VZCZCXYZ0004
PP RUEHWEB

DE RUEHKG #0504/01 1771253
ZNR UUUUU ZZH
P 261253Z JUN 09
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC PRIORITY 7776
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCNCOM/EC CARICOM COLLECTIVE

UNCLAS KINGSTON 000504 
 
SENSITIVE 
SIPDIS 
 
WHA/EX FOR JAMES ROBERTSON AND JAMIE SEALE 
HR/OE/CMP SALLY CINTRON 
WHA/CAR (DOFFMANN)(VDEPIRRO)(WSMITH) 
WHA/EPSC (MROONEY) (FCORNEILLE) 
SANTO DOMINGO FOR FCS AND FAS 
TREASURY FOR ERIN NEPHEW 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN AMGT APER ECON XL JM
SUBJECT: JAMAICA: FSN WAGES STAGNATE AMIDST HIGH INFLATION; ACTION 
REQUESTS RE COMPENSATION INCREASE, SURVEY, COLA 
 
REF: A) KINGSTON 306 
B) KINGSTON 315 
C) KINGSTON 405 
D) KINGSTON 422 
E) 08 KINGSTON 366 
F) KINGSTON 427 
G) STATE 62454 
 
SUMMARY 
------- 
 
¶1. (SBU) Jamaica has a long history of price instability influenced 
largely by currency depreciation.  Prices rose on average by 13.4 
percent annually during the past six years.  Although inflation has 
moderated to below 2 percent for the first four months of 2009, it 
is expected to increase for the remainder of the year. 
Policy-induced measures led by the record tax package announced in 
April 2009 are expected to drive up prices in the upcoming months. 
The upward movement in oil prices is also set to drive up inflation. 
 However, the single biggest threat to price stability and, by 
extension, the standard of living is the continued depreciation of 
the Jamaican dollar.  The currency has depreciated against the U.S. 
dollar by almost 30 percent since September 2008.  Public and 
private sector workers have generally been compensated for these 
price movements, with salary increases averaging over 10 percent 
during the last six years.  In contrast, senior FSN salaries have 
continued to lag, averaging about six percent over the same period. 
The stagnation of senior FSN salaries makes it difficult to retain 
and recruit top talent.  Please see action re1uestions paragraphs 
12, 13, and14.  End summary. 
 
The Raw Numbers 
--------------- 
 
¶2. (SBU) Jamaica has a long history of price instability influenced 
largely by frequent bouts of currency depreciation.  During the last 
six years prices increased an average of 13.4 percent per year, 
making Jamaica a high inflation Post.  The local currency slipped by 
about 8.3 percent on average, relative to the U.S. dollar over the 
same period.  Since January 2009, the Jamaican dollar has weakened 
by a further 17 percent, and with the three main pillars of the 
economy--tourism, remittances and bauxite--threatened and oil prices 
rising, there will likely be further bouts of depreciation through 
¶2009.  Collapsing bauxite earnings (three of Jamaica's four plants 
have closed) and declining remittances, down by between 15 and 20 
percent per month, have prompted some analysts to predict a Balance 
of Payment (BOP) crisis in the near term (reftel C).  This could 
explain why the GOJ has spent the last three months telegraphing a 
return to the IMF (reftel D). 
 
¶3. (SBU) The country's high dependence on imports, equivalent to 
almost 70 percent of GDP, means that any slippage in the currency 
translates into an almost automatic increase in prices, referred to 
as imported inflation.  Inflationary impulses are also fed by supply 
shocks brought on primarily by interruptions such as hurricanes to 
domestic agriculture, resulting in cost push inflation.  This is 
having a devastating impact on cost of living as food accounts for 
over 50 percent of the basket of goods and services.  And while 
international commodities prices have moderated, there seems to be 
no end in sight to rising food and energy prices in Jamaica.  In 
fact, it is not unusual for food and fuel prices to change weekly as 
the currency depreciates (reftel E). This also impacts American 
employees as Post's Cost of Living Adjustment (COLA) was eliminated 
when the Jamaican dollar fell even though the prices on which the 
COLA was based rose immediately to reflect the new exchange rate. 
 
What Does this Mean To Post 
--------------------------- 
 
¶4. (SBU) The GOJ has targeted a moderation in inflation to between 
11 and 14 percent for 2009, but unfolding events are likely to 
stymie this projection.  Inflation for the four months of 2009 is at 
a record low of 1.7 percent, but this has more to do with the fact 
that prices had adjusted to record levels in 2008.  Prices are set 
to soar on the back of policy-induced measures, led by a record tax 
package announced in the budget presentation in April 2009.  In 
particular, the GOJ imposed a JMD 8.75 (USD 10 cents) per liter tax 
on fuel to help fund the shortfall in the budget (reftel B).  Since 
transportation is a major component of economic activity, this 
measure is expected to drive price increases throughout the economy. 
 In addition to the inflationary effects, the tax measures combined 
with a possible increase in National Insurance contributions are 
expected to reduce disposable income even further. 
 
 
¶5. (SBU) With Jamaica dependent on imported oil for 95 percent of 
its energy needs, inflation is exacerbated by rising oil prices.  If 
predictions prove true and oil prices rise as high as USD 80 per 
barrel, it will have a crippling effect on the cost of living, 
particularly because the local electricity company is about to be 
granted a tariff increase to raise electricity prices.  That 
increase will be passed on directly to consumers and is expected to 
send electricity rates to new highs, even though they are already 
some of the highest in the region. (reftel F). 
 
6 (SBU) The single biggest threat to inflation is the depreciation 
in the Jamaican dollar.  In fact, supermarkets, which are highly 
dependent on imports, tend to change prices almost weekly in 
response to the weakening local currency.  These moves are expected 
to feed inflationary expectations fuelling another round of price 
increases.  Already, private schools have announced steep increases 
in tuition, forcing some parents to shift their children to less 
desirable, but more affordable public schools. 
 
Public and Private Sector Salaries Adjust 
----------------------------------------- 
 
¶7. (SBU) Recognizing the cost implications of high inflation in 
Jamaica, both public and private organizations have tended to adjust 
salaries in line with price movements.  During the last six years 
salary increases (excluding benefits) in the public and private 
sectors have increased on average by 10.3 percent and 12 percent, 
respectively.  This is almost in line with the average inflation 
rate of 13.4 percent over the same period.  The increases, 
especially in the private sector, have tended to be granted on an 
annual basis.  As a result, both public and private sector salaries 
continue to be highly competitive, keeping purchasing power 
relatively robust. 
 
Senior FSN Salaries Lag 
---------------------- 
 
¶8. (SBU) Even though senior FSN employees at the U.S. Embassy might 
be hired at a premium on their previous employ, this is quickly 
eroded as salary increases are irregular and, when granted, are at a 
discount to inflation.  This is particularly stark given that 
salaries are paid in local currency.  Salary increases (excluding 
benefits) especially at the more senior FSN positions have lagged 
both private and public sector salaries and inflation.  During the 
last six years, higher level salaries have increased by a mere 6.2 
percent.  This means that although salaries have risen in nominal 
terms, purchasing power has been reduced on average by over 7 
percentage points annually.  The disparity in remuneration becomes 
even more pronounced when it comes to benefits.  Traditionally, a 
large portion of Jamaican salaries have been paid in the form of 
fringe benefits/allowances.  Some comparators pay allowances of 
nearly 50 percent of basic salaries and when bonuses (private 
sector) are factored in, benefits and allowances can rise to almost 
75 percent of basic pay. 
 
Benefits Analysis 
----------------- 
 
¶9. (SBU) The financial value of benefits appears to be the major 
difference.  From a salary comparison a senior FSN position will 
secure benefits of JD 360,000 (USD 4,068) per year, whereas in the 
GOJ the same level position would yield JD 1.6 million (USD 18,080) 
and in the private sector JD 2.3 million (USD 25,990) in benefits. 
The type of benefits are the same including items such as meals and 
clothing allowances, but the amount of money provided for benefits 
is higher for the GOJ and private sector.  In addition, the GOJ and 
private sector provide either a car allowance (private sector) or a 
waiver on import duties for a vehicle (public sector).  (NOTE: the 
import duty on a vehicle can be equal to 200 percent of its value. 
A person who sells the vehicle after three years can essentially 
recover their entire cost or even make a small profit.  END NOTE). 
These benefits significantly bolster purchasing power by drastically 
reducing or even eliminating vehicle costs. 
 
Agricultural Specialist Wooed By Government 
------------------------------------------- 
 
¶10. (SBU) Uncompetitive Embassy salaries and benefits are expected 
to start affecting recruitment and retention, especially at the 
senior FSN levels.  In December 2008, Post lost its Agricultural 
Specialist (AS) to the GOJ.  The AS, who was being compensated at 
Grade 11 (JMD 2.9 million - USD 32,770), realized a 70 percent 
premium under his new compensation plan, which totals JMD 5.1 
million (USD 57,630) including benefits.  According to the AS after 
he left the Mission, the Ministry of Agriculture officials expressed 
alarm at the divergence of salaries being offered by the Mission 
compared to the GOJ.  Before the interviews began for an AS 
replacement, one prospective GOJ employee withdrew her application 
after hearing the salary offered for the position.  Even more 
interestingly, the preferred candidate selected after interviews 
also refused the position apparently because of the salary and chose 
to stay with her current employer, the GOJ.  These are clear 
indications that Mission salaries for senior FSN positions are not 
competitive enough to recruit top talent. 
 
Comment 
------- 
 
¶11. (SBU) Salaries at Post for senior FSN positions have lagged the 
larger market.  To date, the relatively low levels of attrition may 
provide a false sense of security.  As the gap in salaries widens, 
the pace of attrition appears to be gaining momentum.  Management in 
USAID, Peace Corps and State Department have all been approached by 
senior FSNs who have said they are looking at other positions in the 
private sector or with multilateral organizations that pay a higher 
wage.  Most LE staff are part of dual income families, and as the 
economy has worsened, they are feeling the pinch on both ends as 
their salaries fail to keep pace and their spouses earn less or lose 
their jobs altogether.  These senior employees are post's most 
valuable, and losing them would devastate post operations.  We must 
act quickly to ensure that the compensation provided at Embassy 
Kingston is sufficient to halt the "brain drain" that has already 
begun.  End Comment. 
 
Action Requests 
--------------- 
 
¶12. (SBU) In Ref G, HR/OE has recently sent to post their current 
analysis of Embassy compensation which puts the Mission as much as 
35 percent behind comparator organizations depending on grade.  Post 
requests that WHA/EX authorize as high an increase as it is possible 
to carry forward into FY11 to remedy this situation. 
 
¶13. (SBU) Post remains concerned, given information received about 
compensation packages in the GOJ, that the value of benefits is not 
being sufficiently captured in compensation reviews.  Post requests 
that HR/OE closely review the data provided by Birches Group to 
ensure that its Jamaican compensation survey fully covers the many 
benefits provided by typical employers here, particularly those 
related to vehicles and transportation.  Post would be happy to 
assist in that review if HR/OE can make the information available to 
Kingston HR. 
 
¶14. (SBU) American employees at post already are consistently upset 
at the disconnect between their experience at the cash register and 
the lack of a COLA benefit in their paycheck.  Part of this is that 
the basket of goods surveyed doesn't accurately capture what the 
typical family buys, and much of what is left out are the products 
with the biggest disparity in price.  We cannot fix that, but post 
requests that RM recognize the economic reality noted in Paragraph 
three above and eliminate automated adjustments to the post 
allowance should it be reestablished following submission of the 
most recent report.  Unlike many countries, prices in Jamaica 
increase almost immediately in response to slippage of the value of 
the Jamaican dollar against the U.S. dollar.  The assumption upon 
which RM's automated system is based - that American employees' 
buying power increases with exchange rate gains - is incorrect when 
applied in Jamaica. 
MOSS