Moontown

DENIS KELLMAN’S COLUMN – THE DEBATE

November 15, 2006

This week, the Government sought a further $130m on the International Market.  This has occurred after selling off Government assets, borrowing for a rainy day, and collecting large sums from inflows. Such borrowing is occurring at a time when Government is complaining that the import bill is over $1b higher than normal.

The independent minded must ask whether Government has absorbed all other options before it sought to borrow on the International market. Government could have easily sought to seek external investments, increase exports and services, increase remittances or continue to sell the gold by selling property.

Politicians should be careful how they criticize each other, because one can recall how the BLP members told the public that the DLP was wrong in selling two projects that were taking from the Consolidated Fund. These projects were the Arawak Cement Plant and Heywoods. Under their watch, they have now sold the Barbados National Bank and the Insurance Corporation of Barbados. Both projects were contributing to the Consolidated Fund and from a revenue stand point were not a demand on the tax payers.

These projects have been sold at a time when Government brags about the high level of foreign reserves, therefore foreign exchange should not have been the reason for the sale. Now that Government is now borrowing to show up it foreign reserves, one can easily conclude that when these assets were sold that the Government had a need for foreign reserves or they would have had to borrow on the International Market earlier than at present.

There is a famous Bajan saying, which says that, “you can hide and buy land, but you cannot hide and work it.” Which when interpreted in this case means that Government knew that it has a foreign reserve problem and delayed it by selling off the gold of Barbados.

Government’s approach to this problem has been handled badly and instead of dealing with this problem with a long term solution, they have opted for a short term solution which has caused it to seek a solution after delaying the inevitable.

What is needed to solve this problem is a dose of Kellmanomics. This would lead to an increase in productivity from labour and capital, increase investments, increase remittances and a reduction in production costs by having an expanded production level and a swap between overtime and moonlighting, buttress by a shift from direct to indirect taxation using the Reverse tax Credit to cushion the impact on those affected.

Government must take the blame for having to introduce two ad hoc taxes: CESS and the Bound Rates. These taxes run counter to international commitments and Government has to find a way to remove these taxes without interfering with the foreign reserves in a negative way. This approach has caused us to admit that Government’s policy of running a two-tier tax system was wrong from the beginning and that we should have shifted from direct to indirect taxation which would have seen workers increasing their disposable income, capital increasing its retained earnings and Government being  able to create a surplus to finance its capital projects. It must be known that I, like the Late Right Excellent Errol Barrow, believe that capital projects should be financed from revenue expenditure along with investments and loans.

Government must ask itself which taxation system would attract increased investments, direct or indirect and also which taxation system would encourage workers to increase their disposable incomes and give them independence. How can I expect this Government that believes that workers should be dependent, to give them independence?

The taxation system implemented by this Government has been anti-worker. It has benefited foreign workers and investors at the expense of the country. This can only be corrected by Government not only admitting that they have created a taxation system that has seen imports increasing and exports decreasing, but also jobs being exported by changes in the technological world.

This week, Minister Wood sought to resurrect an old economic theory called the Philips Curve, which was relevant when technology did not replace man in the workforce. Mr. Wood should have known that he as a Minister of Agriculture saw an industry that once employed thousands of workers only now employs a couple thousands, all because of technology.

I have already argued that small countries have to be very careful how they allow themselves to export jobs causing them to be led into debt traps.

Mr. Prime Minister, stop delaying the inevitable, you know that you cannot continue to allow the foreign reserves to slide just because I have beaten you again to the finish line. Do not worry, everybody knows you have said that once you get good ideas from me, you would implement them. So, why the delay?

I was always told that the first shall be last and the last shall be first. It now seems to me that when I speak first, I am now speaking last and that certain persons believe that I should have been non-existent.”If the press makes you, it will break you,” Errol Barrow.

I have been forewarned that the war has started against me. The only problem is that when I defend myself, people complain even though they would have been the one to start the war.

Remember who denied Christ trice.

Peace, love, unity, humility, fairness, wisdom and understanding.

PEAS AND RICE; CHICKEN PELAU;

YAM PIE; MACARONI PIE;

BAKED PLANTAIN; BAKED CHICKEN;

FRIED SNAPPER; GRILLED FISH;

STEAMED SNAPPER; CURRIED CHICKEN STEW;

MIXED VEGETABLES; TOSSED SALAD

Education Minister Andrew Holness says his ministry is to review the Caribbean Secondary Education Certificate (CSEC) examination to assess its relevance to Jamaican students.According the Holness, the existing exam system, which has been used for years to establish performance targets at the secondary school level, is in need of an overhaul.

“CSEC is considered as the basic entry level examination for pursuing tertiary studies or entering the labour market, and so many of our students have failed it,” said Holness.

“We have to take a second look at it and analyse truths to see if this exam adequately reflects the competence of the student,” said Holness.

The minister’s comments were made at the Joint Board of Teacher Education annual professional development conference at the Jamaica Conference Centre in Kingston yesterday.

He said the 2009 CSEC statistics in English and math for Jamaica, Barbados and Trinidad were extremely frightening, noting that Jamaica’s averaged 42 per cent and 37 per cent passes respectively. (Jamaica Gleaner)

Soldiers accompanied government inspectors as they tempora-rily shut down dozens of retail stores in Venezuela on Monday, aiming to prevent hefty price hikes after the country devalued its currency.

Inspectors from the consumer protection agency closed 70 stores, saying they had improperly raised prices, the state-run Bolivarian News Agency reported.

Three large stores of the Exito hypermarket chain, majority owned by France-based Casino Guichard Perrachon SA, where shut down for 24 hours.

Authorities began inspecting retailers a day after President Hugo Chavez threatened to temporarily close or take over businesses that raise prices, as a result of the devaluation he announced Friday.

Military intervention

Chavez said he is determined to curb inflation - even if it means deploying the military to prevent price hikes.

Venezuelans crowded into stores selling electronics and appliances for a third straight day, trying to buy items before retailers begin markups. Lines formed outside some stores in Caracas.

One shopper, 26-year-old Jona-than Heybert, walked out with a flat-screen TV, saying: “Just imagine how much this television is going to cost later.”

The government had held Venezuela’s currency, the bolivar, at an official rate of 2.15 to the dollar since a devaluation in March 2005.

Chavez set a new two-tiered exchange rate Friday, pegging the bolivar at 2.6 to the dollar for priority goods such as food and medicine and 4.3 per dollar for imports of non-essential products such as air conditioners and electronics.

The president argues the change will discourage imports of non-essential goods and encourage domestic production of items such as food and clothing.

Oil-rich Venezuela imports most of the products it uses, and most consumers are expecting prices to soar.

Critics have called Chavez’s threats against businesses a futile attempt to prevent the devaluation from pushing up inflation, which, at 25 per cent, is already the highest in Latin America.

Domingo Maza, a former director of the central bank, predicted the devaluation could push inflation as high as 50 per cent this year. He told Union Radio he does not expect the measure to boost exports as the government hopes.

The cost of US dollars on Venezuela’s black market increased 18 per cent from Friday to Monday, reaching 6.5 bolivars to the dollar.

Devaluation impact

The devaluation is also affecting some foreign companies, which saw their shares fall as investors worried about how their businesses might be hurt.

Connie Maneaty of BMO Capital Markets said in a client note that Colgate-Palmolive Company and Avon Products Inc, both based in New York, will be hurt by the devaluation because they have substantial sales in Venezuela.

Earlier in the day, Colgate-Palmolive said it expects a gain of about US$60 million in the first quarter, because it will see a lower-than-expected tax rate on money already made in Venezuela.

After that, it expects quarterly charges of 4-6 cents per share in 2010, as money it earns in Venezuela will translate back into fewer dollars.

Avon said it was monitoring the situation, but would not comment further.

Paul Fox, a spokesman for Procter & Gamble Co in Cincinnati, Ohio, whose brands include Pampers diapers and Gillette razors, was looking at the situation carefully to determine the devaluation’s impact.

Patrick Esteruelas, a Latin America analyst at the New York-based Eurasia Group, predicted that multinationals involved in the consumer goods industry in Venezuela “are going to fare really badly out of this”.

Esteruelas said the devaluation will strengthen Venezuela’s ability and willingness to pay its foreign debt. He also said that oil companies working in Venezuela “will fare reasonably well” because their sales are in US dollars, and that oil service contractors will probably also find it easier to collect on unpaid debts owed by the government.

Spokesmen for the oil companies BP, Total and Chevron would not comment.

- AP

Prime Minister Bruce Golding will announce specifics of debt plan tonight. - File In a test of the market on Tuesday, the Government of Jamaica floated a two-month treasury bond that is not only significant for its tenure but was priced at a fixed 12 per cent per annum, in line with goals of the new debt management initiative (DMI).

The bond will remain open to subscription until January 22, and will be redeemed close to fiscal year-end on March 12, 2010.

The typical treasury bill has either a three- six-, or nine-month tenure and is auctioned by the Bank of Jamaica on behalf of government.

The finance ministry’s debt management unit, which is handling the special float, says the proceeds are for budgetary support, but if the market were to go after the bond it would signal a willingness to accept the new terms under the debt replacement programme to be addressed in a national broadcast by Prime Minister Bruce Golding tonight.

Bank of Jamaica governor Bryan Wynter is expected to outline more details in a briefing on Thursday.

Offering holders

The Golding administration has not said officially just how deep a cut it will be offering holders of domestic debt, but market players say that the International Monetary Fund (IMF) is pushing for 100 per cent take-up by local creditors.

As at November, the domestic debt stood at J$735.6 billion, inclusive of treasury bills.

Market sources say, however, that the $3.8 billion of outstanding Treasuries will be exempt from the debt programme.

The US$6.67 billion (J$598.19 billion) of external debt is also exempt.

The total debt stands at J$1.33 trillion, and is expected to close the fiscal year at around 137 per cent of Gross Domestic Product.

Another $5.7 billion in loans from commercial banks and other institutions are also likely to get separate treatment.

The Government’s news service reported that the Government hopes to save J$40 billion from the initiative in the first year.

Minna Israel, president of the Jamaica Bankers Association and head of RBTT Bank Jamaica, said it would be politically incorrect to comment on the timing of two-month bond offer, saying the ministry consistently seeks to raise funds from the capital markets.

“With the level of uncertainly now it is difficult to give any prognosis on this and we just have to wait and see how the market respond,” said Israel.

Still, the ministry’s bond issues tend to have tenures of no less than one year, and the 12 per cent coupon is close just to four points behind the current three-month yield on Treasuries, which in December was 15.95 per cent.

Signal rate

Financial Analyst John Jackson said, however, that the pricing was in line with the BOJ’s signal rate, which was last set at 11 per cent on 60-day instruments.

“It is in keeping with where Bank of Jamaica repo rates are,” said Jackson.

Israel said, broadly speaking, there was support for government from bankers to reduce rates in a fashion that would stimulate economic growth, but said she would not be drawn on whether the terms of the DMI had found favour with bankers.

“Not at liberty to say,” she said Tuesday. “Can’t speak to it as we are still doing discussions.”

The DMI will be the second attempt to structure a bond call. The first, which had strong private sector input in its construction, was reportedly killed by objections from financial institutions, fearing it would impair their balance sheets.

The Golding administration later said the arrangement would not have saved the Government a lot of money.

Wynter said last week that the central bank had funds secured so that if financial institutions were impaired, it would shore them up with cash.

It emerged this week that the IMF and other multilateral sources have committed some US$400 million to a special fund.

Like Israel, few analysts were willing to speak on what the timing of the 12 per cent offer meant, which was opened one month after the rejection of 17 per cent bonds that BOJ eventually bought up to give the Government J$18 billion of cash to finance its operations.

Market standpoint

But, said Dean McDonald, vice-president of portfolio management and research at First Global Financial Services, “From a market standpoint they … will take it as an indication that rates could be heading much lower.”

“While the market did not expect it,” McDonald said of the two-month bond, “it was clear that the market was not buying long-term and the Government sees this as one way to have better success to raise money - a better chance of raising the liquidity it needs,” McDonald said.

Since last year the Bank of Jamaica has cut interest rates six times on its open market instruments, with the last adjustment on December 18 slicing two points off each tenor to a range of 10.5 per cent on the one-month tenor to 15 per cent on the six-month.

Market sources say that the discussions on how low interest rates should go is still a contentious issue among both the IMF and Jamaican authorities, and that an 8.0 per cent floor has been mooted and rejected.

Now our sources say that the discussions are centred around keeping rates above the one-month repo rate on offer from the BOJ, now at 10.5 per cent.

The government news agency said the bonds would be replaced at par value.

by BARRY ALLEYNE

THERE IS A DESPERATE NEED for proper facilities to serve those affected by dyslexia in Barbados.

The call has come from Sylvester Clarke, president of the Bajan Stars Dyslexia Support Organisation.

Clarke, a dyslexic himself, made the plea on Saturday night, after being rewarded by the organisation for his outstanding work in attempting to improve conditions across the country for those who suffer from the reading and spelling disorder.

Dyslexia is characterised by difficulties in processing word-sounds and by weaknesses in short-term verbal memory. Medical research has shown that the difficulties arise from inefficiencies in language processing areas in the left hemisphere of the brain, and are linked to genetic differences.

According to Clarke, dyslexic people are quite disadvantaged in Barbados, since even a simple task for normal people, like looking up a number in the telephone directory, is a no-no.

He noted that other disabled people in Barbados, though still fighting for better education and facilities, had it better than dyslexics.

“There are schools for the blind and for the hearing-impaired. But there are none for those who suffer from dyslexia. In fact, there are very few facilities available in Barbados for dyslexics,” Clarke told the MIDWEEK NATION after receiving his special award during a ceremony at the Brown Sugar Restaurant in Aquatic Gap, St Michael.

Clarke said the association, which is now five years old, has found it very difficult to do a lot for members because equipment or educational help was quite expensive.

The former student of the University of the West Indies noted that dyslexic people in Barbados still faced a real challenge because dyslexia was still very hard to diagnose in its early stages and sufferers had a tough time fitting into society.

“There are still many dyslexics who have to go through the embarrasment of being called “dummies” or “stupid” by people who simply don’t understand the disorder or have no clue persons are dyslexic,” bemoaned Clarke.

In addition, he said there were not enough people on the island to help dyslexics. “There is even a problem with a lack of persons being able to teach dyslexic students,” Clarke said. “Right now we have a few people that help us, but we badly need teachers, especially for children who are preparing for the Common Entrance Exam. These children need to be put in a special place, and taught by special persons.”

According to Clarke, the extra hour given to dyslexic students who do sit the Common Entrance was far from enough, since those children have not had access to special classes taught by teachers specfically trained to deal with sufferers.

“The Ministry of Education needs to take a look at how [it] can improve dealing with people who have dyslexia,” Clarke added.

He said even doing research remained a bugbear for dyslexic Barbadians, since no public libraries had facilities that cater effectively to sufferers.

The association is made up of about 40 members, half of whom are dyslexic, with the other half made up of parents, guardians or relatives of dyslexic children.

He noted that in 2010 the time was ripe for all schools and universities in the region to catch up with the times and have talking books and computers which would better assist dyslexic students to cope with the world of work after their early life education was completed.

In addition, Clarke believed that facilities for all disabled people should be improved across Barbados. “A lot of people don’t understand or simply don’t care enough about persons with disabilities, and that needs to change,” Clarke said.

He also made a call for more Barbadians to volunteer their services to all organisations formed to assist people with disabilities. (Nation News)

HEAVY RELIANCE ON BRITAIN as a tourist market may spell trouble in the future for Barbados.

That was the view of economist Dennis Jones, speaking after the release of the Central Bank’s report: The Barbados Economy In 2009 And The Prospects For 2010.

“For tourism, the governor said there will be a small contraction in 2010, with recovery beginning only in 2011. This assumes modest economic growth in Barbados’ major trading partners (the United States and Britain). But . . . Britain is one of the few industrial economies to still be in recession,” Jones said.

“One result of this weak recovery is that reserve cover (the amount of imports the country has stored) will decline in 2010 [which] is a notable negative going forward and should be watched carefully.”

In his report, Governor of the Central Bank Delisle Worrell said net international reserves were projected to decline this year and foreign reserves cover may revert to the levels of 2008 - around 17 per cent.

Jones was concerned the island’s growth was so dependent on foreign markets.

“Barbados will not be in paradise next year and, in the governor’s eyes, when it gets there depends greatly on the fortunes of the North American and European economies,” he said. “I cannot fault the governor for his realism, but I wish there was more that we could do but hope.”

Describing the fiscal outlook as “bleak”, Jones noted that the deficit widened to 8.6 per cent from 6.4 per cent in 2008 as the economy contracted more than expected.

“But this was a pincer move,” he said, adding: “Tax income declined, in part due to a shrinking tax base, and corporate tax income was especially hit. But spending rose by three per cent, with wages soaring 11 per cent from 1.7 per cent in 2008, and spending on goods and services was up 12 per cent. Borrowing locally and from Trinidad helped fill the widening gap.” (LW) (Nation News)

A NEW $56.1 MILLION, 11-storeyed office building to house about 20 Government departments in Warrens, St Michael, is expected to be completed by August next year.

National Insurance Board director Ian Carrington said the two-year project was expected to be completed on time and on budget “because it is a fixed cost project and any escalation of costs is at the contractors’ side of it”.

He was speaking at a Press conference following a tour of the site by NIB directors.

It is proposed that the building will be leased to Government for a period of 25 years with the option to renew for another 25 years.

The Warrens project will be one of three funded by the National Insurance Scheme. The second will be located a stone’s throw away in Warrens, next to the FirstCaribbean International Bank, and estimated to cost $55.1 million.

Carrington said the NIB got into these projects in these economic times “because for us the area where there is greatest level of employment is in construction and tourism”.

“So getting into a project such as this at this time is for us to continue to pay for an individual wage as opposed to the unemployment benefit.

“We see some contribution back in return but also have an investment [for] which we are paid [a] better rate of return in the construction phase as opposed to what we would typically do - put money on deposits or buy Treasury bills.”

The second building will also house several Government departments, while the third project is to be erected in The Pine, St Michael, to house the Caribbean Examinations Council (CXC).

The initial cost of that four-storeyed, 120 000 square-foot building was estimated two years ago at “roughly” $36 million, said Carrington.

“For the first time, that building would bring all the different branches of the CXC under one roof. We are hopeful that that building will be started by the middle of this year,” Carrington said. (TM) (Nation News)