VZCZCXRO0198
RR RUEHGR
DE RUEHKG #0457/01 1422044
ZNR UUUUU ZZH
R 212044Z MAY 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6360
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 KINGSTON 000457 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CAR (JTILGHMAN)(VDEPIRRO) 
WHA/EPSC (LKUBISKE) 
EEB/IFD/ODF (EDIBBLE, MSAKAVE) 
SANTO DOMINGO FOR FCS AND FAS 
TREASURY FOR SARA GRAY 
 
E.O. 12958:  N/A 
TAGS: ECON ENRG PREL EINV IADB IFC ETRD JM XL
SUBJECT: JAMAICA RE-EMBRACES THE WORLD BANK 
 
REF: A. KINGSTON 450 
 
¶B. KINGSTON 342 
¶C. KINGSTON 277 
¶D. KINGSTON 366 
 
SUMMARY 
------- 
 
¶1. (SBU) After more than a decade of strained relations, the 
Jamaican Labour Party (JLP) led-government has followed through on 
its promise to renew the government's relationship with multilateral 
lending agencies.  The World Bank's Country Representative in 
Jamaica, Badrul Haque, told emboffs, in a meeting on May 13, that 
the Government of Jamaica (GOJ) has already requested three policy 
based loans.  He said the GOJ in general, and Minister of Finance 
and the Public Service Audley Shaw in particular, are quite eager to 
receive advice from the WB.  However, Haque was concerned about the 
negative perception of multilateral institutions among public sector 
officials left over from 18 years of rule under the Peoples National 
Party (PNP).  Haque cautioned that opposition by holdover civil 
servants to assistance from multilaterals could slow the adoption of 
reforms needed to reduce the exorbitant public debt.  Haque 
suggested that Shaw must demonstrate strong and decisive leadership 
if his reform agenda is to gain traction.  Initial indications are 
that Shaw is succeeding: his debt reduction policies are taking 
root, and he has shown a willingness to reassign senior officials in 
his ministry who are not in step with his vision of reform. 
 
Historical Background 
--------------------- 
 
¶2. (SBU) During 1996, the PJ Patterson-led administration took the 
controversial, albeit popular, decision of ending Jamaica's 
borrowing relationship with the IMF.  Patterson, a staunch supporter 
of South-South cooperation, was of the opinion that the country's 
economic woes were largely due to the "austerity measures' attached 
to multilaterals loans.  But while Patterson was busy finding a 
scapegoat, his Finance Minister was courting the IMF for its stamp 
of approval to tap the international capital market.  With the IMF's 
assistance, the GOJ was able to launch its first bond offering of 
USD 100 million in 1997, which was highly oversubscribed, allowing 
the GOJ to increase the amount to USD 200 million.  The allure of 
significant sums of private funds without the attendant 
policy-related scrutiny suited the then PNP-led government, leading 
private credit to balloon to USD 3.5 billion by the end of 2007. 
There was also a concurrent jump in the country's debt servicing 
burden, which catapulted from under fifty cents to over sixty cents 
of every dollar of revenue collected.  The changing debt dynamic 
precipitated a physical and social infrastructural deficit with the 
attendant social and economic fallout. 
 
GOJ Re-Embraces Multilaterals 
----------------------------- 
 
¶3. (SBU) Recognizing that this strategy was unsustainable, Shaw 
campaigned on a platform of renewal of relations with and borrowing 
from multilaterals in order to manage the country's gargantuan debt. 
 Shaw argued that the objective would be to replace high cost 
private debt with low cost multilateral loans.  This position was 
ridiculed by then- Minister of Finance Omar Davies, who argued that 
multilaterals would never lend to countries at Jamaica's level of 
income.  Shaw has proven Davies wrong, as the GOJ is well on his way 
to ratcheting up the country's borrowing relationship with 
multilaterals, including USD 90 million in loans from the 
Inter-American Development Bank (IDB). Shaw also has concluded 
negotiations for three policy-based loans amounting to USD 65 
million from the WB. 
 
¶4. (SBU) In a meeting on May 13, Haque told emboffs that Jamaica's 
relationship with WB is quite different than in the past.  Haque 
said he has provided Shaw with a full spectrum of funding and 
technical assistance options and has asked the GOJ to chart its own 
course on how it wants to implement reform.  Haque said the new 
policies will be determined by the GOJ and not dictated by 
multilaterals.  The GOJs ability to secure loan funds relates 
directly to the speed at which they are able to implement policy 
reforms. 
 
Education and Agriculture 
------------------------- 
 
¶5. (SBU) Haque said Shaw's eagerness to embrace the WB was 
demonstrated by his desire to engage him on policy issues on a 
weekly basis.  "I meet with the Finance Minister up to four times a 
week in some instances", he told emboffs.  Haque also has been 
 
KINGSTON 00000457  002 OF 003 
 
 
sought out by Minister of Education, Andrew Holness, who is eager to 
float a "diaspora education bond" among Jamaicans living abroad. 
Holness also is keen on taping the same group for donations to 
upgrade school facilities.  Haque said that while overseas Jamaicans 
were willing to invest in the country's fledging education system, 
they were demanding good governance as a prerequisite.  Haque has 
agreed to use the vast technical resources at the disposal of the 
bank to help create the governance structure required to access this 
creative form of funding.  The Multilateral Investment Fund (MIF) is 
also doing a feasibility study on the possibility of providing crop 
insurance for the agriculture sector (reftel A).  In addition, the 
MIF is providing grant funding to strengthen the local insurance 
infrastructure, including the development of the necessary 
regulatory framework as well as the provision of analytical tools to 
measure crop damage. 
 
Energy Mission 
-------------- 
 
¶6. (SBU) Energy-dependent Jamaica is reeling under the current oil 
crisis, and Minister of Energy Clive Mullings also has been reaching 
out to Haque for counsel.  Mullings, who Haque said was not seeking 
money, has been on the hunt for sound technical advice to analyze 
the plethora of energy projects turning up on his desk.  (COMMENT: 
Mullings has had his portfolio changed in a recent restructuring, 
the Telecommunications and Mining portfolios have been peeled off 
and given to former Minister of National Security Derrick Smith END 
COMMENT).  In response, the WB agreed to arrange an energy mission, 
which currently is on the island.  Mission members include experts 
on carbon credit, power generation and renewable energy.  "When the 
client is receptive, we are in prime position to provide the best 
experts and expertise," said Haque.  The country will be happy with 
what they are getting in the areas of global best practices and 
problem identification", he continued. 
 
Donor Coordination Needed 
------------------------- 
 
¶7. (SBU) Haque said the International Financial Corporation (IFC), 
another WB affiliate, also is working on expanding a GOJ wind farm 
through public-private partnerships.  While Haque is happy with the 
renewed spirit of cooperation, he is concerned that GOJ officials 
are making the same requests to all donor agencies.  And with each 
donor agency welcoming the opportunity to lift its profile, it has 
led to a breakdown in donor coordination. 
 
Civil Servants Unresponsive And Being Removed 
--------------------------------------------- 
 
¶8. (SBU) Although the political directorate has been very receptive, 
the WB representative expressed concern about the skepticism being 
displayed by senior members of the public service.  Haque said most 
civil servants still view multilaterals as structural adjustment and 
free trade advocates.  This skepticism has slowed progress.  Shaw 
wants to sprint with his reform agenda, but the most senior 
bureaucrats remain, at best, reticent.  This is not surprising, 
given that the upper echelons of the public sector continue to be 
dominated by political actors who cemented their positions under the 
former administration and share a negative view of these 
institutions.  Haque thinks this opinion within the public service 
has to change if the situation is to improve.  He said if the trend 
of high debt coupled with shocks continues there is a 75 percent 
chance the country's debt to GDP ratio would remain between 110 and 
135 percent.  This, he said, prompted Shaw to conclude significant 
reform is required immediately.  Shaw's motivations also explain why 
he has started to shake up the civil service.  Shaw removed his 
Financial Secretary (FS) Colin Bullock and returned the career 
central banker, turned FS, to his substantive post at the central 
bank.  Prime Minister Bruce Golding also transferred the Permanent 
Secretary in the Ministry of Education to the Ministry of Finance in 
a new position that is a significant demotion.  There is speculation 
that other Permanent Secretaries with strong affiliations to the PNP 
are likely to be moved or demoted. 
 
Reform Agenda: Development Policy Lending 
----------------------------------------- 
 
¶9. (SBU) Debt remains a constant drag on growth and will continue to 
be the major focus of the JLP-led government.  Access to the USD 65 
million loan depends on the speed with which Jamaica reforms its 
fiscal structures to address this debt.  The faster the pace of 
reform, the higher the loan amounts available and the more technical 
assistance the WB will provide.  That said, Jamaica will also be 
free to proceed at a slower pace, but this would translate into 
smaller loans.  The comprehensive reform agenda hinges largely on 
 
KINGSTON 00000457  003 OF 003 
 
 
the promotion of debt and fiscal sustainability.  The first 
objective is for the GOJ to curb it persistent fiscal deficits to 
reduce borrowing.  More specifically, the GOJ will be required to 
initiate steps toward the adoption of a fiscal transparency and 
responsibility act.  To access further loans, the GOJ will be 
required to draft and submit the act to cabinet for approval.  The 
last block of funds will be dependent on the implementation of 
policies geared at preventing new debt at other public owned 
entities, like beleaguered national carrier Air Jamaica or sugar 
estate parastatals, from being transferred to the central government 
(reftels B and C). 
 
Divestment Of Non-Core Assets 
------------------------------- 
 
¶10. (SBU) The second major objective of the reform agenda involves a 
comprehensive program of rationalization of public bodies.  In 
addition to reducing the risk of debt from these entities being 
transferred to central government, the divestment of non-core assets 
will provide funds for current expenditure or to pay down the debt. 
To fulfill this objective, at least two public sector bodies must be 
sold during the first phase of the program.  This should be followed 
by fifteen in phase two and a number to be decided in phase three. 
Other objectives under the WB's Development Policy Lending (DPL) 
include: (1) increasing the efficiency of central government's 
financial management and budgeting; (2) increasing revenue 
collections through a comprehensive tax reform program; and, (3) 
maintaining macroeconomic stability. 
 
Food Security on the Agenda 
--------------------------- 
 
¶11. (SBU) With food security high on the GOJ's agenda, the WB also 
has been asked to look at the supply side to identify constraints 
and recommend solutions (reftel A and D).  The GOJ has asked the WB 
to look at areas where agricultural output can be expanded.  Haque 
said the United Nations Development Program (UNDP) is also 
conducting a rapid assessment of the impact of rising food prices on 
the poorest Jamaicans.  The WB is also fielding a mission to look 
for possible areas of intervention among the most vulnerable groups. 
 Rural development is also a key component of the mission and Haque 
has expressed keen interest in funding greenhouses to up vegetable 
production to supply the tourism sector.  "This is one of the key 
linkages which can spur rural development and provide a much needed 
boost to growth", Haque told emboffs. 
 
Comment 
------- 
 
¶12. (SBU) Although Jamaica is caught up in one of the worst debt 
crises in the world, Haque is confident that if the country embarks 
on a comprehensive reform agenda, it could start reaping benefits in 
the coming years.  The WB official is hedging his bet on the giant 
strides taken by Mexico, which encountered a similar problem in the 
1990s.  Add to this the propensity of members of the new political 
directorate to seek, accept, and implement policies from the 
multilaterals, and Haque's confidence appears well grounded. 
Despite the reticence of some bureaucrats, Haque is convinced that 
strong leadership could correct these issues in the near term. 
Unlike his predecessor, Shaw has demonstrated that he is willing to 
seek advice from both local and international experts.  These 
efforts appear to be paying dividends, as Shaw already has garnered 
over USD 150 million in long-term concessionary financing, while at 
the same time addressing tax reform and efforts to reduce corruption 
and improve governance structures.  However, Shaw's route to success 
hinges on his bureaucrats falling in line, and could explain the 
recent shake up in his ministry.  End Comment. 
JOHNSON