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**Muadib** · June 15, 2013, 12:56 PM

Any news regarding the FINSAC Report ?

Contrary to your flawed opinion.. that was what precipitated where we are today..

FINSAC was after the 80's by the way and the grand announcement that we had no more IMF debt was made by PJ in the 90s..

What happened ?

**Sir X** · June 15, 2013, 12:56 PM

Logistics Hub And Wisdom

Published: Friday | June 14, 20134 Comments

A section of the Kingston Container Terminal. - File

By Wilberne Persaud

Responding to last week's column 'Faulty economic diagnoses and prescriptions die hard' two correspondents raise interesting connected issues.
The first was "prompted to ask a few questions" because the column "made a lot of sense". Partly what made sense relates to flaws - concealed incompatibilities in associated outcomes - in our trade, agriculture and tourism

policies that collide with each other in attempts to achieve independently derived and agreed objectives.[/color]
His core issue is policy - the role of government in stage-setting for development.
"Has any government of recent times" he asks, "taken a look at logistics in Jamaica[/color] locally, i.e. building out railway lines that would move cargo by bulk?" And, "Why are we still bothering with the Norman Manley International Airport; demolish it, turn the area into the largest port by dredging to create new lands, and keep the current name. It makes far more economic sense to utilise Vernamfield while preserving as much agricultural land as possible. Jamaica's potential air power would increase its viability as a hub of the Americas. Don't you think? If so, what are the local authorities waiting on, to make a move on those projects."[/color]
High-Priority Matters
These issues are deemed high-priority matters in the portfolios of the Ministry of Industry, Investment and Commerce and the Ministry of Transport, Works and Housing.
Actually, the correspondent's suggestions are contemplated by the two ministries and hark back to Arthur Lewis' work of 1949.
In The Industrialisation of the British West Indies (1951), Lewis put a lot of store by the location of our region, the yet-to-be-born-then-die West Indies Federation. Its proximity to both North and South America, commonality of legislative background with the United States and English as the language of commerce were all, Lewis thought, genuine positives for Caribbean industrialisation.[/color]
Newfangled proposition for the time, though Britain recognised it could no longer hold on to the colonies the way it once did, support for non-sugar industrial development didn't exist. Local commission agents protested, disdained the idea.
Fast forward to 2013 when the concept 'logistics hub' has taken hyperactive real life in places like Singapore and Dubai alongside established operations of Rotterdam, coupled with expansion of the ]Panama Canal soon to be completed.[/color]
Here's an opportunity Jamaica can ill afford to miss. So the minister of industry speaks of the creation locally of a logistics hub and having generated "significant global investor interest with missions to China, Singapore, Dubai, Panama and the Netherlands, where we have received enthusiastic support for the initiative. Similarly, we have received support from the multilateral agencies, including the World Bank and the Inter-American Development Bank".
work remains undone
In the same presentation, however, the minister admits much work remains undone including "enactment of enabling legislation" and creation of "supporting infrastructure".
Jamaica's Port Authority contemplated kindred issues for decades. What has been the hold-up? Here our next correspondent's concern fits perfectly. Her question, generated by Parliamentary debates is "Why Port Authority of Jamaica had no understudy to Noel Hylton all these years? Why he had to stay til he is so old?"
I really can't answer the first, but the second question suggests displeasure at the length of his tenure. This I'd like to address.
The December 20, 2012 Gleaner published a news report: 'After 38 Years As 'Captain', Hylton To Set Sail From Port Authority'.
Eighty-one-year-old Noel Hylton the paper reported, "the man who has served as chairman and chief executive officer of the Port Authority of Jamaica since 1975, is to step aside in 2013." A search was on for a chief operating officer to serve alongside Hylton - late, but nevertheless a good sign.
So why did we allow such an important position to be filled by a man who stayed on as an octogenarian, to age 81?
I'll answer with an aphorism I've created: It's likely impossible to find a wise young man, for humankind accumulates wisdom with age, notwithstanding the fact that numerous foolish old men do exist!
Noel Hylton epitomised this truism about wisdom and your columnist has first-hand experience of this on his watch both at Air Jamaica and the Port Authority of Jamaica.
Hylton would rapidly cut through volumes of verbiage in minutes. At Air Jamaica, he kept a map on the wall beside him. He would calmly turn to it and move into discourse on income levels, demographics and a proposed merger of national airlines serving the Caribbean. He could quickly assess Jamaica's potential for transshipment from the Panama-Canal. He could determine the contours of strategy and figure out what he did and didn't know.
Perhaps most importantly, he famously knew where to go to find out the things he absolutely needed to know. Remarkable! This was pre-Google!
He respected subordinates but recognised when turf protection, hiding data to appear indispensable or other non-essential, counter-productive impulses guided their attitudes or behaviour.
He could call them to book with no hard feelings. He got the big picture like a macro lens imaging a honeybee or doctor bird gathering nectar from exotic flowering plants.
The questions my first correspondent asks are matters Hylton contemplated and which now, admittedly late, appear to be a focus of deliberations and negotiations our Government is undertaking.
The point is experience, institutional memory and wisdom by their very nature are uncommon, perhaps rare attributes that deserve respect, careful nurturing and abundant use when available.
News is that principal of The University of the West Indies Mona campus, Professor Gordon Shirley, has been named to head the Port Authority, replacing Mr Hylton. I note expressions of discomfort at Mona having to be led by a stand-in. Such concerns are valid, but that's another discussion.
Wilberne Persaud, an economist, currently works on impacts of technology change on business and society, including capital solutions for innovative Caribbean SMEs. Email: wilbe65@yahoo.com

[/color]

**Sir X** · June 15, 2013, 01:03 PM

Dennis Chung: Jamaica Without the IMF

January 5, 2013 | 11:42 pm |Print

By Dennis Chung
CJ Contributor

AS I READ the Dec. 29, 2012 statement, issued by Jamaica’s Finance Minister concerning the status of the International Monetary Fund negotiations, I thought to myself that it is not clear when Jamaica is to expect an IMF agreement.
I say this because both the Minister’s statement and the one issued by the IMF are unclear about a timeline. In fact, the timing seems to be dependent on the achievement of certain prior actions. I am not sure what the prior actions are, but certainly one thing came to the fore. The fact that “…the examination of even higher primary surpluses in the medium term to underpin targets for debt reduction” was mentioned means, to me, further expenditure cuts.
If you look at Jamaica’s fiscal accounts to November 2012, it shows that the country’s fiscal deficit is off target by approximately J$2 billion, but deeper examination shows that this is as a result of expenditure coming in J$8 billion less than projected, and revenues underperforming by J$10 billion. So we have sought to maintain the fiscal deficit target by reducing expenditure which, in my view, means further weakness in the economy.
If one examines the recent history of the IMF programme, and in particular Greece, you will see that the emphasis is on debt reduction via reduced fiscal expenditures. In my view, this will not have any significant benefit for Greece.
In fact, it is the primary cause of the social disruptions and the hardships they face. In short, the IMF cannot point to any success under that approach. Moreover, we see where even Germany is beginning to feel the effects of the weakening euro economy.
Any recovery in global markets will be buoyed by the US, and to a lesser extent China, and both economies have gone the path of fiscal stimulus.
I say all of this to bring the reality home that if it is that the IMF insists on drastic spending cuts, such as reducing the public sector or cutting back on capital expenditure, then I would expect that the government, in its wisdom, must resist. We have already seen what the 2010 IMF programme has amounted to, and to continue on a path that has proven not to work can be defined as nothing else but madness.
We therefore need to support the Minister in his resistance to any such measure and must face the reality that we must have an alternate plan for Jamaica without the IMF.
But what does this mean for us?
In order to answer that, we have to look at what the main challenges faced by the country are and mitigate the risks of not having an IMF agreement in place. The major risks of not having an agreement in place are (1) finding approximately US$250 million for debt payment; (2) funding the budget shortfall because revenues are underperforming and (3) eliminating the foreign currency shortfall.
An IMF agreement would deal with these three main issues. However, if the prior action for the agreement is that we must lay off significant number of public sector workers, increase taxes, and/or reduce further capital expenditure, then we will find ourselves back in the current situation shortly; particularly if we fail to take the fiscal policy decisions that are necessary for economic development, with or without the IMF.
There are, of course, some realities that we have to face and some actions that we need to take if we are going to achieve the economic development that has eluded us since the 1960s. What is required to take these decisions is more political will than anything else.
Let us assume that we have the political will, and also that there is no IMF agreement. How can we then mitigate the risks mentioned above and at the same time see a path to economic development.
The first thing we need to do is ensure that we have adequate foreign currency in the system to pay the maturing debt and also to satisfy the demand for production and consumption.
Addressing first the debt maturity, I am sure that we can find a way to pay the maturity as it arises. It is just a matter of cost of funds. I am sure that Ministry officials must already be doing their homework.
The way for Jamaica to satisfy the foreign currency shortage is in my view to immediately address the thorn of energy and food costs. These amount to 45 per cent of imports and can significantly reduce the foreign currency deficit if addressed decisively and radically through fiscal policy. I have discussed a lot in the past and so will not go into any details. However, an example is when I pointed to the need to not remove the GCT on electricity but rather set up a fund where “tax-compliant” persons would be given a credit from that fund if they were to set up renewable energy at home. If we had taken that approach we would have today seen a reduction in oil imports. The will needs to be there first, and Jamaicans must start making demands based on future benefits and not only immediate ones.
The other problem which will remain is how to deal with the need for funds to finance the fiscal expenditure. The solution is certainly not to cut the public sector but rather to address the issues of bureaucracy and law and order.
Again, I have spoken to about three issues repeatedly — energy, bureaucracy, and law and order. Therefore, I will not go into details, but suffice to say these three will add over $100 billion to the economy, if the proper fiscal policy initiatives are taken in a decisive manner.
Because we have not addressed these matters before however, the solution is not going to give us the immediate result we need for this year’s fiscal accounts. However, if we start addressing these now, then in six months I think we can start seeing results.
This will happen, however, only if we start and act decisively, or else the only option may well be the very bitter medicine of the IMF.
Dennis Chung is a chartered accountant and is currently Vice President of the Institute of Chartered Accountants of Jamaica. He has written two books: Charting Jamaica’s Economic and Social Development – 2009; and Achieving Life’s Equilibrium – balancing health, wealth, and happiness for optimal living – 2012. Both books are available at Amazon in both digital and paperback format. His blog isdcjottings.blogspot.com. He can be reached at drachung@gmail.com.

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**Muadib** · June 15, 2013, 01:08 PM

This breddah is an apologist of no mean order..

We need an enquiry into the Port Authority and its decisions under Hylton...

How do Singapore, Dubai and Hong Kong setup operations in the Caribbean and avoid the most geographically strategic location ?

Persaud tek ovah from dat Johnston clown ?

lol ! woiee !

**Sir X** · June 15, 2013, 01:18 PM

What you think about Chung ? we need more like him leading crucial industries , like finance and development.

Progressive.

**Sir X** · June 15, 2013, 07:38 PM

James Gruber, Contributor
An unconventional take on Asian markets
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FORBES ASIA | 6/15/2013 @ 1:30PM |4,578 views
Can The World Afford Higher Interest Rates?
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That’s the end of QE tapering talk then? Not quite, but it should die down somewhat, give U.S. Fed Reserve conduit Jon Hilsenrath’s latest kiss-and-tell article in The Wall Street Journal. Thankfully, it might also stop all the blather about the U.S. and global economies recovering (they’re not) and this being the end of the bond bull market (premature). What most investors fail to realise is that developed markets, including the U.S., simply can’t afford a normalisation in interest rates: higher rates on government debt would crush their economies. This means QE tapering is highly unlikely and the current money printing experiment will only end when investors lose faith in government bonds. Where getting closer to that end game, but we’re not there yet.

If the above is right, we may be in for a prolonged period of volatility where investors expect QE to be cut back, it may indeed get cut back at some point, only to increase again when it’s recognised that any normalisation in interest rates will create huge problems. For emerging markets such as Asia, it’ll mean increased volatility, although I’d argue the past week’s stock market moves are reverting back to normal from an abnormally tranquil period over the past 3-4 years. This will create some opportunities, but be aware that the odds still favour a bond market crash at a later date.

What’s behind the past week’s action?

What explains the tumultuous market action of the past week? Put simply, there have been escalating fears that U.S. Federal Reserve will cut back on its US$85bn a month stimulus program. This has led to rising U.S. bond yields over the past month, thereby putting upward pressure on yields around the world.

Cutting back on QE would mean reducing the printed money that the Fed has been using to buy bonds. That would result in less liquidity, less money in the financial system. The printed money has helped support asset prices, particularly stock and bond markets. Less liquidity would reduce this support.

Much of the printed money had leaked into areas offering the best growth prospects, primarily emerging markets such as Asia. This led to some spectacular stock market performance, especially in South-East Asia. Naturally, talk of QE cutbacks hit the best performing, less liquid markets such as Thailand, the Philippines and Indonesia especially hard.

Japan is another matter. Stimulus equivalent to 3x the U.S. as a proportion of GDP and an inflation target of 2% has resulted in manic action across Japan’s stock, bond and currency markets. The yen has snapped back after being oversold, but remains extremely vulnerable given the stimulus policies of the Bank of Japan (BoJ).

Meantime, Japan’s bond market has investors fleeing due to a 2% inflation target almost guaranteeing them large losses and a central bank intent on keeping yields low to prevent interest being paid on government debt spiralling out of control. Investors are starting to realise that the government may not win this battle.

There is an alternative view: that the reason for the recent Japanese volatility is that the BoJ is backing away from its inflation target and stimulus efforts. It’s a laughable notion put forward by seemingly respectable commentators (see here). It ignores the fact that if the BoJ’s efforts succeed, rising inflation will eventually lead to rising bond yields and interest rates, which will kill the Japanese economy (see here for my previous article on this).

Later in the week, of course, the Fed came to the market’s rescue. Via its Wall Street Journal mouthpiece Jon Hilsenrath, the Fed essentially tip-toed back from earlier suggestions that it would soon reduce QE. Here’s what Hilsenrath had to say:

“The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low.

This is exactly what the Fed doesn’t want. Officials see bond buying as added fuel they are providing to a limp economy. Once the economy is strong enough to live without the added fuel, they still expect to keep rates low to ensure the economy keeps moving forward.”

Below is the U.S. 10 year government bond yield, courtesy of Yahoo.

The maths against higher rates

Amid all the hoopla about whether the Fed will cut stimulus or not, investors (and the mainstream media which covers them) seem to be ignoring a more fundamental issue: can the developed world cope with a normalisation in bond yields and thus interest rates?

To answer this question, let’s crunch some numbers. Bond guru Jeff Gundlach has looked at the impact of higher rates on the U.S. and he doesn’t like what he sees. He suggests that if interest rates in the U.S. normalise and increase 100 basis points annually over the next five years, the interest expense on government debt would rise from US$360 billion last year to US$1.51 trillion.

To put this into perspective, the recent U.S. government cutbacks which many worried would tip the economy into recession totalled just US$85 billion. Any normalisation in rates would result in brutal cutbacks to government programs, seriously impacting the economy.

For another example, we can look at Japan. As I’ve stated on many occasions, if rates rise to just 2.8%, interest on Japanese government debt would be the equivalent of 100% of government revenues.

The implications of higher bond yields and higher interest rates would go well beyond government debt though. Other countries with fewer government debt issues would suffer too. For instance, my native Australia is relying on the property sector (a bubble slowly deflating) to pick up some of the slack from a mining sector which is getting hammered by a slowing China. Any rise in Aussie rates would quash any hopes of a housing recovery (even if it was highly unlikely to happen anyway).

In Asia, a normalisation in rates would have a broader impact. Higher rates and tighter money would hit elevated asset markets across the board, including the stock, bond and property markets. Those which have benefited most from the low rates and subsequent money inflows, such as South East Asia, would be hurt most. In effect, the past week would be a taste of things to come.

A bond crash will have to wait

If I’m correct, central banks can’t afford to turn off the stimulus tap. If there are any signs of rising bond yields, these banks will print more money to buy bonds and keep the yields down. In other words, you shouldn’t expect less stimulus going forward, but more.

Central banks can keep this game going for a long time, but there will come a point when the bond markets will say enough is enough. As I wrote in an article on Japan recently:

“In many respects, Japan is the template for what’s to come in other developed markets. After an enormous credit bubble which burst in 1990, Japan has refused to restructure its economy in order for it to grow in a sustainable manner. Instead, it’s chosen the less painful route of printing money to try to revive the economy and reduce debts in yen terms…

… The trouble with this is that there comes a point where bond investors lose confidence in the ability of the government to repay the money. These investors then refuse to rollover government debt at low rates. When bond markets dry up, they normally do so quickly. The current wobbles in the Japanese bond market can be seen as a prelude to this endgame.

Though Japan has escaped its day of reckoning for a long time, other developed markets are unlikely to be as lucky, given the extent of their indebtedness and continued commitment to flawed policies.”

What it means for Asia

Investor reaction to recent market volatility in Asia has been fascinating to watch. It’s almost as if investors have forgotten that emerging markets, and particularly Asia, experience sharp spikes and dips on a regular basis. It’s a classic case of an investor bias known as recency bias, which is essentially extrapolating from recent events into the future.

The reason that I say this is that when I worked in South-East Asia for three years (2006-2009), the volatility experienced during recent weeks was the norm rather than the exception. And colleagues back then who’d been through the Asian crisis thought that I’d experienced little of the volatility that South-East Asia had to offer!

The recent volatility though is likely to become the norm again. Any hint of less QE will see hot money leave Asia, only to come back when it becomes clear that stimulus should be here to stay.

Last week, I suggested the rout in emerging markets would soon result in some opportunities in Asia. I didn’t expect the rout to become an avalanche so soon, however.

There was some pushback to one of my top picks being the Indian market (Indian friends and subscribers seem to be the most pessimistic about their country’s prospects!), particularly as the rupee hit all-time lows versus the U.S. dollar. If my thesis on QE tapering being a head fake is correct, then the rupee should stage a short-term rebound.

As for the many problems that India faces, such as the current account deficit, I do acknowledge that the country still has significant issues. The question is whether these problems are well-known and factored into the stock market. I’d suggest that they largely are and the incremental positives mentioned last week are not.

As for the other potential opportunity which I identified, Thailand, it’s been getting pummelled as per other South-East Asian countries. Keep in mind though that the country is in the best shape that it’s been in a long time. Thailand has a stable government, strong investment cycle, positive policies such as redistributing incomes from the capital to rural areas as well as battle-hardened companies who’ve seen politicians and crises come and go. Combined with reasonable valuations, particularly among bank and energy stocks, Thailand stands out as a sound, long-term investment story.

This post was originally published at Asia Confidential: http://asiaconf.com/2013/06/14/can-w...-higher-rates/

**Willi** · June 15, 2013, 07:59 PM

At 88, Hylton should have been put out to pasture decades ago.

Jamaica has a problem of exalting people like him and Gloria Knight, Vin Lawrence, etc as the only people with capabilities. they get appointed to all kinds of things and end up killing the enterprises. They people long pass the Peter Principle.

Jamaica has faaar better options and the responsibilities need to be shared out. These people are not special...just examine their track records.

**Willi** · June 15, 2013, 08:00 PM

Persaud is a clown. I never read his apologist claptrap.

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