VZCZCXRO6273
RR RUEHGR
DE RUEHKG #0490/01 1501907
ZNR UUUUU ZZH
R 291907Z MAY 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6397
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0104
RUEHMD/AMEMBASSY MADRID 0316
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 KINGSTON 000490 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/CAR (JTILGHMAN) (VDEPIRRO) 
WHA/EPSC (LKUBISKE) 
EEB/ESC/IEC (GGRIFFIN) 
EEB/TPP/IPE (JHALLOCK) 
SANTO DOMINGO FOR FCS AND FAS 
TREASURY FOR ERIN NEPHEW 
 
E.O. 12958:  N/A 
TAGS: ENRG EAIR EINV SENV ECON ETRD KIPR IBRD IMF TRSY
XL, JM 
SUBJECT: JAMAICA: MAY ECONOMIC REVIEW 
 
REF: A) KINGSTON 021 
B) KINGSTON 427 
C) KINGSTON 263 
D) KINGSTON 363 
 
¶1. SUMMARY: 
 
-- Air Jamaica may face more labor problems, as the Government of 
Jamaica (GOJ) says airline workers will not receive a pay increase 
this year and workers threaten to strike. 
 
-- The Energy Minister looks to roll out ethanol-based fuel to 
consumers and the Finance Minister lowers taxes on fuel efficient 
cars. 
 
-- Consulting firm KPMG will assess the potential for creating an 
international financial services center in Kingston, and the 
Minister of Commerce and Industry predicts he can cut in half the 
time that it takes to export goods from Jamaica. 
 
-- Jamaica will establish an Embassy in Brazil, as the two countries 
improve economic and political ties. 
 
-- Tourism figures are on the rise, even as the GOJ is embroiled in 
a dispute with major Spanish investors in the hotel sector. 
 
-- The GOJ has stepped up arrests of those selling pirated DVDs and 
the Jamaican Intellectual Property Office has embarked on a two-year 
project to strengthen Geographic Indications. 
 
-- The dubious Caribbean Real Estate Investment Fund collapsed, and 
Cash Plus faces lawsuits from those who lost money in the failed 
investment scheme. 
 
-- The International Monetary Fund released its report on Jamaica 
indicating the island faces a difficult global environment and 
increased socio-economic challenges. 
END SUMMARY 
 
------------------------------------- 
Aviation/ Air Jamaica/ Transportation 
------------------------------------- 
 
¶2. (SBU) Labor unrest is likely at Air Jamaica in the wake of the 
sudden postponement of a meeting scheduled for May 22 to discuss the 
contentious issue of wage increases for employees.  At a time when 
the GOJ is trying to divest itself of the beleaguered airline, 
unions are seeking a 15 percent pay increase.  The meeting postponed 
until June 10, is intended to look at ways in which Air Jamaica can 
cut costs and possibly use the savings to raise workers pay. 
Minister Without Portfolio Senator Don Wehby, from the Ministry of 
Finance and Public Service, announced that Air Jamaica staff would 
not be given a pay increase because of the ongoing financial 
problems at the airline (reftel A).  Losses reached nearly USD 173 
million in 2007. Employees of Air Jamaica threatened on May 26 to 
engage in wildcat strikes if there is no word in the next two weeks 
from the airline's management regarding their demand for a new wage 
package.  COMMENT: As Air Jamaica continues to incur losses, a 
strike may work to the advantage of the GOJ.  The strike could 
provide justification for firing excess Air Jamaica staff, which 
would better position the airline for private sector purchasers. 
 
------------------------------------- 
Environment/ Renewable Energy/ Energy 
------------------------------------- 
 
¶3. (U) On May 16 Clive Mullings, Minister of Energy, announced he is 
seeking legislative approval for an ethanol-based fuel (E10) plan 
for a roll out date of October 2008 to make E10 available to 
consumers.  Jamaica is looking for a supplier of equipment needed to 
dispense E10 at local gas stations. The GOJ anticipates the move 
will cut more than USD 30 million annually from its energy bill. 
The initiative will require the state refinery Petrojam to retrofit 
its loading and storage facilities as well as fuel pumps at gas 
stations.  Jamaica's annual costs for imported fuel could reach USD 
3.5 billion if rates stay above USD 130 per barrel.  Demand is 
growing at a rate of four percent per year.  As world oil prices 
continue to rise, the introduction of 10 percent ethanol is one of 
several initiatives to reduce Jamaica's dependence on crude 
imports. 
 
 
KINGSTON 00000490  002 OF 004 
 
 
¶4. (U) Finance Minister Audley Shaw announced on May 10 that the GOJ 
will remove the Special Consumption Tax on small motor vehicles 
(those with engines smaller than 1,000 cubic centimeters) and 
introduce escalating levels of tax according to a vehicle's fuel 
consumption level. The GOJ also will implement a 10 percent tax 
reduction on diesel vehicles.  Shaw told reporters from the Gleaner 
newspaper, "Every step of the way we intend to put in policies that 
are going to be supportive of energy conservation." He added that a 
comprehensive conservation policy would be rolled out later in 2008, 
to include a 15 percent reduction in GOJ offices, with an "energy 
czar" in each ministry to monitor consumption. 
 
--------------------------- 
Foreign and U.S. Investment 
--------------------------- 
 
¶5. (U) The GOJ has contracted with the consultancy and auditing firm 
KPMG to assess the potential for establishing an international 
financial services center in Jamaica. Minister Without Portfolio Don 
Wehby discussed the program on May 13 at the monthly investors forum 
held by Mayberry Investments and attended by Emboffs.  The GOJ's 
Jamaica Trade and Invest office will work with KPMG to meet with 
public and private sector stakeholders to assess the viability of 
the plan.  The GOJ hopes to have the assessment completed by 
mid-July. The GOJ has been trying to diversify the economy away from 
agriculture, bauxite and tourism, and hopes that financial services 
will be an option. 
 
¶6. (U) A World Bank study on doing business in Jamaica reported that 
it takes up to 21 days for products to be exported from the 
country--compared to five days in Singapore, six days in the U.S., 
and nine days in Panama. In response, Minister of Industry, 
Investment, and Commerce Karl Samuda announced on May 22 that he 
will work to remove the bureaucratic and other associated challenges 
which delay Jamaican exports. Samuda predicted he could cut export 
times in half within the next two years, adding that this would give 
Jamaican businesses a chance to grow and develop. 
 
¶7. (U) On May 21 the GOJ announced it will establish an embassy in 
Brazil as Jamaica continues to strengthen economic and political 
ties between the two countries. Prime Minister Bruce Golding said he 
held talks with Brazilian President Lula da Silva about deepening 
areas of cooperation during the recent European Union, Latin 
American and the Caribbean summit in Peru.  Brazil has taken a 
particular interest in Jamaica's failed sugar estates.  The 
Brazilian firm Infinity BioEnergy was the sole bidder for the assets 
of the Sugar Company of Jamaica (SCJ), which owns Bernard Lodge, 
Monymusk, Frome, Hampden, and the Saint Thomas sugar factories.  The 
GOJ is expected to absorb the estimated USD 225 million in debt held 
by SCJ.  The GOJ is hoping to complete the privatization efforts 
with Infinity by June. 
 
-------------- 
Tourism Sector 
-------------- 
 
¶8. (SBU) A regulatory violation relating to construction of a fourth 
floor of a Spanish-owned hotel in Montego Bay has escalated into a 
public backlash against Spanish investors (reftel B).  The GOJ 
called for an investigation of an extra floor on a hotel being built 
by the RIU Hotels and Resorts which the GOJ claims is a breach of 
RIU's building permit.  The GOJ also contends that the unauthorized 
fourth floor is in the flight path of aircraft landing at Sangster 
International Airport. Prime Minister Bruce Golding told reporters 
that the Police Fraud Squad would be called to investigate after a 
"revised plan" allowing for the fourth floor was found to have been 
signed by a St. James Parish Council official. 
 
¶9. (SBU) The dispute quickly gained traction in the press and among 
popular opinion as Jamaicans accused Spanish investors of 
disrespecting local laws and Jamaican rights. Editorials in the 
local press criticized the investors, including a column by John 
Maxwell entitled "WE ARE NOT FOR SALE."  Surprisingly, GOJ officials 
appear to have jumped on the bandwagon. The response from the GOJ 
over a regulatory issue which would usually be dealt with on an 
administrative level may have a chilling effect among some foreign 
investors (reftel B).  The Gleaner newspaper reported that at least 
one Spanish investor, Excellence Group, is putting plans to 
construct a 2,000 room hotel on hold until they can better assess 
the country's investment climate. COMMENT: Given the effort of the 
GOJ to attract foreign investment particularly Spanish hotel firms, 
 
KINGSTON 00000490  003 OF 004 
 
 
it is surprising that they allowed this dispute to escalate to the 
national level.   Butch Stewart, the owner of Sandals resort, a 
competitor of Spanish-owned firms, also owns the Observer newspaper, 
which may explain that newspaper's coverage portraying the Spanish 
in a negative light.  END COMMENT.  Daryl Vaz, State Minister in the 
Office of the Prime Minister, met with officials at the Spanish 
Embassy in an effort to quell investors' fears.  Spanish Ambassador 
Jesus Silva told the Gleaner newspaper on May 18 that "Spanish 
investments in tourism have provided 12,000 direct and 30,000 
indirect jobs, accounting for the largest job creation process in 
Jamaica's recent history." 
 
¶10. (U) The Tourism sector remains robust despite the economic 
slowdown in the U.S.  Over 70 percent of visitors to Jamaica are 
from the U.S., and preliminary data from Jan-March 2008 shows an 
eight percent increase in the number of arrivals. Jamaica and the 
Caribbean remain one of the most price-competitive destinations, and 
Jamaica's competitiveness has increased as its currency has slid 
evenly with the weakening U.S. dollar.  There has been an increase 
in visitors from Canada as its currency appreciates against the U.S. 
and Jamaican dollars. 
 
-------------------- 
Budget / Tax Revenue 
-------------------- 
 
¶11. (U) The Ministry of Finance and the Public Service is reporting 
a strong response to the tax amnesty initiated in April. Minister 
Audley Shaw said USD 29 million already has been collected.  The 
amnesty continues until October, but the amount of the penalties and 
taxes to be forgiven declines with each successive month (reftels C 
and D).  The amnesty is part of Shaw's bold efforts to reform the 
tax system and improve revenue collection. 
 
¶12. (U) On May 19 the rating agency Standard & Poor's (S&P) 
reaffirmed Jamaica's "B" rating for long-term and short-term 
sovereign debt.  The report noted that the outlook remains stable 
and credits the GOJ's commitment to fiscal discipline, debt 
reduction, and economic growth reinvigoration. The report states 
that Jamaica's real GDP growth, which averaged 1.6 percent over the 
past decade, continues to be constrained by a crowding out of the 
private sector because of the government's high borrowing needs, 
labor-market rigidities affecting productivity, high security cots, 
and external shocks. 
 
---------------------------- 
Intellectual Property Rights 
---------------------------- 
 
¶13. (U) The GOJ has stepped up its crack down on pirated DVDs. On 
May 20 police arrested 12 people accused of selling pirated copies 
of DVDs in the Half Way Tree section of Kingston.  Those arrested 
were charged with breaches of the Copyright Act.  The Head of the 
Organized Crime Division Superintendent Fitz Bailey told reporters 
from the Gleaner newspaper that "the police are taking a zero 
tolerance approach to this type of crime and would be stepping up 
the pressure." Three of the persons arrested were repeat offenders. 
 
 
¶14. (U) On May 26-30, the Jamaica Intellectual Property Office 
(JIPO) hosted the visit of Felix Addor, the Deputy Director General 
of the Swiss Federal Institute of Intellectual Property (IPI).  Mr. 
Addor's visit is part of the official launch of the Geographic 
Indications (GI) Project in Jamaica.  The two-year project was 
provided USD 730,000 by IPI to establish a functional and effective 
protection system for GIs in order to contribute to a better 
positioning of Jamaican products in international markets.  The GOJ 
passed the Protection of Geographic Indications Act in February 2004 
which established the legal framework for the protection of products 
designated under the GIs regime.  Emboffs attended the launch, at 
which JIPO Executive Director Carol Simpson said she hopes the 
project will create awareness of the importance of GIs in Jamaica 
and in contributing to the economic success of genuine Jamaican 
products. 
 
------------------------------ 
Alternative Investment Schemes 
------------------------------ 
 
¶15. (U) The Caribbean Real Estate Investment Fund (CARIEF), one of 
the alternative investment schemes being investigated by the 
 
KINGSTON 00000490  004 OF 004 
 
 
Financial Services Commission, collapsed on May 6.  The scheme, 
created by CEO Anthony Tharpe in 2005, promised financial returns 
from real estate investments of 100 to 1000 percent over a 
three-year period.  CARIEF had about 70 members who paid a USD 1,200 
membership fee, as well as more than 60 investors who provided a 
minimum investment of USD 2,800.  Some investors appear to have 
provided sums as high as USD 250,000.  CAREIF solicited investments 
from members of the Jamaican Diaspora in North America. 
 
¶16. (U) Lawsuits are being filed against the failed Cash Plus 
alternative investment scheme and its CEO Carlos Hill.  Hill and his 
brother Bertram were granted bail and released from prison on May 3. 
 The Gleaner newspaper reported on May 25 that Miami-based law 
professor David Rowe has filed a USD 1.7 million suit against Cash 
Plus and Carlos Hill.  On May 22 Jamaican Justice Donald McIntosh 
ordered Hill to disclose his assets by June 19 or face six weeks in 
jail. Hill also is being sued by Kingston businessman Alexander 
Haber for USD 420,000.  Recovery of any substantial amount of funds 
is unlikely. The court-appointed receiver has found that Cash Plus 
was not operating as a legitimate financially viable entity.  The 
scheme has only USD 42,000 in cash and will only be able to pay a 
maximum of 16 cents on the dollar to its creditors. The receiver 
also discovered that Cash Plus used 70 per cent of the funds it took 
in overall to pay interest to investors in order to keep the pyramid 
scheme going.  The scheme appears to have had between 35,000 and 
45,000 individual investors (reftels C and D). 
 
------------------- 
Multilateral Donors 
------------------- 
 
¶17. (U) On May 13 the International Monetary Fund (IMF) released its 
report on Jamaica.  The IMF report indicates that a difficult global 
environment is contributing to increased socio-economic challenges 
for Jamaica. The report said this environment includes natural 
disasters, the global economic slowdown, and increases in global oil 
and food prices. The IMF says these factors have contributed to 
slower economic growth, rising inflation and a widening current 
account deficit.  The report also said that the growth of 
unregulated investment schemes promising implausibly high rates of 
return is a worrisome financial development with potentially adverse 
macroeconomic consequences. 
JOHNSON