Moontown

THE country is understandably preoccupied with the modalities and implications of the ‘Dudus’ affair, but we could be overlooking an issue which is potentially even more damaging.

The Ministry of Finance, at the technical and administrative levels, is so weak that its capacity to manage the passage of the first International Monetary Fund (IMF) pact is in doubt. The number juggling of the current budget is a graphic example of the weakness of the ministry.

It is not Mr Audley Shaw’s fault, because a minister is only as good as his technocrats. But it could affect his political career. Mr Shaw cannot be Mr Nice Guy. He must demand and get competent support from his team or change the team.

Minister Shaw has had to work with a constantly changing support team. At the ministerial level, Mr Don Wehby came and left, with little difference to the operations at the finance ministry. Mr Dwight Nelson was replaced by Senator Arthur Williams who, so far, has done well in difficult circumstances but is not deployed on the finance side of the ministry.

Mr Shaw, apparently for personal incompatibility, removed with remarkable speed Mr Colin Bullock. His replacement had a most undistinguished sojourn and has unbelievably been rewarded with a lucrative job representing Jamaica at the World Bank. Not good.

Dr Wesley Hughes was transferred from the Planning Institute of Jamaica (PIOJ) and his tenure has been marked by some embarrassing errors, especially the tax package of last December and the guestimates which purport to be budget figures present and future.

Civil servants in the finance ministry claim to be capable of running things and are known to be resentful of anyone who dares to question their actions and competence. They are sceptical of outside advice and technical assistance. Performance has disproved the veracity of that claim, causing Mr Shaw to have to add $4.6 billion to the budget for 2010/11. Some $2 billion in public sector salaries was an error of omission and a further $1.7 billion was an error of commission using the wrong exchange rates.

Dr Hughes cannot be blamed because he cannot do everything himself, but he will be blamed if he does not prevent further incidents. Whether the debacle is due to negligence or incompetence, Dr Hughes must immediately address these deficiencies in the staff of the ministry. Get the necessary skilled personnel from other ministries, the private sector or overseas. Corrective action is better than penning a mea culpa.

The post of director-general of the PIOJ remains unfulfilled and some have suggested that Dr Hughes should return there. Mr Derick Latibeaudiere became unaffordable and has been replaced by Mr Brian Wynter as governor of the central bank. Mr Wynter is doing an excellent job but does not yet have a contract.

Mr Shaw’s team consists of PIOJ and BOJ with acting heads and a weak ministry that messed up the tax package and miscalculated the budget figures. This gives us serious cause for concern about the Government’s economic management in these perilous times. If the finance ministry cannot get the budget figures correct, what confidence can we have in passing the first IMF test? Dr Hughes must strengthen his team quickly to preserve his long career and avoid further collateral damage.

If the Ministry of Finance does not remedy its deficiencies, then the Government is involved in Russian roulette with two bullets — ‘Dudus’ and the first IMF test. (Jamaica Observer)

STEVEN JACKSON Business writer jacksons@jamaicaobserver.com

THE Planning Institute of Jamaica (PIOJ) expects the construction sector — a key driver of the economy — to decline for the third consecutive year in 2010.

The performance is predicated on the continued impact of the global economic crisis on the domestic economy, stated the PIOJ in its annual Economic and Social Survey Jamaica 2009 (ESSJ) published Monday.

The construction sector decline is in contrast to the 0.6 per cent GDP growth expected in 2010/11 fiscal year. The PIOJ did not quantify the expected decline in 2010 but it follows negative growth of 4.5 per cent in 2009 and negative growth of 6.7 per cent in 2008. “However the downturn will be tempered by planned road construction in the short to medium term,” stated the PIOJ.

The survey stated that the rehabilitation of the Palisadoes Road and the expansion and upgrade of port facilities at Gordon Quay and Fort Augusta along with the continuation of the Bushy Park to Moneague Toll Road would increase demand for limestone, marl, fill, sand and gravel. They added that the sector would benefit from the five-year US$465 million ($41.6 billion) road-improvement project under the Jamaica Road Development Infrastructure Programme.

The project will be jointly funded by the GOJ and Chinese government through a US$398-million loan facility, the ESSJ stated.

The Chinese are the latest to invest heavily in Jamaica following a series of investments by the Spanish and French in the last decade, in a bid to revive the stagnant economy. But the latest data offer little promise for growth. Last month the Incorporated Masterbuilders Association of Jamaica (IMAJ) wanted the Government to impose a minimum quota for local employment in mega projects by overseas contractors. The association asserted that local labour and capital continues to be underutilised in projects, especially those funded by the Chinese government. It results, according to IMAJ President Raymond Cooper, in underemployment for the sector and prevents technology transfer.

In 2009, most of the major performance indicators for the construction sector declined. Specifically, the number of housing starts by state agency National Housing Trust declined 27.7 per cent from 2,368 to 1,711. Total Housing starts inclusive of private contractors declined 46.4 per cent from 3,973 to 2,130. Total mortgages fell 37.3 per cent from 10,465 to 6,566. Total value of mortgages fell by 38.6 per cent from $33 billion to $20.3 billion. Employment declined 11.6 per cent from 109,000 to 96,000.

The sector however benefited from a 1.7 per cent increase in cement production to 736,900 tonnes in 2009 but this was still far below the 844,000 tonnes produced in 2005. The sector also benefited from a 54 per cent increase in commercial bank loans and advances to the sector at $19.9 billion in 2009 versus $12.9 billion in 2008. (Jamaica Observer)

SCORES of university students yesterday staged a protest near Gordon House over the Government’s decision to cut the subsidy to tertiary institutions. The placard-bearing students, who gathered at the corner of Duke and Sutton streets, accused the Bruce Golding-led administration of lying when it said there would be a “nominal freeze” on the annual subsidy to these institutions rather than a cut.

Yesterday’s demonstrators were drawn from the University of the West Indies (UWI), University of Technology (UTech) and the Mico University College.

A police officer tries to calm protesting university students at the corner of Duke and Sutton streets, yesterday. (Photo: Joseph Wellington)

“Tertiary institutions will now have to find that (the amount in subsidies that was cut) out of their pockets, which means that the tuition is going to increase significantly for students,” said a vocal Krystal Tomlinson, a representative of the UWI Guild of Students.

She branded the Government a liar.

The UWI’s subsidy has been cut by more than a billion dollars and the students fear that they will be asked to make up this shortfall. As such, they are anticipating school fees to be increased by as much as 25 per cent in some instances.

According to Tomlinson, the main objective of the protest was to bring to the public’s attention the fact that every sector — from early childhood to tertiary — had been affected by a cut in the budget of the Ministry of Education. (Jamaica Observer)

BY ALICIA DUNKLEY Observer staff reporter dunkleya@jamaicaobserver.com

OPPOSITION spokesman on finance Dr Omar Davies yesterday dismissed the Government’s $503-billion budget as ‘bare bones’, saying the only two “more or less” precise estimates are the $13.4-billion owed to workers and the $16.4-billion outstanding for refunds for the tax on interest.

Davies, who urged the administration to reveal the full amounts owed to public sector workers, creditors, suppliers and contractors, said the credibility of the budget was at risk if the figure was kept under wraps.

DAVIES… is the plan to raid the barn every year?

Making his presentation to the 2010/2011 budget debate at Gordon House in Kingston, the Opposition spokesman said even the 10.9 per cent fiscal deficit figure for the financial year just past is under suspicion because the total owed was unknown.

“…We started with a target of 5.5 per cent of Gross Domestic Product in April; we moved to 8.7 per cent in September, this changed to 9.6 per cent in February and on the 31st of March we are told the figure is now 10.9 per cent. Even this figure, which represents twice the target confidently announced less than a year ago, must be questioned,” he told the House.

According to Davies, the 10.9 per cent out-turn is artificial because “the significant amounts owed by the Government to just about everyone — to workers, to creditors, to suppliers, to contractors and for refunds of tax on interest deducted at source — are not included in the deficit target”.

Added Davies: “What this total figure is; nobody really knows, we need to know this.”

It was not in the Government’s best interest, under its arrangements with the International Monetary Fund, to increase the level of arrears or fail any of the quarterly administered tests, said Davies.

The Opposition was unable to participate in any monitoring if it did not know the total stock of arrears, he added, pointing out that the credibility concerns over the revenue for the new fiscal year have shot up, based on new revelations about the extraordinary steps which have been taken in recent times to reduce the deficit.

“These steps include garnering an unprogrammed amount of $5 billion from various public bodies as well as having the Bank of Jamaica pay over $2.75 billion to the Ministry of Finance as profits.

“The list of public bodies which have been required to pay over an amount in excess of $5 billion makes interesting and disturbing reading,” Davies said to shouts of “how come?” from Opposition members.

“Under this ‘raid’, $300 million was taken from the National Health Fund, $250 million from the Culture, Health, Arts, Sports and Education (CHASE) Fund and $2.75 billion from the Bank of Jamaica which was paid over to the finance ministry as profits,” he said.

“What will the administration do for an encore? Is the plan to raid the barn every year?” Davies queried.

“For us to have a clear understanding as to the credibility of the Estimates of Expenditure the country needs to be told the total level of arrears and the programme for reducing, if not eliminating, these arrears over the fiscal year and the medium term.

“The minister needs to indicate to us why the country should believe that he will be able to meet the 6.5 per cent fiscal deficit target this year when three targets in 09/10 were missed,” he added. (Jamaica Observer)

THE Finance Ministry confirmed yesterday that the Government failed to meet the International Monetary Fund’s (IMF’s) debt target, but declined to say whether the multilateral agency will overlook the missed target.

Under the Stand-By Arrangement with the IMF, the Government agreed to cap its central government direct debt (excluding government guaranteed debt and IMF credits) at a ceiling of $1.26 trillion for end March 2010 — a figure, which the Government has surpassed by over $17 billion.

In a written response to Business Observer queries, the Finance Ministry stated that “the figure reported in Statement VIII of the Financial Statement covers the Government Direct Debt or Central Government Debt outstanding as at March 31, 2010″.

The document stated that central government debt totalled $1.28 trillion — $758 billion for domestic debt and $519 billion for “external central government debt”.

The ministry, however, did not answer whether the IMF “will overlook the performance criteria”.

Statement VIII did show $4.75 billion associated with Sugar Company of Jamaica debt assumed by the Government and another $113 million associated with public sector entities, but even if those debt were excluded, the Government would still have missed the IMF target by over $10 billion.

The IMF has nine quantitative performance criteria by which the Government will be graded and which the State needs to meet in order to get future disbursements.

The first IMF test is scheduled for May, when the multilateral agency will look at March-end figures.

Last week, in his opening budget presentation to Parliament, Finance Minister Audley Shaw made a point to suggest that Government had already passed at least three of the criteria — a floor set on net international reserves, a ceiling set on net domestic assets and a floor on a primary balance.

“In relation to Bank of Jamaica operations, the accumulation of BOJ’s Net International Reserves since December 2009 was well above the targeted floor,” he said. “The extent of this over-performance was broadly reflected in the Net Domestic Assets of the Bank that stood well within the targeted ceiling.”

Added Shaw: “Mr Speaker, as I have already stated, preliminary data suggest that the Central Government performance for the fiscal year resulted in a fiscal deficit of 10.9 per cent of GDP. The primary balance, defined as total revenue collected less what is paid out for recurrent and capital expenditure, was kept above the targeted floor.” (Jamaica Observer)