VZCZCXRO5790
RR RUEHGR
DE RUEHKG #0240/01 0342047
ZNR UUUUU ZZH
R 032047Z FEB 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 2166
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHAO/AMCONSUL CURACAO 0150
RHEFDIA/DIA WASHDC
RUEABND/DEA HQS WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 000240 
 
SIPDIS 
 
STATE FOR WHA/CAR (BENT) AND WHA/PDA 
STATE ALSO FOR INL/LP (BOZZOLO), EB/TPP, AND EB/IFD 
STATE ALSO DOE CA/OCS/ACS/WHA (RUTH BRANSON) 
STATE PASS OPIC FOR TABERNAKI 
CUSTOMS MIAMI FOR LOWEN AND MAHABIR 
SANTO DOMINGO FOR FCS, FAS, AND LEGATT 
STATE PASS USTR FOR A. GASH-DURKIN 
DOJ FOR OPDAT/R LIPMAN 
TREASURY FOR LAMONICA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EFIN ECON EINV PHUM ELAB KHIV JM
SUBJECT: KINGSTON POL/ECON ROUNDUP: JANUARY 20, 2006 - 
FEBRUARY 3, 2006 
 
Ref: Kingston 00198 
 
KINGSTON 00000240  001.2 OF 002 
 
 
¶1.   This week's topics: 
 
--   Formal Inauguration of CARICOM Single Market 
--   Fiscal Deficit Worsens 
--   Fiscal Situation Worries International Investors 
--   GOJ Exploring Fuel Tax Increase 
--   Bauxite/Alumina Expansion Project On Track 
--   Crime Rates Down 
 
-------------------------------------------- 
Formal Inauguration of CARICOM Single Market 
-------------------------------------------- 
 
¶2. At the University of the West Indies on January 30, the 
leaders of 12 CARICOM countries participated in a ceremony 
to mark the formal inauguration of the CARICOM Single Market 
(CSM). The CSM entered into force on January 1, 2006, for 
six countries that have advanced levels of legislation in 
place (Barbados, Belize, Guyana, Jamaica, Trinidad and 
Tobago, and Suriname), and creates a block that 
theoretically allows for the free movement of goods, 
services and labor (in certain limited categories) across 
the region.  Six other heads of government signed a 
"Declaration of Intent" to become full members of the CSM by 
June 30.  Further details reported Reftel. 
 
---------------------- 
Fiscal Deficit Worsens 
---------------------- 
 
¶3. Data released by the Ministry of Finance on January 31, 
showed that GOJ operations generated a fiscal deficit of JMD 
29.1 billion (USD 448 million) for the nine months of the 
fiscal year to December 2006 (Note: The Jamaican fiscal year 
runs from April 1-March 31.  End note).  This result 
represented a deviation of almost 100 percent from target, 
reflecting the continued under-performance in revenues. 
Revenues are running at just 5.3 percent above the 
comparative period last year, representing a real decline of 
6.2 percent.  The deficit would have been worse had the GOJ 
not slashed spending in general and capital spending in 
particular.  The continued deterioration in the deficit has 
forced the GOJ to abandon its balanced budget target for a 
deficit of between two and three percent of GDP. 
 
--------------------------------------------- --- 
Fiscal Situation Worries International Investors 
--------------------------------------------- --- 
 
¶4. The GOJ'S announcement that it will miss its balanced 
budget target has drawn the ire of some international 
investors.  The Heritage Foundation, a Washington-based free 
market think-tank, responded by increasing the country's 
score regarding the fiscal burden taxpayers have to carry. 
The foundation increased Jamaica's score to 4.1 (with 1 
being a very low fiscal burden, 5 being a severe burden). 
It also pointed out that the GOJ's recurrent expenditures 
(wages, utilities, etc) amounted to more than 15 percent of 
the country's GDP, reducing the amount available for capital 
expenditure.  Just one week after the Heritage Foundation 
made its pronouncement, the Ministry of Finance reported 
that the Jamaican tax compliance rate had fallen to 58 
percent based on tax receipts for November 2005.  The 
Ministry argued that the decreasing tax compliance rate was 
one of the major factors negatively impacting the GOJ'S 
ability to achieve its balanced budget objective. 
 
------------------------------- 
GOJ Exploring Fuel Tax Increase 
------------------------------- 
 
¶5. The GOJ is again exploring options for a new petroleum 
tax structure.  Prime Minister P.J. Patterson has tasked the 
 
KINGSTON 00000240  002.2 OF 002 
 
 
Ministry of Finance and the Ministry of Commerce, Science, 
Technology and Energy to present options for the new tax 
regime.  He said the tax structure does not reflect the 
current realities, particularly within CARICOM.  Patterson 
said, "the tax level, fixed according to product type, is on 
the decline when compared to the increasing price of 
petroleum products."  The last time the government tried to 
implement an ad valorem tax on fuel, in 1999, it led to days 
of nationwide rioting.  With this still fresh in mind, the 
Prime Minister has presented an olive branch by suggesting 
that part of the proceeds from the tax will be used to 
establish a road maintenance fund.  However, any change to 
the current tax regime is expected to be politically 
explosive, with the opposition Jamaica Labor Party already 
warning the GOJ to prepare for consistent and vigorous 
resistance to any proposal to further increase the tax on 
fuel. 
 
------------------------------------------ 
Bauxite/Alumina Expansion Project On Track 
------------------------------------------ 
 
¶6. ALCOA has announced that it remains committed to the 
US$1.2 billion expansion project at its Jamalco alumina 
refinery in Clarendon.  In recent weeks, there had been 
speculation that things were not going smoothly - especially 
with regard to negotiations for the supply of Liquefied 
Natural Gas (LNG) required by the project. However, 
government sources have announced that progress is being 
made with those negotiations. 
 
¶7. The major new investment was first announced by Alcoa in 
March 2004. The expansion, scheduled to take place over a 3- 
year period is expected to move the capacity of the refinery 
from 1.25 million metric tons a year to 2.65 million tons 
and would simultaneously greatly improve processing 
efficiency. It is also expected that the shareholding of the 
Jamaican government would reduce from about 50% to about 25% 
while that of Alcoa would increase from 50% to about 75%. 
 
---------------- 
Crime Rates Down 
---------------- 
 
¶8. As of February 2, there were 118 homicides committed 
compared to 157 for the same time period in 2005.  The JCF 
reported a decline of 15% for overall crime.