By Al Edwards,
Staff reporter
THE YEAR began with a sigh of relief as the much trumpeted computer Y2K bug and the associated doomsday scenario passed by without any adverse impact on the financial sector.
All the commercial banks were more than prepared for the eventuality of their banking systems crashing. Although some were said to have been forced to reprint statements and other transaction documents that were sent out wrongly dated.
Some new faces appeared on the scene to inject fresh ideas and much needed vigour into some of the country's ailing corporate entities.
Local hotel and motor conglomerate House of Issa appointed two new managers to help revitalise the fortunes of the company. The company appointed two Englishmen, Trevor Horwell as chief executive officer and Struan McKenzie as executive vice-president.
Trevor Edgehill, formerly of Texaco Bahamas, succeeded David Hall as general manager of Texaco Jamaica. He set out his stall by proclaiming that he intended to raise Texaco's corporate profile in Jamaica and would be looking to spend US$30 million a year for the next four years to that effect.
Two new bosses were appointed by the Coffee Industry Board (CIB) to head the regulatory and commercial arms respectively. Dr. Cecil Goodridge was chosen to lead the CIB's regulatory division with Mr. Gonzalo Hernandez heading the commercial and marketing division.
Dr. Omar Davies headed to Europe with the hope of raising a US$100 million bond issue. This came on the back of a similar foray on the American capital market, which proved unsuccessful.
In the meantime the Inter-American Development Bank (IDB) priced a US$2 billion global bond issue. This was a ten year issue that matures on January 15, 2010 with an annual coupon of 7.375 per cent. The proceeds of the issue were earmarked to finance the social and economic development of IDB's Caribbean and Latin American countries.
Speaking of successfully raising funds, a stay of execution was granted to the sugar industry when it managed to re-negotiate a Euro 84 million loan facility, which was granted to the Agricultural Credit Bank of Jamaica (ACB) by a Belgium led consortium consisting of KBC bank N.V., Credit Lyonnais and Societe Generale. This deal spelt yet another success for ACB's Kingsley Thomas, who brokered the deal.
The Minister of Finance returned from Europe with a fist full of Euros (US$97.3 million). On his return to Jamaica, Dr. Davies said: "The success of the (E100m) bond issue now provides the administration with adequate resources to finance expenditure for the fiscal year 99/2000 and to further ensure that the deficit target of 4.6 per cent of GDP will be met.
Fortune again smiled on the Minister earlier in the year when the IDB intimated that it may well be prepared to grant a possible loan of approximately US$300 million to help with the reforms undertaken by the Financial Sector Adjustment Company (FINSAC) and its head Patrick Hylton.
The public sector pay scandal rolled on with the Governor of the Bank of Jamaica (BoJ) singled out for attention with his basic $6.5 million salary.
The non-executive members on the board of the BoJ claimed that they had no input into the ratification of the Governor's salary and were unaware as to how his salary was determined. In an interview with The Financial Gleaner Mr. Latibeaudiere made it clear that he had been with the bank for some 20 years and that the scrutiny into his pay package was largely unwarranted.
Going into the April's budget, Dr. Davies produced an escapologist act which Houdini would have been proud of and provided some credence as to how he was going to balance the budget. The dark foreboding clouds had for now cleared, with shafts of sunlight piercing the financial canopy that covered Jamaica.
With FINSAC eager to divest itself of both NCB and Union Bank, Royal Bank of Trinidad and Tobago (RBTT) came to the rescue with its boss Peter July declaring that his bank would rather bid for NCB but felt it would have to settle for Union Bank, which proved prophetic.
RBTT looks likely to assume full control of Union Bank early in the new year.
Spring brought some good news for the Mechala Group, when the Supreme Court gave the company the go ahead for an arrangement to pay its bond holders a reduced cash payment (47 cents on the dollar) in lieu of their investment in bonds valued at US$100 million.
Spring also saw the prospect of further US dollars rolling in for the Finance Minister when he held talks with Citibank about the possibility of rolling over a short term debt secured at the end of 1999 by raising as much as US$100 million through two promissory notes.
Leading stockbroker and deputy chairman of the Jamaica Stock Exchange (JSE) Chris Berry let rip on the JSE calling for the equities market to be opened up to new players in a bid to increase trading volumes and the number of new listings on the Exchange.
By March of this year, the Jamaican dollar stood at $42.00 to US$1.00 with optimism hanging in the air like spring pollen.
Local fast food chain Mother's expanded the number of stores in its chain by two taking the number to 17, with a $34 million spending plan.
Music mogul Chris Blackwell's company Island revealed plans to unveil a US$16 million "village complex" in Ocho Rios to service the country's burgeoning cruise ship industry.
The village is expected to be in operation some time next year.
As the budget approach-ed, the Gov-ernment revealed plans to spend over $5 billion on the new information technology (IT) sector.
The Government is backing the IT sector to kick start the economy and thus set aside $2 billion of the $167 billion budget to do just that. The cash is to be used to fund the Minister of Industry, Commerce and Technology, Phillip Paulwell's vision of 40,000 new jobs in the sector over the next three years.
He had earmarked 8,000 jobs for this year but the Ministry for Industry, Commerce and Technology has since said that's more likely to be 6,000.
The IT cash came from a deal which saw the Government pocket US$92.5 million in cellular licence fees from two new wireless telecom companies namely Irish player, Mossel and the Bahamian outfit Cellular One.
Later, the US telecom upstart Centennial acquired a controlling interest in Cellular One's Jamaican arm. While Centennial paid up its fees promptly, Mossel remained reticent, holding out till certain terms were complied with.
Buoyed by inflows of cash into the national coffers, Dr. Davies' budget address to the nation proved a much welcomed boon to the country.
The Finance Minister removed the personal tax on dividends over a 2 year period. This meant that from June 1, 2000, income tax on dividends would be reduced from 25 per cent to 20 per cent and from April 2001, from 20 per cent to 10 per cent. As of April 1, 2002 it will be zero rated.
Public schooling got the largest share of the budget outside of the cost of debt service charges, at 6 per cent of GDP. Of the $18 billion set aside for education this year, $14 billion has gone to primary, secondary and tertiary education. The budget also saw cash for primary schools jump from $600 million to $5.8 billion.
Roads got $11.9 billion for capital projects and another $1 billion was set aside for the Old Harbour by-pass and Northern Jamaica development project.
Excise duties and fees went up with fees at the Queen's Warehouse rising by 10 per cent and new levies for cars and other goods ushered in. Withholding tax on interest also rose from 15 per cent to 25 per cent.
Health got 11 per cent of the budget at $7.5 billion. Of the $1.7 billion that has been allotted to tourism, $662 million was earmarked for advertising. From the beginning of 2001 the income tax threshold rose from $100,464 to $120,432.
Dr. Davies said that FINSAC will be focusing on increasing the divestment of assets under its control during the financial year 2000/01 in preparation for withdrawing as a central player in the financial sector. He also made it clear that by the end of February 2000, FINSAC had a total debt including interest of $108 billion of which $38 billion was owed to the Ministry of Finance, the National Investment Bank of Jamaica (NIBJ), the National Development Bank (NDB) and the Bank of Jamaica, while the remainder was owed to third party creditors.
Domestic debt jumped 26 per cent on the previous year to $175 billion with the country's external debt coming in at $132 billion making a total debt of $308 billion. Tax collection for the financial year 2000/01 was supposed to net the Government $85.7 billion.
The Financial Gleaner revealed that the US Embassy in Kingston could be collecting more than $1 million per day from Jamaicans seeking to obtain non-immigrant visas to travel to the United States.
A total of 72,588 visas were issued during its last fiscal year, according to the Office of Public Affairs of the American Embassy at a non refundable fee of $1,890.
Three young Jamaicans, Dr. Nigel Clarke, Dr. David Panton and Jeffrey Hall formally said they would run the Caribbean Investment Fund (CIF). The CIF is a 10-year closed end equity vehicle expected to invest in companies and has US$50 million in commitments from participating investors.
By the middle of the year, the Minister of Industry, Commerce and Technology, Phillip Paulwell declared he was in talks with the Trafalgar Development Bank (TDB) in a bid to get his $5 billion venture capital fund for the IT sector off the ground.
The Fund was scheduled to come into effect during September of this year but both TDB and the Ministry of Industry, Commerce and Technology have not reported further developments as yet.
Insurer Dyoll Group promised to repay its approximately $151 million debt owed to FINSAC over the next year rather than wait until 2004.
Meanwhile, the Canadian based Centre for Strategic Management conducted a survey on the modernisation of local Customs operations and found that it would take another $507 million over five years on top of the $493 million the department already spends to bring it up to scratch. The group also discovered that Customs was losing over $8 billion a year in people evading paying customs duties.
July saw Unilever ending its 22-year-long product distribution deal with Grace, Kennedy & Company, which would account for a $70 million impact on its pre-tax profits. From January of next year Unilever will terminate its arrangement with Grace in favour of a deal with Lascelles.
Union Bank's end of year financial statement indicated that the bank made a loss of $1 billion for the year to the end of 1999 and holds a whopping $22 billion worth of FINSAC paper. With the bank's asset base amounting to $32 billion, FINSAC has its hands on over two thirds of that giving new meaning to the phrase "in hock to FINSAC".
In his bid to raise US$400 million to help finance the $167 billion spending programme outlined in the budget, Dr. Omar Davies returned to the capital markets in July to raise US$250 million.
This year saw the formation of the biggest merchant banking entity in Jamaica, when the Mechala Group announced that its subsidiary, Sigma Investment Management Systems (SIMS) would merge with Manufactur-ers Merchant Bank (MMB).
This new banking body, called Manufacturers Sigma Merchant Bank, is headed by Mechala Group chairman, Joseph M. Matalon with MMB's incumbent president and chief executive officer, Peter Melhado, as chief executive officer. With executive heavyweights such as Sandra Shirley and Peter Melhado, at the helm, the combined new player is all set to thrive but is in limbo after delays getting approval from the Ministry of Finance.
The hotel sector saw St. Andrew's Terra Nova hotel go to the Trinidadian insurance powerhouse, Guardian Life. The insurer also assumed control of the SuperClubs-run hotel, Boscobel Beach.
The Crowne Plaza was snapped up by the US Embassy as its new home, while Swept Away, Negril announced that it will be undergoing an expansion programme.
Both Ciboney and Plantation Inn went to Sandals mogul Gordon "Butch" Stewart, while the National Insurance Fund (NIF) acquired the Grand Lido Braco in Trelawny for US$23 million.
Popular fast food chain, Island Grill is all set to expand its operations to both the United States and England in the new year. The first restaurant will be located in Lauderdale Lakes, Florida and each of the U.S. restaurants are projected to cost around US$400,000.
August saw Bank of Jamaica (BoJ) Governor Derick Latibeaudiere still without a permanent contract, five months after the scandal over pay in the public sector broke out. He continued to work on a letter of appointment given to him by the Finance Minister Omar Davis at the end of 1999.
It also emerged that FINSAC's bill for bailing out the financial sector amounted to a staggering $127.9 billion. Of this sum in FINSAC securities outstanding at June 30, 2000, the Bank of Jamaica, the Ministry of Finance and Planning and other governmental agencies hold $50 billion, which the Government has agreed to cancel.
The Government was caught on the horns of a dilemma as to whether to sell the Jamaica Public Service Company (JPSCo) in its entirety or break it up and dispense with it piecemeal. In September North Carolina based Duke Energy backed out of the bidding for the state utility company, leaving Southern Electric and Enron in the running to acquire JPSCo.
The last quarter of the year saw Life of Jamaica (LoJ) boss Dennis Lalor lobbying the Government to re-finance his company and send it a much-needed lifeline. This news came on the back of FINSAC indicating that it intended selling its stake in LoJ.
This year also saw FINSAC increasing its stake in the insurance company ( to 76 per cent) and readying the company for sale.
In October many of the multilateral agencies signalled their intent to help Jamaica outline some of the terms and conditions for the Government if it wants to access loans to help finance the operations of FINSAC. These include the establishment of a Financial Services Commission (FSC), the amendment of the present Securities Act and the empowerment of the Supreme Court to deal with financial crimes.
Pan Jamaican Investment Trust continued to prosper and in the nine months to the end of September saw its profits jump 90 per cent to $170 million. Sales for that same period rose by 31 per cent to $2.61 billion according to its unaudited figures. Speculation is rife that Pan Jam may well be gearing up to acquire Life of Jamaica and add it to the Group's insurer First Life.
Jamaica Flour Mills, the local arm of US agro-processor ADM Milling Company, announced plans in November to generate between $10 million and $15 million in exports to Trinidad as a result of having the lowest price of flour within CARICOM.
In the same month, the Bank of Jamaica's lending to local financial institutions rose to its highest level for more than a year at above $4 billion .
BoJ's balance sheet for the last two weeks to November 8, showed advances to financial institutions rose from $2.95 billion on October 25 to $4.05 billion. This was up from $3.56 billion a year ago.
Into the last month of the year the Jamaican dollar rose as high as $46.00 to one US dollar, with the Governor of the BoJ Derick Latibeaudiere declaring that the duty of the Central Bank remains essentially one of containing price stability (inflation) and maintaining the purchasing power of the Jamaican dollar.
December also saw the Government receiving the first tranche of US$75 million of the US$325 million in loans due from the multilateral trio of the World Bank, the IDB and the Caribbean Development Bank. The rest will be granted over the next two years to resolve the problems in the financial sector.
Local interest rates jumped by almost three percentage points in December. The Treasury Bill rate on the 273 day instrument jumped from 17.6 per cent to 19.67 per cent, while the average yield on the one year instrument rose from 18.10 to 20.97 per cent.
Cable & Wireless Jamaica (C&WJ) should see the number of customers using its cell phone network top 250,000 by March next year as it connects more than 300 people a day to its network. C&WJ senior vice-president in charge of mobile services, Stephen Twomey, said that the cell phone use was growing rapidly and the number of cell phone users jumped from 145,000 in March to 220,000 in December.
