Dionne Rose, Staff Reporter
REPRESENTATIVES OF the Ministry of Finance and Planning yesterday admitted to a special sitting of the Public Accounts Committee (PAC) of Parliament that the ministry has been in breach of the Financial Administration and Audit Act (FAA) for the past 13 years.
The breach was committed when the Finance Ministry failed to seek the approval of Parliament before issuing financing guarantees on behalf of public entities. Such guarantees proving the availability of the funds or a credit line, were provided to their creditors to help the entities meet their funding requirements.
A five-member team from the ministry led by Robert Martin, Deputy Financial Secretary, also furnished documents that showed that such guarantees - amounting to $19.6 billion - were offered by 13 government entities to commercial banks.
By guaranteeing loans to the government entities, rather than guaranteeing that funds existed to repay the loans, the ministry reduced the financial restraints upon itself and the entities reporting to it. This allowed it to expand its capacity to provide funding.
In trying to explain the breaches, the unperturbed Mr. Martin said that over time, the comfort letters had assumed the role of loan guarantees.
"The wording, which is now used in these letters of undertaking, which previous to this were comfort letters have now assumed some significance in the way of giving a guarantee," Mr. Martin said.
NO MORE COMFORT LETTERS
"They are no more comfort letters," he said, "but the wording seems to suggest that these are now letters of undertaking giving the guarantee for the Government to pay in the event that the borrower cannot repay."
Among the entities said to have received letters of undertaking was the Development Bank of Jamaica, which got the lion's share, or $4.2 billion.
The National Water Commission, the Jamaica Urban Transit Company (JUTC), the Coffee Industry Board, Air Jamaica and the Jamaica Tourist Board were also among those benefiting.
In explaining how this breach had gone on for 13 years without being detected, Audley Shaw, chairman of the PAC told The Gleaner: "We were not aware that in addition to deferred financing, you now had a creature called letters of undertaking and comfort letters."
Mr. Shaw added that "these mechanisms" were used to bypass the budgetary process. He said since the amendment of the FAA Act three years ago requiring the Minister to furnish reports to Parliament for its approval on deferred financing programme, the Government had turned to other means to achieve its objectives.
He added: "Since that time, they have apparently moved on from the deferred financing programme to other mechanisms for circumventing the budgetary process and operating in secret and below the radar of Parliament."
Last week, Dr. Omar Davies, Minister of Finance and Planning had told Parliament that he would be seeking Cabinet's approval to rectify the situation. This, Mr. Martin said, was in the way of amending the FAA Act to deal with the issue.
"We are proposing that similarly in principle to deferred financing, where this happens and the circumstances preclude us from coming to Parliament and getting the necessary approval, that as soon as possible afterwards we lay this before the House," Mr. Martin said. "We are seeking to amend the FAA Act to deal with this issue. "
Mr. Shaw demanded that Mr. Martin provide further information on letters of comfort and promissory notes that have been issued by these public entities.
