1. Mr Speaker, following our address to the nation by the Most Honourable Prime Minister on Sunday, May 18, 2003, and my press statement issued last Thursday, I have decided to provide a full report on:

1. My recent visit to the United States of America
2. The performance of the economy over the January-March period
3. The adjustment to the 4% cess agreed with the Private Sector; and
4. Steps to address the volatility in the foreign exchange market.

2. As I announced in my Budget Presentation, I went to Washington DC and New York during the period May 7 - 14 accompanied by the Financial Secretary and the Governor of the Bank of Jamaica, and had a series of high level meetings. This was not a trip to seek resources but rather to discuss Jamaica's economic performance and how the Budget fits into the overall medium term economic strategy.
3. In Washington I met with Mr. Horst Koehler, Manager Director of the International Monetary Fund (IMF), Mr. Anoop Singh, Head of the Western Hemisphere Division of the IMF, President Enrique Iglesias of the IDB, Mr. Sengman Zhang, Acting President of the World Bank and Mr. John Taylor, Under Secretary of International Affairs, US Treasury Department.
4. We had extensive discussions on Jamaica's macro-economic outlook.
5. The discussions with the IDB and the World Bank went very well. They focused on the best options for mobilizing incremental resources to complete priority projects for which counterpart funding is required, given the tight financial constraints. It was agreed that both institutions would provide technical and financial assistance for the review of the tax system announced in the Budget.
6. The meeting with the IMF centred around a suitable replacement for the Staff Monitored Programme (SMP) and the appropriate menu of options that could be explored to promote growth. A range of possibilities was discussed and it was agreed that these discussions would continue over the next few weeks, with a view to developing a methodology for the IMF to monitor Jamaica's macro-economic programme.
7. The meeting with Under Secretary Taylor had, as its major objective, an exchange of views on the Jamaican economy. However, Mr Taylor took the opportunity to inform me officially of the decision of the US Government to provide support of up to (US)$6.5 million for the country's Forest Conservation Programme.
8. In New York, we met with the two Rating Agencies (Standard and Poor's and Moody's), three Senior International Bankers and some of the larger investors in the Jamaica Government Bonds. We provided them with a detailed brief of recent developments in the real sector over the first quarter of the 2003 calendar year.
9. Mr Speaker, I now wish to give the House a brief review of the performance of the economy during the first three months of the year. Over that period the country experienced economic growth of 3.4% with all, but one, major sector showing positive growth. This includes Agriculture (up 5.1%), Mining (up 4.9%), Financial Services (up 12.5%) and Tourism (up 7.2%). Manufacturing was slightly down by 0.4%, only because of the closure of the oil refinery for much of this period. This also shows that for the last two quarters, the economy has in fact been growing - October to December by 3.8%, followed by January to March by 3.4%.
10. Mr Speaker, the news on the economy is of critical importance to our creditors at home and abroad. As regards the external creditors, the major concern raised during the discussions, both in Washington and New York, was the sustainability of the fiscal programme over the medium term and whether we will be able to maintain this programme in the event of any exogenous or internal shocks. We reaffirmed our resolve to do whatever it takes to maintain the fiscal targets.
11. Mr Speaker, it is imperative that we maintain this stance, since failure to do so will adversely affect our ability to mobilize resources at reasonable rates in both the external and domestic capital markets.
12. That is why Mr. Speaker, in response to concerns about elements of the tax package, the Administration has noted the representations made by the various groups and have adjusted the package to address some of their concerns, particularly in respect of the agricultural and health sectors.
13. With respect to the implementation of a 4% cess on imports as a prepayment for income tax, I met with representatives of the Private Sector Organization of Jamaica, (PSOJ) to discuss their concerns. The PSOJ presented a letter signed by all its representative sub-groups, proposing a compromise solution which would yield the same level of revenues as originally projected.
14. This proposal has been accepted by the Cabinet. We have, therefore decided to replace the 4% pre-payment of income tax by a 2% Customs user fee (on imports) with effect from June 1, 2003. The differences between this fee and the 4% cess are that:

1. Unlike the processing fee, the cess could have been recouped as a credit against income tax;
2. this revised proposal will form part of the companies' cost structure.

15. Exemptions from this 2% charge will be as follows:

    1. The Government
    2. Diplomats
    3. International Organizations
    4. Passengers (allowance of up to US$500 per person, per visit)
    5. New Manufacturers
    6. 807 Companies
    7. Food for the Poor - (under such conditions as the Minister sees fit and this organization will be subject to audit).
    8. Mr Speaker, questions have already been raised about the compromise measure in that, unlike the cess, there is no clear stimulus for greater tax compliance. Let me use this opportunity to remind importers/manufacturers/distributors, and private sector in general, of the requirement under the Law to make tax returns. The tax authorities will be intensifying their efforts to ensure tax compliance.
    9. With respect to new manufacturers, you will recall that when I made my closing Budget Presentation I indicated that this group would be relieved of the cess for a maximum of three years.
    10. I will now outline the procedures, which these manufacturers will have to follow in order to benefit under this new measure:

    1. Complete application form, which will be available from JAMPRO, JMA, PSOJ, JEA.
    2. Submit application together with certificate of registration, TRN and Tax Compliance Certificate to JAMPRO (If new companies do not have any of these available, then they should furnish proof of the application for such).
    3. The application would be reviewed by the relevant agency and a recommendation made to JAMPRO for certification of the agency. This step may include a side visit.
    4. Where approved JAMPRO will grant a certificate authorizing the waiving of the processing fee.
    5. The new manufacturer will present the certificate with the C78 form to the Customs Department when importing during the period.

    NB:
    1. Applications will be reviewed annually by JAMPRO, JMA, PSOJ and JEA to verity that a company still qualifies for the waiver.
    2. Applicants will be required to update company information if there are changes. This will not however trigger the initiation of a new three-year period.
    11. Mr. Speaker, we were able to agree to this proposal because it enabled us to maintain the revenue targets and put us in a position to meet the overall fiscal targets. This is of critical importance to the country and our creditors, both local and overseas.
    12. Finally, Mr. Speaker, I will deal with the recent turbulence in the foreign exchange market. On Sunday night the Most Honourable Prime Minister outlined a three-pronged approach that would be used to bring stability back to the market. From the perspective of the Administration, the first step is the aggressive intervention by the Central Bank in the exchange market. The second is the issuance of a US dollar index-linked bond by the Ministry of Finance. The third plank of the action plan is the cooperation of major earners who have also entered the market in concert with the BOJ.
    13. As planned, the Central Bank intervened yesterday (Monday, May 19, 2003) and the value of the Jamaican dollar appreciated vis-à-vis its US dollar counterpart. We ended the day with the results:
    Weighted Average Buying Rate: J$65.2144: US$1.00 Weighted Average Selling Rate: J$65.4724: US$1.00
    14. There has been further appreciation of the currency in today's trading. The latest information which I have is:
    15. With respect to the US dollar indexed bond, the Ministry of Finance has had dialogue with players in the market and we have completed the design of an instrument, the terms of which have been released to the market. The instrument has a tenor of 21 months to mature in 2005 and a coupon rate of 12% per annum, payable semi-annually. Interest on this instrument is taxable.
    16. We have already had some success with these measures. Yesterday, in addition to the revaluation of the local currency, trading in our bonds in the external capital market has rallied.
    17. In concluding, Mr Speaker, I wish to state that the positive performance indicators from the real sector over the last two quarters have indicated that there is no fundamental justification for the continued depreciation of the Jamaican dollar against the US dollar. In addition, we are heartened by the level of cooperation we have had from all segments of the population, working together with the Government to bring stability to the system. This is clear evidence of a growing sense of maturity and the realization that this is our country and we must all work together if we are to move forward.

     

     

     

    
    

    Ministry of Finance and The Public Service Telephone: (876) 922-8600 (switchboard)    Fax: (876) 922-7097 Contact: Ms Cheryl Smith or send mail to cheryls@mof.gov.jm

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