[OPINIONS]:::Impressive Dept Management Strategy (Pt.2)

No. 52 Wednesday, February 10, 2010
[POSTED BY::: Robert Dalley Esq.]
Some days ago I was reviewing some of the high performing balance sheets and profit and loss accounts of some companies that are listed on the Jamaica Stock Exchange and I came across the following publicly published information which in part stated the following:

   The Patrick Hylton led National Commercial Bank earned some Ja$22.3 billion or put another way 51 percent of its $43.8 billion gross income from interest on government securities for its year to September 30, 2009.
   The country's top performing bank, the Bruce Bowen led Scotia Bank Group earned Ja$18.1 billion or 37 percent of its $47.9 billion gross operating income specifically from interest from government securities during its financial year that concluded, October 31, 2009. It is germane to note that both those leading, well respected and prominent banking institutions N.C.B. and Scotia, duly reported end of year net profits of Ja$10.5 and Ja$11 billion respectively. Fantastic and superb profits I must here however, those immense profits were certainly not made from its core banking business and therefore, here lies the fundamental problem you see. In fact, the financial performance of many Jamaican companies, particularly those within the financial industry are consistent with making large profits from government paper departing to the large extent from their original core banking business and philosophy. One esteemed and highly experienced economist recently commented on the Perkins on Line programme that the country's national debt is like a gargantuan White Whale cruising in the sea; with the financial sector companies acting as its pilot boat.


   The Bruce Golding administration has finally made the correct decision to totally and comprehensively restructure the country's national debt by re-calling the 70 percent of local holders of government securities and by re-issuing them at a much reduced rate. The average yield of the new Jamaican dollar bonds will be just over the 12 percent mark, compared to the current average rate of around 19 percent, while the new United States dollar bonds will yield 7 percent when compared to the current average of some 9 percent. Golding must be congratulated broadly for not making it compulsory stipulation and firmly outlining that the government will not at all accept the I.M.F. stand by loan agreement unless and until it receives a full 100 percent participation of all those local holders of government securities who are residing right across the island. Well said, Mr. Prime Minister and that makes full sense. Let me be blunt here, by this newly implemented debt exchange programme with the reduction in interest rate payments, the Jamaican companies and financial institutions must now become creative, fiscally prudent, visionary and innovative in the operation and management of their respective companies within this new economic framework. For many years those companies and financial institutions have found it very easy to earn vast profits with little effort from high income government paper rather than to be forward thinking and pragmatic business leaders and C.E.O.s fully engaging themselves in the rigors of business strategies and implementation. All those high yielding interest payments on government paper will no longer be available and businessmen, company owners and bankers will now have to actively, consistently and timely find ways to be competitive and duly offer better products, plans and services.
   Without a doubt this country has some of the most hardworking, talented and intellectually ebullient persons within the world. And also some very successful and noted businessmen of tall repute. Jamaica's high profile and respected business moguls and media owners include but not limited to Chairman of SuperClubs, John Issa, Wayne Chen, Fred J. Smith, Gordon Butch Stewart, Mark Myers of K.F.C., Carl Hendrickson, Gordon Townsend, Thalia Lyn, Lloyd B. Smith, Senator Noel Sloley and Jukie Chin of the famed Juici Beef Patty Company all have worked exceedingly hard over the years and have eminently demonstrated the highest levels of entrepreneurship and business skills today operating some of the most successful businesses in Jamaica. Further, their highly profitable businesses were factually not developed and built on government paper profits but fundamentally on hard work, dedication, commitment, prudent and diligent business management standards and through lengthy hours of work sometimes working up to 15-18 hours per day during the period that they were establishing and developing their companies and entities in the early days. True entrepreneurship.
   It will be important for the current administration centrally including Minister Shaw and his State Minister, Senator Arthur Williams, to inform businesses across the country that will definitely need to methodically change the way that they do businesses and of the urgent need to reform their businesses away from the super high profits from government securities which they have been accustomed to receive especially over the past 20 years.
   The government's debt exchange programme will see the J.L.P. government saving $40 billion annually and therefore, some of those funds can be directed into very important issues such as funding national road development projects, repairing old roads that are in need of repair and building new roads and highways throughout the country; funding the public's school sector and the Education Transformation Programme which has a cost package of $50 billion; putting in place a more modern and adequate social safety net programme for the poor and needy; and developing the infrastructure across the island and equipping the low performing public health sector which is in a sad state. It is a given that some banking institutions may be in a resistance mood with relation to the debt exchange programme and signing off on that programme and will certainly have' some negative impact on their balance sheets and profit and loss accounts, the advancement and saving of the country's economy must take priority over everything else. Because we cannot afford to have the economy collapsing at all and the fact of the matter is that the government just cannot continue to be paying out huge interests costs to its bond holders and other holders of government instruments of sums of $200 billion per year as was the case up until last December 2009, it is unsustainable. The new interest payments that the government will pay to all those persons who now hold government securities and who sign off on the debt exchange programme will be 12.25 percent which is a reasonable rate within the global context.
   According to Minister Shaw this said rate is still among the highest paid anywhere in the world and a fair rate of payment at this point in time and he does not expect any form of problems with bond holders given the outline of the situation with regards to the problems that this country is facing and on the details as stated by him at Bank Of Jamaica auditorium on Thursday, January 14, 2010.
   I wish to commend the Jamaica Securities Dealers Association (J.S.D.A.) and its indefatigable President, Ms. Ana Schnoor, and the Jamaica Bankers Association (J.B.A.) and also, it's President, Ms. Minna Israel, for giving its full support to the Government with regards to the recently launched debt exchange programme. The Jamaica Chamber of Commerce has also given its full support to the programme. According to a joint press release of which I obtained a copy from the J.B.A. and the J.S.D.C. it stated most important, " The J.S.D.A and the J.B.A commend the Government's intention to take the hard decisions necessary towards a realistic and sustainable medium term economic programme that will ultimately lead to increased economic growth and improved well being for all Jamaicans. We recognized that a well designed Liability Management Programme needs to be part of a medium term economic plan, together with effective tax reform, fiscal consolidation and increased transparency in fiscal management. We are committed as an industry to play our part and look forward to seeing the final details of the Debt Exchange Programme so that we can respond within the time frames necessary to help the Government secure the necessary I.M.F. Stand By Agreement." This official J.B.A. and J.S.D.A. endorsement of the programme is extremely commendable and demonstrates that these powerful banking organizations within the country have full faith, trust and confidence in the Prime Minister, Minister of Finance and in the entire government who are in Office governing the country at this time and in the economic programmes that they intend to implement going forward as of next month, February with the I.M.F. and then to the other multilaterals lending organizations overseas.
   Going forward at this stage it is imperative that the government and the Finance Minister proceeds expeditiously to provide the details of the government's medium term economic programme involving the restructuring of the public sector which has 112,000 public employees and the pending fiscal legislation that are cardinal areas necessary to officially support the I.M.F.loan agreement. The leading bankers in the country including Bruce Bowen (Scotia Bank Group), Minna Israel (RB.T.T.), and Patrick Hylton of N.C.B. Group on Monday, January 18,2010 in a release to the media and to the government categorically again stated their full support to the government's debt exchange programme however, concomitantly requesting that the government informs them of the other economic measures that are due to be implemented within the Medium Term Economic Programme of the government.
   The J.B.A 's president Minna Israel, was correct in asking for the relevant information having to do with the government's medium term economic programme and the various segment policy areas and projections so that the banking sector can be in a position to effectively and accurately monitor all the government economic projections with that economic programme. Stated Bruce Bowen of Scotia of which I fully concur with "while we (Scotia Bank) fully supports the Jamaica Debt Exchange programme, for us to make a prudent business decision, we need to have as many details as possible on the medium term economic plan". That is really a fair and balanced comment coming from Mr. Bowen who has over two decades of international banking experience.
   It is of fundamental necessity that the Finance Ministry and Minister Shaw manages the entire debt exchange programme in an efficient, transparent and professional manner so that the process can be completed in the shortest possible time. After the process is completed and with the implementation of' the medium term economic progarmme the following should begin to timely occur in the country:
   The lending rates of banking institutions should begin to decrease;
   The employment of more Jamaicans should begin to occur with the opening up of new businesses, expansion of others along with new incoming overseas investments;
   The country's inflation rate, fiscal deficit and balance of payments should be begin to decrease albeit, annually in single digits;
   Of paramount importance for the Minister of Finance at this time also are:
   The firm management and monitoring of the Jamaican dollar;
   Have the necessary resources to protect the dollar against other currencies;
   Reducing the size of the public sector;
   The Sale of Air Jamaica;
   The Sale of the sugar factories across the island;
   Operating a tight fiscal deficit and reducing unnecessary expenses within the public sector and in government ministries.
   After the government signs the official stand by loan agreement of US$1.24 billion with the I.M.F hopefully by the end of February of next month the government is expect to receive the loan in three separate amounts as follows:
   A first loan installment of US$640 million;
   A second amount of US$400 million to be set aside for financial institutions that need financial support;
   And a third amount of US$240 million for the country's Net International Reserves.
   Finally, it is of utmost importance that the Opposition and its Leader give their full support to the government having to do with the debt exchange programme. This successful implementation of the programme has to do with the future of Jamaica. Commendations to Prime Minister Golding and Minister Shaw for the drafting of the debt exchange programme which is being implemented at this time.
   And to the cabinet, a job well done.

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