IDB Loan, Kingston January 19, 2009

Remarks by

Prime Minister Hon. Bruce Golding

at the signing of the IDB loan agreement

Jamaica House, Banquet Hall,

January 19, 2009.

Thank you very much President Moreno. The three loan agreements that we are signing today are significant for several reasons.

Firstly, they represent the largest loan commitment that has ever been made by the IDB to Jamaica at any one time. Indeed, together they exceed the total loan disbursement that have been made to Jamaica by the IDB for more than ten years and therefore just the size of the loan is significant.

Secondly, it represents a re-engagement of our relationship with the IDB, because for almost five years there were no loan disbursements made to Jamaica for a variety of reasons. It is strategic at this time, because although we were not able to foresee it at the time, we signaled to the IDB that if we were to become the government, we will be pursuing a  particular set of policies and that the multilateral and PIOJ would be critical to the pursuit of those polices. We did not know at that time because it has now turned out to have been extremely good that we did. What has happened since September, since the global economic turmoil has evolved and has escalated, is not the access to which we have become accustomed to. We have used the capital markets of the world, to finance our budgetary requirements; to secure financing for development needs. That market is virtually shut down and were it not for the support that we have gotten from multilaterals, principal among those has been the IDB, I shudder to think what Jamaica alternatives would have been.

Thirdly, of the three loans that are being signed today, the largest one is three hundred million dollars for liquidity support for the private sector. It represents a partnership between Jamaica and the IDB in support of private sector activity. These funds are to be disbursed through the commercial institutions through the approved financial institution.

It will come at a time when many players in the private sector found that their traditional sources of credit have disappeared, lines of credit have been withdrawn or have been tighten and persons in the private sector, in the productive sector, are facing serious challenges in sourcing raw material for working capital that they need to continue to do business.

I want to make the point that I think we know already that the loans are for the productive sector. These are not loans to finance any and any kind of activity. We have to support the real economy at this time, we have to support particularly that segment of the economy that earns foreign exchange and to the extent that they have been badly exposed, to the difficulties that have emerged in the market abroad  and the tightening of liquidity, this loan is going to be particularly  beneficial.

Fourthly, in terms of the significance of these loans is the speed in which the loan has been negotiated and approved. We are talking about something that has been done within the last two months. I can't think of anytime before with any multilateral institution when we have been able to commence discussions, work out all the details, secure the approval of the board and have the president of bank himself coming down to Jamaica to sign the agreement and he has assured me that the cheque will be drawn very soon after the signing has been done.

We really want to commend the bank. Very significant fast tracking has been done. Two smaller loans, smaller in size but no less important, has to do with fourteen million dollars which is being made available to complete the construction of a number of primary schools and fifteen million dollars which is to be used to expand the PATH program. The PATH program is significantly funded by the World Bank. What the IDB has done, is to provide additional resources that will enable us to expand that program. I think you may recall that in the budget debate last year we announced the decision to expand the coverage of the PATH programme. At that time we had two hundred and forty thousand persons benefiting from the programme, but to serve the obliging  conditions, we  indicated that we had over three hundred thousand persons who were living below the poverty line. We declared our intentions to ensure that all of those person who fall below the poverty line were provided with the benefit of coverage from this program and the assistance that is being provided will help us to achieve that goal.

I want to express our thanks particularly to President Moreno and his team. His officers have being working very closely with us on this, but I want to say a special word of thanks to him for the interest he has paid to Jamaica; his passion about trying to help Jamaica.

The impact of the global financial crisis is being felt. We have seen it in terms of the downturn in remittances, in terms of the challenges that we have in the marketing of tourism. We are doing comparatively or relatively well, but we know that there are tougher times ahead. We are seeing it in the problems we are now experiencing with our bauxite alumina sector. We are seeing it in some of the pressure that has been exerted on the foreign exchange market. There was concern, understandable concern given the level of our indebtedness and given the maturities that we have to be prepared to discharge. This is particularly  so on the two hundred million Euro bond that becomes due for payment in a matter of two or three weeks. With capital markets behaving the way they are behaving, there has been concern within our own foreign exchange market as to whether we will be able to meet those payments; whether we will be able to satisfy our normal needs for foreign exchange. We sought to give assurances that based on  the talks we were having with the multilateral institutions,  we would be able to satisfy those requirements. We would have adequate growth of foreign exchange, but with the kind of  turmoil  that we have been experiencing, there is skepticism; there is doubt. Many people weren't prepared to accept that or to assure themselves until they saw the money in the bank and that is why we are so pleased that we are able to sign this agreement today.

We are well positioned to meet all our obligations. We are well positioned to ensure that there is adequate supply of foreign exchange to the market. We will be drawing that cheque and we will be paying out that two hundred million Euros that become due on the 9^th of February. Therefore, I think it is important to the market to understand market response to behaviour; market response to perceptions. We gave commitments in terms of the flow of funds that will be available which we feel ought to assure the market of the availability of foreign exchange and I think that the players of the market and particularly those who have to interface with the market on a regular basis must understand that the government is doing everything it can.

They too have to take a responsible approach and we have to work together because this is a situation where Jamaica's interests are at risk and we don't need to make our own situation any worse than the global turmoil has created.

I want to thank the IDB as well for the continuing engagement that we have, because we are signing these three loan agreements today, but we are not done with them, they are not done with us. We have a number of projects that are at varying stages of discussion.

These have to do with our competitiveness enhancement programme where we are embarking on phase two and the IDB is in discussion with us as to how they can support that. The reform of the  Public Sector Management is another program we are having discussions with the bank about. The bank is talking to us about measures that they are prepared to consider supporting that will strengthen our Customs management and our anti-drugs provision. There is also the road infrastructure program about which we and the bank are currently having discussions. The bank is expanding its support of our citizen security and justice program. We seek to tackle crime at its roots rather than the manifestation; the ugly manifestation of which we have become so accustomed.

The loan assistance from the IDB comes in two forms. It comes in the form of a project loan, it comes in the form of policy based loan. Policy based loans constitute a little over a (1/3) third of the total loan program. I want to make a point about this because I don't want to leave any room for misunderstanding. The policy based loans are designed to support policies that have been formulated by the Government of Jamaica. The IDB has never sent us an envelope with any policies that they are requiring us to pursue. It is the Government of Jamaica that is seeking to move this country forward, identifying the things that need to be done and the changes that need to be made. We formulated those policies, we presented those policies to the bank and to the extent that those policies are consistent with the bank, they form  the policy base of loans that are made. The loans are made on the understanding that those policies will be implemented faithfully, steadfastly....... And I have given President Moreno the commitment that we are going to honour our obligations because those are not just obligations to the bank in terms of the loans- those are obligations to ourselves in terms of the policy commitment that we have devised, that which we feel are necessary for the country's advancement. We accept that responsibility. We do have institutional capacity challenges, we have human resources problems. It is a problem we continue to wrestle with and I feel that we can be even more aggressive, even more targeted in terms of tackling the impediment that has stood in the way of speedy, effective policies and implementation.

In the past we have identified the strategic objectives around which these policies are made. They involved tax reform. They involved the divestment of loss-making entities that are continuing to leak resources from the public sector. They involved the reform of the bureaucracy. They involved tackling crime in a forceful and effective way and improving the justice system. They involved tackling the problem of corruption that by itself, without the assistance of any global economic turmoil, can destabilize the economy and these are our policies and we welcome the support that the IDB has given to the pursuit and implementation of those policies. The strategic approach that we are taking is one that we are intent on pursuing in the face of  and in the  midst of the global economic turmoil.

Our investment flows are in retreat naturally because of what is happening in the world. Our remittances are on the downturn; the global demand for bauxite and alumina is down. The challenge that we continue to face to keep tourists coming here is something that is going to be upon us through out the rest of this year. We have two choices: we can either curl up or wait for  this thing to pass and hope for the best, that's a choice we have clearly rejected; We have another choice, we can identify the changes that we need to make and have needed to make for some time. These are not changes that have become necessary because of the global economic crisis, these were defects in our economic management and arrangements that needed to be addressed.

These are the things that cause us not to grow at any appreciable pace, even when the global environment was conducive to growth and even when other countries were growing at a significant rate each year. The global crisis will pass. Like everything else it have a beginning and it will have a end and what we are determined to do, in terms of the strategic approach that we are taking, we want to make sure that we can equip Jamaica so that when it has passed, we are well positioned to achieve levels of growth that have been with us for so long we are committed to that approach.

I am grateful for the commitment that the IDB has to Jamaica and to Jamaica's cause and I want President Moreno and his team to understand the depth and the sincerity of our commitment. I want to thank you very much.

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