This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 KINGSTON 002797 
 
SIPDIS 
 
STATE FOR WHA/CAR (BENT), EB/IFD/OMA (JUNCKER) 
TREASURY FOR LAMONICA 
 
E.O. 12958: DECL: 12/30/2015 
TAGS: ECON EFIN JM
SUBJECT: BOND.  JAMAICAN BOND.  LESS ATTRACTIVE THESE DAYS. 
 
Classified By: CDA TIGHE FOR REASONS 1.5 (b) AND (d). 
 
¶1. (C) Summary.  The International Monetary Fund (IMF) gave 
its assessment of the Jamaican economy as part of the 
conclusion of its yearly Article 4 consultations with the 
Government of Jamaica (GOJ).  Ratna Sahay, the Assistant 
Director of the Western Hemisphere Department for the IMF, 
acknowledged that the GOJ was likely to miss its target of a 
balanced budget.  While she praised Jamaican openness to 
investment, Sahay reminded the GOJ that high crime and 
ineffective disaster management hindered economic growth and 
should be addressed.  Meanwhile, the GOJ announced an 
unlimited USD bond offer at 8.125 percent on the local 
capital market after the failure of two consecutive 
JMD-denominated bonds.  The local capital market reacted with 
confusion, owing to the recent JMD slippage, but their lack 
of information about the failed JMD bonds, as well as a new 
link between the GOJ and the Bank of Jamaica (BOJ) in the 
form of Colin Bullock (former Governor of the BOJ, now 
Financial Secretary in the Ministry of Finance (MOF)) may 
explain this apparent idiosyncrasy.  End summary. 
 
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Background 
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¶2. (U) The IMF held a press briefing on December 14 to 
discuss the findings of its Article 4 consultations with GOJ 
officials.  Ratna Sahay, the Assistant Director of the 
Western Hemisphere Department for the IMF, acknowledged that 
the GOJ was likely to miss its target of a balanced budget. 
She urged officials to continue to pursue this goal in the 
last quarter of the Jamaican fiscal year, noting that the IMF 
would be monitoring the country,s debt management strategy. 
Sahay pointed out that debt levels in the region as a whole, 
while improving relative to the recent past, remain high, and 
under pressure from infrastructure demand and high petroleum 
prices.  This, in turn, was having an adverse effect on 
Jamaica,s economic growth rate, which remains low despite 
strong domestic and foreign private investment rates.  With 
little discretionary capital after debt servicing, public 
sector investment suffers, creating a vicious circle. 
 
¶3. (U) Sahay did praise Jamaican openness to investment, 
citing a lack of constraints in terms of regulations and 
bureaucratic procedures.  She further noted that the country 
has two strong preconditions for favorable growth: proximity 
to the United States for the tourism and mining sectors in 
particular, and strong democratic traditions that engender 
investor confidence.  Two obstacles outside of the fiscal 
arena, however, remain: GOJ ability to respond to natural 
disasters, and the escalating crime rate.  If Jamaica 
bolstered its disaster management capabilities, and brought 
violent crime under control, the effects of sound fiscal 
policy could reach their full potential. 
 
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A cautionary note( 
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¶4. (C) The GOJ,s budget woes, however, may be even worse 
than they at first appear.  On December 20, the GOJ announced 
an unlimited USD-denominated bond offer at 8.125 percent on 
the local capital market.  The market here reacted with 
incredulity, remarking that the GOJ was foolish to offer a 
USD-denominated bond issue at a time of exchange-rate 
instability.  While it is no secret that poor revenue 
performance this year has created the need to finance 
expenditures through loan receipts (to the tune of some JMD 
11 billion (USD 172 million)), what the capital markets do 
not know is that on December 7 and December 14, the GOJ had 
little success when it floated two local dollar-denominated 
bonds.  The first raised only JMD 800 million (USD 12.5 
million), while the second raised JMD 600 million (USD 9.4 
million).  The GOJ, however, is not obligated by law to 
divulge the results of these bond issues.  Furthermore, two 
other bonds were coming due in December.  To avoid any panic 
in the market, and to encourage those bondholders to roll 
over, the GOJ said nothing.  Instead, they merely announced 
the USD bond offer. 
 
¶5. (C) Courtney Williams (strictly protect), Senior Fiscal 
Economist at the Ministry of Finance (MOF), told Post that 
the MOF never intended to float a USD bond in December for 
two reasons.  First, the now-retired Financial Secretary, 
Shirley Tyndale, had convinced the MOF that a balanced budget 
was possible.  Later in the year, when it became clear that 
this was not a realistic goal, it was assumed that the 
shortfall in revenues could be recouped with local-dollar 
bond issuances.  With new, confidential projections from the 
GOJ that the fiscal deficit may be as large as 2 to 3 percent 
of GDP ) a major deviation from the target - and after the 
JMD bonds fell short, the MOF was faced with two unsavory 
options: raise interest rates, or take a gamble on the 
exchange rate by issuing a USD bond, for which market 
appetite appears limitless. 
 
¶6. (SBU) Institutional investors had been stockpiling cash 
for most of the year, planning to buy end-of-year bond 
issuances on the conventional wisdom that the BOJ would be 
forced to raise interest rates in order to combat inflation, 
which was considerably higher than expected.  When this was 
not the case, these investors were unwilling to bite on JMD 
bonds at current rates of interest, under pressure as they 
were from seasonal liquidity problems common during 
Christmastime. 
 
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(but with a silver lining? 
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¶7. (C) While there is some cause for concern that the GOJ 
will fall so far short of the balanced budget, there are also 
positive indications.  Williams noted that a contributing 
factor to the BOJ decision not to raise interest rates, which 
they have every right to do, was an improving realization on 
the part of the BOJ that there is a balance between fiscal 
and monetary policies that is best facilitated through close 
cooperation.  Williams is of the opinion that this new, 
cooperative spirit is likely the result of the fact that 
Colin Bullock replaced Shirley Tyndale as the Financial 
Secretary at the MOF.  Previously, Bullock had been on the 
 
SIPDIS 
Board of Governors of the BOJ, and is considered by many to 
be a straight-talking technocrat, unlikely to make overstated 
claims to satisfy political expediency. 
 
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Comment 
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¶8. (C) It comes as no surprise that the GOJ will fall short 
of its target of a balanced budget, but the projected size of 
the fiscal deficit (2 to 3 percent of GDP), is greater than 
even the most pessimistic predictions.  It is still possible 
that revenue collections may improve in the last quarter of 
the Jamaican fiscal year, but they will never surmount that 
level.  It is also possible that there will be a concerted 
effort to improve tax compliance, especially in light of the 
fact that Finance Minister Davies will be challenging for the 
leadership of the People,s National Party over the coming 
months.  The new Director of Tax Administration, Vinnette 
Keane, also has a reputation as a no-nonsense technocrat, 
like Bullock, and will be unlikely to toe any party political 
line in her drive to improve tax compliance. 
 
¶9. (C) It is likely that Davies will lay the blame for the 
failure to balance the budget squarely in the lap of external 
shocks, most notably the weather and the high commodity 
prices that have marked the year.  It is also predicted that 
liquidity will improve in January, as demands for funds fall 
off after the holidays, and that the GOJ will be able to 
return to successful issuance of JMD-denominated bonds to 
finance end-of-year revenue shortfalls.  Nevertheless, there 
is likely to be some consternation in the capital markets if 
the fiscal deficit is as bad as predicted.  The appointments 
of Colin Bullock and Vinnette Keene will hopefully bring 
enough credibility and stability to fiscal policy to act as a 
countervailing force.  End comment. 
 
JOHNSON