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Cablegate: Jamaica: Imf Team Sees Goj's Clarity of Purpose, but Time Is

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OO RUEHWEB

DE RUEHKG #0735/01 3101302
ZNY CCCCC ZZH
O 061302Z NOV 09
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0223
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHLO/AMEMBASSY LONDON IMMEDIATE 0066
RUEHOT/AMEMBASSY OTTAWA IMMEDIATE
RUEHKG/AMEMBASSY KINGSTON

C O N F I D E N T I A L KINGSTON 000735

SIPDIS
STATE FOR WHA/CAR (VDEPIRRO) (WSMITH) (JMACK-WILSON)
WHA/EPSC (MROONEY) (FCORNEILLE)
INR/RES (RWARNER)
INR/I (SMCCORMICK)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: DECL: 2019/11/06
TAGS: ECON PREL EFIN TRSY IDB SOCI IMF XL JM
SUBJECT: JAMAICA: IMF TEAM SEES GOJ'S CLARITY OF PURPOSE, BUT TIME IS
SHORT

REF: A) KINGSTON 422; B) KINGSTON 614

CLASSIFIED BY: Isiah Parnell, CDA; REASON: 1.4(B), (D)

SUMMARY AND ANALYSIS

--------------------

1. (C) Trevor Alleyne, Division Chief and head of the a six-person
International Monetary Fund (IMF) delegation to Jamaica, said the
Government of Jamaica (GOJ) appears to have a "clarity of purpose"
in regard to current negotiations for a Standby Agreement. Alleyne
met with Emboffs on November 5 to discuss the status of two weeks
of negotiations that end November 6, and added that the mood has
changed since his last visit in June (Reftel A). Alleyne said all
options are still on the table and the IMF wants to "think
creatively" in regard to its strategy with the GOJ. Alleyne spoke
more openly about measures that needed to be taken in Jamaica to
address the economic fundamentals and in particular the significant
debt challenges facing the country, during a meeting in June with
Emboffs; in this meeting he was more tight lipped. It has been an
eventful two weeks for the IMF team as: the Governor of the Bank of
Jamaica, Derick Latibeaudiere, was dismissed; Hardley Lewin, the
well-respected Commissioner of police, resigned; and the Standard
and Poor's rating agency downgraded Jamaica to CCC. The GOJ
appears to have worked out some of the key obstacles to an IMF
deal, but they will need to move quickly to calm a high level of
uncertainty in the private sector. Deep and fundamental reform is
needed in Jamaica, but it is still not clear if the Jamaica Labor
Party (JLP)-led government has the political will to implement such
sweeping changes. END SUMMARY.

Progress Continues, But USD 1.2 Billion Figure Not Precise

--------------------------------------------- -----------

2. (C) Alleyne said that the negotiations were progressing and he
is hopeful that a staff-level agreement may exist by the end of the
year. However, a final agreement would not have IMF board approval
until early 2010. Despite numerous public assertions by GOJ
representatives that the IMF deal would be worth USD 1.2 billion,
Alleyne responded in surprise to an exact figure being attached to
the deal, adding he was not even sure where this figure had
originated.

3. (C) Alleyne explained that Jamaica could conceivably receive a
program that is equal to 600 percent of its USD 300 million quota,
but that would be the maximum for the life of the program. He also
explained that the maximum the IMF could provide in one year is 200
percent of the 300 million quota, thus, a total of USD 600 million.
He said the IMF is looking at governance issues including a fiscal
responsibility framework, a measure that already has being
discussed by the GOJ. Such measures would include provisions to
cap the fiscal deficit and the debt-to-GDP ratio. Jamaica
continues to use supplemental budgets to increase expenditures
beyond those budgeted annually, suggesting a high level of
discretionary spending.

Central Bank Governor Dismissal, Issue of Liability Management
Program

--------------------------------------------- --------

4. (C) Alleyne asserted that the IMF and the GOJ continue to make
progress in their talks and the two sides are narrowing their
differences. He explained that most of the divergences are now at
the technical level, as both parties appear to be in agreement on
the policy direction. He would not elaborate on the status of debt
restructuring, an area in which Emboffs were told by Ministry of
Finance and Public Service (MFPS) officials on October 28, was a
key sticking point in the talks. Alleyne said that any deal would
include involvement from the other multilaterals. COMMENT: It
might be possible that the IMF will work with other multilaterals
to support a debt refinancing deal that would allow Jamaica to
avoid default. END COMMENT. It is worth noting that the
Emboffs-MFPS meeting was prior to the October 30 dismissal of
Latibeaudiere, who was vehemently opposed to any form of debt
restructuring. Alleyne said Latibeaudiere's departure did not
disrupt negotiations, but he would not elaborate on whether or not
the former Governor had been a road block to progress. (NOTE:
Emboff contacts at the MFPS have confirmed that Latibeaudiere
single-handily killed prior attempts to implement a liability
management program to address the debt problem (Reftel B). In a
move to reassure the nation and the markets after the dismissal of
Latibeaudiere, Prime Minister (PM) Bruce Golding in a speech to
Parliament on November 2 assured the nation that his departure will
not disturb current negotiations.

Deep and Fundamental Reform Needed

----------------------------------------

5. (C) Alleyne raised concerns about the GOJ's granting of
government guarantees for major infrastructure projects. He
specifically referenced the planned expansion of the PetroJam
refinery in Kingston (NOTE: The refinery is 51 percent owned by the
GOJ and 49 percent owned by PDVSA the Venezuelan Government-owned
oil company) and the proposed liquid natural gas project being
advocated by the GOJ. These arrangements would conflict with the
IMF's desire to reduce the GOJ's level of contingent liabilities
which have a history of being absorbed by the GOJ as new debt.
(Reftel B). Alleyne's view was supported in a speech on November 4
by respected business leader and former Minister in the MFPS Don
Wehby, who said the GOJ must control public sector expenditures,
particularly its loss making parastatals including beleaguered
airline Air Jamaica and the former sugar estates. Wehby said the
GOJ can no longer afford to keep making minor tweaks to its system,
but must embark on deep and fundamental reforms. COMMENT: The GOJ
appears unwilling to extract itself from major investment projects,
even when there are willing and capable private sector investors --
perhaps to maintain influence in operations and in some instances
to extract economic rent. END COMMENT.

COMMENT AND ANALYSIS

---------------------------------

6. (C) Even if the IMF is willing to entertain novel approaches to
assist Jamaica, the Jamaican Labour Party (JLP)-led GOJ must
demonstrate a level of leadership and political will to make
difficult decisions, which for the past two years seems to have
eluded them. The private sector is holding its breath for a sign
that the IMF deal will go through. At the same time crime appears
unmanageable and investor confidence is falling. Time is of the
essence for the JLP, but is not clear if the JLP leadership has the
fortitude to embark on the type of deep reform that is needed to
give Jamaica the breathing space it needs to move through the
current crisis and eventually be able to derive benefits in a
future global recovery. End Comment and Analysis.
Parnell

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