VZCZCXYZ0001
RR RUEHWEB

DE RUEHKG #0098/01 0302045
ZNR UUUUU ZZH
R 302045Z JAN 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 5897
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS KINGSTON 000098 
 
SIPDIS 
 
SIPDIS, SENSITIVE 
 
STATE FOR WHA/CAR (JTILGHMAN) 
WHA/EPSC (VDEPIRRO) 
TREASURY FOR SARA GRAY 
 
 
E.O. 12958: N/A 
TAGS: ECON ECPS ETRD EFIN PREL JM XL
SUBJECT: JAMAICAN THINK TANK ANALYZES INVESTMENT SCHEMES 
 
REF: KINGSTON 005 
 
07 KINGSTON 1749 
07 KINGSTON 1712 
07 KINGSTON 1641 
 
 
Summary 
------- 
 
¶1. (U) The Jamaican think tank Caribbean Policy Research Institute 
(CaPRI) based at the University of the West Indies has released the 
first independent analysis on alternative investment schemes which 
have proliferated on the island.  A range of schemes promising 
annual returns of up to 180 percent have flourished on the island in 
recent years (see reftels).  The study is drawn from surveys of 400 
investors involved in the schemes and from discussions with local 
financial institutions.  The study concludes that at least 14,300 
people participate in the schemes with millions of dollars at risk. 
A majority of respondents said they do not expect a government bail 
out or widespread social unrest if the funds collapse.  The report 
was welcomed by the GOJ, which already was taking steps to regulate 
the schemes. End Summary 
 
----------------------------- 
Money Does Not Seem To Add Up 
----------------------------- 
 
¶2. (SBU) CaPRI estimates that at least 14,300 Jamaicans have 
invested in these schemes, forty-seven percent of which have 
invested for less than a year.  Despite the low number of estimated 
investors, CaPRI concludes, that based on estimates from various 
financial institutions, the amount already invested in these schemes 
could be between JAD 100-200 billion (USD 1.4 billion to USD 2.8 
billion). COMMENT: This figure appears very high in light of the 
size of the Jamaican economy and is also higher than other sums 
reported in the press.  If these figures are accepted, it would mean 
the schemes have funds equal to between 15 to 30 percent of 
Jamaican's annual GDP of about USD 9 billion. If we use the figure 
of 14,300 Jamaicans provided by CaPRI it would also indicate 
participants have an average of USD 98,000 to USD 196,000 invested. 
It would appear either that there are significantly more people 
investing in these schemes than 14,300 or that the amount being held 
is vastly overestimated.  The figures proposed by CaPRI would 
indicate that even if the entire 2.7 million population of Jamaica, 
which has a per capita income of about USD 3,400, were invested, 
each Jamaican would have between USD 518 to USD 1,036 in a scheme. 
END COMMENT. 
 
--------------------------------------- 
Violence Anticipated, But Not Widespread 
---------------------------------------- 
 
¶3. (SBU) CaPRI also estimates that a majority of participants are 
middle class and would be able to absorb the losses should schemes 
collapse.  Among those surveyed, most do not anticipate a GOJ 
bail-out in the event of collapse.  The evidence indicates that many 
of the schemes, which have opaque investment strategies and resemble 
pyramid schemes, are unsustainable and their collapse is inevitable. 
 Seventy percent of respondents said smaller social disturbances, 
including protests and/or riots, violent outbreaks at business 
offices, and the killing of the owners of these schemes were 
probable. However, most believe that the likelihood of wide-spread 
social unrest is low. 
 
---------------------- 
Collapse is Inevitable 
---------------------- 
 
¶4. (SBU) A few of the schemes on the island already appear to have 
collapsed, including Higgins Warner Investments which closed its 
offices in Montego Bay. The most well-known scheme, Cash Plus, 
currently is under a cease and desist order from the Jamaican Courts 
until it is registered with the Financial Services Commission (FSC). 
 In a public statement, it has asked investors to forgo their 
interest payments while it takes 90 days to restructure its 
operations (reftel C).  Attorney for Cash Plus, Bert Samuels, told 
Radio Jamaica reporters on January 24 that the scheme has more than 
11,000 clients who have invested nearly USD 57 million. 
 
------------------------- 
Type of Investor Involved 
------------------------- 
 
¶5. (SBU) CaPRI suggests that, despite popular perceptions, the 
schemes are not the domain of poorer Jamaicans but rather are used 
by middle-class investors who recognize the risks involved. 
COMMENT: CaPRI's findings comport with anecdotal evidence collected 
at Post regarding currency trading firms like Olint, but seems 
inconsistent with the lower-economic class of individuals that have 
turned up to demonstrate in support of Cash Plus.  Until these 
schemes come under more scrutiny by the GOJ, and the names and 
numbers of investors are released, it will be difficult to determine 
what type of investors are participating in these schemes and how 
that will affect social stability. END COMMENT. 
 
-------------------------------- 
Macroeconomic Impact of Collapse 
-------------------------------- 
 
¶6. (SBU) CaPRI claims the collapse of the funds will only have a 
short term impact on the economy and that there should be a quick 
recovery of key macroeconomic indicators. COMMENT: Given Jamaica's 
exorbitant debt challenges, inflation of 16.8 percent for 2007 (well 
above the 6-7 percent target), and the possibility of recession in 
the U.S. economy, the country may have more difficulty absorbing a 
widespread collapse of these schemes than the CaPRI report 
indicates. If post-collapse violence does emerge, it could 
discourage tourism visits, which would likely cause negative ripple 
effects in the economy.  Tourism remains the number one foreign 
exchange earner for the country. Jamaica, which relies heavily on 
the local bond market, also depends on stable credit rating; any 
additional shocks to the economy could result in a downgrade of its 
rating by international credit agencies.  END COMMENT. 
 
------------------------------ 
GOJ Policy, Bailout Not Likely 
------------------------------ 
 
¶7. (SBU) The study recommends that the GOJ not offer any kind of 
bail-out or rescue package to investors or firms which lose money as 
a result of a collapse.  CaPRI suggests the GOJ regulatory authority 
should take measures to bring these schemes into the formal 
regulated securities structure. The FSC has already taken these 
steps, it issued cease and desist orders against two currency 
trading groups (Olint and LewFam Investments) in December 2007, 
after the Jamaican Supreme Court ruled that they were operating 
illegally.  This judicial decision encouraged the FSC to issue the 
cease and desist orders against Cash Plus on January 17. IMF experts 
who reviewed the Jamaican economy in November 2007 also endorsed 
aggressive scrutiny of these unregulated financial schemes. 
 
¶8. (SBU) Prime Minister Bruce Golding has told the press (see 
reftels) that the GOJ will not offer a bailout.  Widespread press 
reporting of the schemes has also resulted in political finger 
pointing by the ruling Jamaican Labor Party (JLP) and the opposition 
Peoples National Party (PNP). JLP Finance Minister Audley Shaw 
claims GOJ attorneys advised the former Finance Minister, Dr. Omar 
Davies, to take action in regulating the scheme, which Shaw claims 
Davies failed to do.