleneck

“Anybody who is going to supply goods to Government under this framework, the small businesses (association) wants them to come through them … they would probably get a margin off the contracts … we don’t want that. We don’t want to create a bottleneck in the system,” Budhan says.

Budhan has promised that the ministry will exercise robust management of the procurement system.

“We are going to put in place an information system to see how much agencies of government procure and to monitor and kind of beat them over the head and say you need to make your target. The aim is to force more of the business down the line to the small people,” Budhan says.

Jamaica Gleaner

JAMAICAN FAMILIES, heavily dependent on remittances, are feeling the tight squeeze of reduction in inflows. Since the start of the year, the families have had to make do without their share of the more than $12.7-billion shortfall in foreign exchange recorded in the first five months of 2009.A remittance update published by the Bank of Jamaica showed that, between January and May 2009, remittance inflows declined by more than US$140 million when compared to the same period last year.

Zedayne Simister, risk and research manager at Guardian Asset Management Jamaica Limited, told The Sunday Gleaner that “on the micro-economic scale, reduction in remittances, a major source of foreign exchange for the country, could negatively affect the local consumption of goods and services for those households which are dependent on these funds.”

Simister also noted that a decline in the remittance inflows, “all things being constant”, usually has an adverse impact on the foreign exchange rate. But he emphasised that the central bank has played a pivotal role in stabilising the dollar.

FIELD PEAS AND RICE; MACARONI PIE

VEGETABLE NOODLES; MASHED POTATOES

BBQ CHICKEN; GRILLED BARRACUDA

FRIED POT FISH; LAMB  STEW;

FISH GRAVY; STEAMED VEGS; TOSSED SALADS