VZCZCXRO4230
RR RUEHGR
DE RUEHKG #0770/01 2471222
ZNR UUUUU ZZH
R 031222Z SEP 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6724
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 KINGSTON 000770 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) 
WHA/EPSC (MROONEY) 
SANTO DOMINGO FOR FCS AND FAS 
TREASURY FOR ERIN NEPHEW 
 
E.O. 12958:  N/A 
TAGS: ENRG EAIR AID EINV ECON ETRD IADB IBRD IMF TRSY XL
JM 
SUBJECT: JAMAICA: AUGUST ECONOMIC REVIEW AND STORM GUSTAV 
 
REF: A) KINGSTON 761 
B) KINGSTON 760 
C) KINGSTON  21 
D) KINGSTON 755 
E) KINGSTON 703 
F) KINGSTON 570 
G) KINGSTON 726 
 
¶1. (SBU) SUMMARY: 
 
-- Tropical Storm Gustav has damaged infrastructure on the island 
and caused at least 14 deaths (reftels A and B).  Agriculture also 
sustained damage, mainly in the eastern parishes of Portland, St. 
Thomas and St Mary.  It is too early to accurately estimate the 
total financial costs of repairs across the island; septel will 
follow. 
 
-- Air Jamaica faces competition from low cost airline Airone 
Ventures based in Barbados.  The Government of Jamaica (GOJ) refused 
Airone's request in early 2008 for a license to operate out of 
Kingston (reftel C). 
 
-- Edward Wegel accepted the position as CEO of Air Jamaica and 
assumed formal control on September 1. The airline seeks to maintain 
its target of being privatized by March 31, 2009, and is expecting a 
new block of funding from the GOJ. 
 
-- Prime Minister Golding hopes to roll out E10 ethanol fuels by the 
end of September, although gas station owners tell him his timeline 
is too short. 
 
-- Goodyear Tire has partnered with Tropical Battery to serve as its 
distributor for tires on the island.  Goodyear will continue to 
operate a marketing and administrative office in Kingston to serve 
its Caribbean customers. 
 
-- Governor of the Bank of Jamaica says inflation will likely hit 
15-17 percent for the year.  He also said there has not been any 
impact felt in commercial banks as a result of the collapse of 
several alternative investment schemes. 
 
--------------------- 
Tropical Storm Gustav 
--------------------- 
 
¶1. (U) Jamaica was hit with tropical storm Gustav on August 28-29. 
The Embassy was closed to the public on both days.  Initial 
assessments are still coming in, but as of Sept 3, there are 12 
confirmed deaths and seventy-two communities have been affected. 
The Gleaner newspaper reported that, at its peak, there were more 
than 2,000 people in storm shelters.  The major Hope River Bridge 
was destroyed; a temporary structure for pedestrian crossing has 
been erected to connect Kingston to the eastern parish of St. 
Thomas.  Completely rebuilding the bridge could take as long as 24 
months. Another major crossing in the Bog Walk Gorge linking 
Kingston to the North coast was severely damaged in the storm and is 
closed to traffic.  Damage to agriculture was sustained mainly in 
the eastern parishes of Portland, St. Thomas and St Mary, 
particularly to banana and plantain crops. 
 
¶2. (U) Prime Minister Bruce Golding appointed Transport and Works 
Minister Mike Henry as head of a task force to spearhead restoration 
work to be done across the island. Henry told reporters from the 
Observer newspaper that JD 8 billion (USD 115 million) is needed to 
repair roads from damage caused by Gustav.  NOTE: It is too early to 
accurately estimate the total financial costs of repairs across the 
island; septels to follow.  END NOTE.  Henry said Cabinet is looking 
into potential funding sources, such as multilateral agencies. 
However, he said he was not very hopeful about receiving an 
international loan, since Jamaica may not qualify as Gustav was not 
a category one hurricane. 
 
¶3. (U) Opposition Leader Portia Simpson Miller told reporters from 
the Observer newspaper on September 1 that she urged the government 
to declare the eastern tip of Jamaica as a disaster area. She said 
the response to the storm must be bi-partisan and that the 
government should make every effort to include other national 
stakeholders, including the Opposition, in responding to the 
disaster. 
 
--------------------- 
Aviation/ Air Jamaica 
--------------------- 
 
¶4. (SBU) Airone Ventures Limited hopes to be the first low-cost 
 
KINGSTON 00000770  002 OF 003 
 
 
airline to begin service in April 2009 to several regional (Cayman, 
Grenada, Curacao and Antigua) and then to US destinations including 
Miami, Orlando and New York.  Originally, Airone intended to base 
its operations out of Jamaica, but was denied a license by the GOJ 
(reftel A).  The GOJ based its refusal on concerns about divesting 
Air Jamaica and not wanting to create more competition for potential 
buyers of the beleaguered national carrier. Airone since has moved 
operations to Barbados; it is not yet clear whether the GOJ will 
allow Airone to operate service in and out of Kingston. 
 
¶5. (U) Airone was started by Irish entrepreneurs, including cell 
phone service provider Digicel's vice-chairman Leslie Buckley. 
Airone will continue to have a close partnership with Digicel, which 
includes plans to sell airline tickets from Digicel outlets and to 
use cell phones to provide customers with ticketing and other 
airline information.  The airline will start with two 160-seater 
Boeing 737-700 planes with the hope of adding 25 new Boeing 
aircraft.  Airone would like to add service between Jamaica and 
Central and South America.  Air Jamaica's non-executive chairman 
Shirley Williams said in an interview with Sun Herald newspaper that 
Airone's offers could be a case of predatory pricing, which would 
cut into Air Jamaica's revenue flows and hinder its ability to stem 
losses. 
 
¶6. (SBU) Edward Wegel, a U.S. citizen, accepted the position of CEO 
of the airline, after being selected over Canadian David Ban Miller 
for the top job.  Williams told reporters that the beleaguered 
airline has administrative expenses that are 43 percent of its total 
expenses, which is significantly above the industry norm of 15 
percent.  Williams vowed to take steps to reduce the costs, but 
conceded that this would require cooperation with the airline's 
employee unions. Air Jamaica finalized a lease agreement with 
Turkish airlines in late July to sub-lease two of its A340 aircraft. 
 The planes had been used on Air Jamaica's London route; the lease 
expenses for the two planes were USD 1.2 million per month. The GOJ 
still hopes to privatize the airline by March 21, 2009.  A contact 
in Air Jamaica told Econoff the airline will receive another block 
of funding from the GOJ, which will help finance operations. 
 
------------------------------------- 
Environment/ Renewable Energy/ Energy 
------------------------------------- 
 
¶7. (U) PM Golding said on August 3 that he wants to push forward on 
a directive to make E10 (10 percent ethanol) fuel mandatory at all 
fueling stations by the end of September.  Golding faced resistance 
from gas station owners who said the timeline is unrealistic.  Errol 
Edwards, president of the Jamaica Gasoline Retailers' Association, 
told The Gleaner newspaper on August 4 that preliminary work, 
including preparing the islands gas stations, has yet to be done. 
Golding highlighted the recent partnership with Infinity Bio-Energy 
of Brazil, saying "new capital is being injected into the sugar 
industry... and less of the country's sugar cane would be going into 
sugar and more into ethanol."  NOTE:  With rising world oil prices, 
Jamaica is continuing to look at opportunities for renewable energy, 
including ethanol and biofuels, (reftel D). END NOTE. 
 
--------------------------- 
Foreign and U.S. Investment 
--------------------------- 
 
¶8. (SBU) Goodyear Tire announced on August 31 that Tropical Battery 
will take over as distributor for its tires on the island.  Tropical 
is a distributor of its own brand of automotive batteries, Castrol 
motor oil and automotive products. It operates seven company-owned 
retail stores and supplies products to more than 900 other 
distributors across Jamaica.  Goodyear will continue to operate a 
marketing and administrative office in Kingston to serve its 
Caribbean customers. 
 
--------------------------------------- 
Budget / Tax Revenue / Debt / Inflation 
--------------------------------------- 
 
¶9. (U) The Bank of Jamaica (BOJ) Governor Derrick Lattibeaudiere 
told reporters on August 20 that Jamaica appears to be weathering 
external shocks.  Although this assessment was before the damages 
caused by tropical storm Gustav, he had lowered his growth forecast 
to 1.2-2.2 percent for the fiscal year 2008-2009.  Lattibeaudiere 
predicted an inflation rate of 15-17 percent for the year, in 
comparison to 16.8 percent last year.  He added that the BOJ's 
policies are right at the moment in order to contain inflation and 
maintain a stable currency.  He noted, however, "The real problem is 
that the global economy has not been kind to us...The downward 
revision from our previous forecast is due to the slowdown in global 
 
KINGSTON 00000770  003 OF 003 
 
 
growth." 
 
------------------------------ 
Alternative Investment Schemes 
------------------------------ 
 
¶10. (SBU) As the collapse of the alternative investment schemes, 
most notably Olint and Cash Plus, continues to work its way through 
the economy, the BOJ remains optimistic (reftel G).  BOJ Governor 
Derrick Lattibeaudiere told reporters at his quarterly briefing on 
Aug 20 that Jamaican banks had not suffered from the collapse of 
several unregulated investment schemes: "I haven't seen any movement 
that would cause us concern...we haven't seen that macro-economic 
impact." He conceded there may be reduction in personal consumption 
and spending for some Jamaicans.  NOTE: Econoff has been told by a 
few prominent business owners that they are more concerned about the 
collapse of Olint and fear it will take two to three more months to 
work through the economy before its impact will be known.  END 
NOTE. 
HEG