PSOJ

CHIEF EXECUTIVE OFFICER'S REPORT
DECEMBER 2009

OVERVIEW OF THE ECONOMY

The New Tax Measures
After the outcry against the J$21.8 billion tax package announced by Finance Minister Audley Shaw on December 17, 2009 which attempted to impose General Consumption Tax on a wide range of previously exempted basic items, the Government went back to the drawing board and Prime Minister Bruce Golding announced a new set of tax measures on December 23rd, 2009 to raise the J$21.8 billion.

The new measures and the amounts they are expected to raise are as follows:
1. Increase GCT from 16.5% to 17.5% =$3.60 billion
2. 15% ad valorem tax on petrol =$9.40 billion
3. SCT increase on cigarettes =$1.40 billion
4. Revised 10% GCT on tourism =$1.20 billion
5. GCT on residential electricity bills above 200kwh =$711 million
6. GCT on commercial/industrial consumption (net) =$742 million
7. 5% Advanced GCT payments on imports =$2.90 billion
8. Additional income tax on incomes above J$5m & $10m =$1.317 billion
9. Increased in motor vehicle licenses for top end vehicles =$542 million
Total J$21.812 billion

Both the Prime Minister and the Minister of Finance noted that the $21.8 billion is needed to help close the fiscal gap in the national budget as the penultimate step towards concluding a Two Year US$1.2 billion Standby Agreement with the International Monetary Fund. This Standby Agreement is currently being considered by the Board of the IMF and if the IMF "seal of approval" is granted, it will open the way for the GOJ to access another US$700 million in loans from the World Bank and the Inter-American Development Bank. These loans amounting to nearly US$2 billion are to help the GOJ stabilise the net international reserves following the severe shortfall in bauxite earnings and remittances caused by the global recession. They are also intended to help the Government restructure the national debt by paying down some of the more expensive commercial loans; and help it to stabilise the fiscal situation while continuing efforts to restructure the real economy to make it more export oriented and competitive.

The immediate concern of many, however, is how this new tax package will affect them and the economy in general.

Upper income earners making over $5 million and those earning over $10 million will be called on to pay income tax at the increased rate of 27.5% and 35% respectively. After 25 years of a flat tax rate of 25% on all income earned above the threshold level of $271,000 (which will increase to $441,504 as of Jan.1st, 2010), the Government has reintroduced ‘progressivity' back into the personal income tax, if only for a temporary period, as the Prime Minister said that the new rates will apply for only 15 months, from January 1st, 2010 to March 31st, 2011.

Nonetheless, a leading accounting and auditing firm has calculated that persons earning $6 million will be required to pay $25,000 more in taxes and their effective tax rate will increase from 23.16% to 23.58%. Those earning $10 million will have to pay an additional $125,000 and their effective tax rate will go from 23.90% to 25.15%. Persons earning $20 million will be called on to pay an additional $1.125 million in taxes and their effective tax rate will increase from 24.45% to 30.07%.

Tourism interests will likewise be impacted by the new tax package. Hotel operators, resort cottage owners, tour operators and water sports operators, among other tourism interests, have benefited since the beginning of 2009 from a 50% concessionary rate on GCT of 8.25%. Effective April 1st, 2010 however, tourism interests will be required to charge GCT at 10%. Despite the lead- time, some are likely to maintain that given the fact that their prices are determined many months ahead through advance bookings, and that considering they had to engage in heavy discounting to attract visitors during this global downturn, the increase in GCT could erode both their competitiveness and their already slim profit margins.

Households and motorists and possibly the entire travelling public will also have to pay increased costs for electricity, gas and travelling. The imposition of GCT on residential use of electricity above 200KWH is one of the measures carried over from the December 17th Package. Finance Minister Audley Shaw announced at the time, that this measure would only affect the 20% of residential consumers who used over 200KWH per month and not the great majority who used less than 200KWH. Even if householders escape the GCT on consumption above 200KWH however, they are likely to face increase fuel charges on their electricity bills from the 15% ad valorem tax on petrol. An ad valorem tax means that the dollar amount of the tax varies as the price of the item varies, and if as expected, oil prices rise as the global recovery picks up pace, then the cost of gas, electricity and many other goods and services in Jamaica will also rise. It now seems to be a matter of how much, not whether the longstanding application of taxi and bus operators for a fare increase will be granted.

The general inflationary implications of the new tax package seem somewhat more subdued than the December 17th, 2009 Package with its 17.5% increase in price on over 40 basic items that would have come from imposing GCT on them. This is not to say however, that the New Package will be devoid of inflationary impulses. As noted, the 15% ad valorem tax on petroleum will be a significant source of inflationary pressure in the economy considering that petroleum use and consumption is at the base of much of Jamaica's production and services. Further, if there is not restraint and workers and service providers demand wage and price increases, then serious cost-push inflation could develop in the economy. Even in the absence of second round cost-push pressures, the dip of inflation in the third and possibly the fourth quarter of 2009 to single digits is likely to be reversed in the first quarter of 2010 and double digit inflation in the low teens could resurface. This double-digit inflation however, could be short-lived if there is restraint.

Interest rates generally track inflation, and thus if there is serious and persistent rise in inflation, interest rates will rise notwithstanding the Bank of Jamaica's efforts to lower interest rates. This is because investors generally demand a positive real rate of return above the level of inflation for lending their money, and are unlikely to accept negative rates of return below the level of inflation for extended periods. Thus, if there is a failure of restraint and double-digit inflation holds sway in the economy, investors are likely to demand a 5-6% premium above the rate of inflation and average lending rates are likely to remain in the 18-22% range.

The exchange rate could be affected by countervailing forces. The infusion of IMF and World Bank loans should boost the NIR and support the exchange rate. If interest rates rise in response to higher inflation, that should also be supportive of the exchange rate in the shorter term. That latter situation however is not sustainable, since higher interest rates would clearly undermine the Governments fiscal objectives and increase the difficulties of the private sector in accessing affordable capital. Too much political and social instability would also be detrimental to the exchange rate and the economy as a whole. One hopes therefore that despite the difficulties, peace and general stability will prevail throughout the society in 2010.

STANDING COMMITTEE ON NATIONAL SECURITY (SCNS)
The Committee met on Tuesday December 15 and, inter alia, had detailed discussions with members of the security forces about the Security Plan put in place by the Government. The Committee members were also given a comprehensive update on the guns for drugs trade and how the security forces were handling this scourge.

There was also the presentation of another motorcycle donation. Jamaica Public Service Company came on board in response to the JCF's request for assistance. The motorcycle was handed over to SSP George Quallo by JPS' Chief Executive Officer, Mr. Damian Obiglio and Director of Public Relations & Communications, Mr. Tony Ray.

Actg. Commissioner of Police meets with Business Community
The Acting Commissioner of Police, Mr. Owen Ellington, CD met with members of the business community on Friday December 4 at the Hilton Hotel (Ballroom 3) from 8:00 - 10:00 am and had discussions with them on crime and violence.

The Acting Commissioner had requested this meeting as he felt it was important to have dialogue with them and to hear their concerns and suggestions. He addressed general security issues as well as security measures that had been put in place for the Christmas season.

CRIME STOP
Based on the Crime Stop Coordinator's report, the following was noted for the twelve-month period January 1 - December 31, 2009:
• The ratio of successes to calls investigated was 1:6, the same as for the corresponding period last year. The monthly success ratio for December was 1 in 3 and in November it was 1 in 9.
• The number of arrests was 104, including 10 in December and 7 in November.
• The number of calls received was 1164, of which 49 were received in December and 87 in November.
• The rewards paid totaled $1,786,600, including $60,000 paid in December and $80,000 in November.
• Property recovered was valued at $16,577,800. The value of the property recovered in December was $1,170,000 and in November was $600,000.
• The value of narcotics recovered was $43,008,777 of which narcotics valuing $371,250 were recovered in December and narcotics valuing $1,418,239 were recovered in November.

JUSTICE REFORM COMMITTEE (JRC)
The Committee did not meet in December.

The PSOJ received word from the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IADB) that its proposal for funding, submitted jointly with the Jamaica Chamber of Commerce, of a Commercial Alternative Dispute Resolution Centre was not approved. There has been commitment, however, from the "Mini MIF", a fund administered locally for US$150,000 towards the project, provided that another donor contributes the balance of about US$130,000 towards the project. Efforts are being made to secure this funding.

CORPORATE GOVERNANCE (CG) COMMITTEE
This Committee did not meet in December.

The Committee will however host a Corporate Governance Round Table breakfast event on Tuesday, February 23, 2010 at the Jamaica Pegasus Hotel. The Round Table event is targeted at Board Chairpersons, Board Members, CEOs and senior executives in private and public sector companies. The Speaker, Dr. Sheila Brown, CEO for the Centre for Ethics in Public Affairs in Nova Scotia, Canada will address business leaders on the topic of "Corporate Governance Board Leadership". Dr. Brown will explore the topic from the perspective of the role of company directors in building governance systems that engender trust and that facilitate openness and transparency. The PSOJ's revised Code on Corporate Governance will also be launched at the event.

TRADE POLICY COMMITTEE (TPC)

PSOJ PROINVEST Project

The PSOJ jointly applied with The Caribbean Association of Industry and Commerce based in Trinidad and Tobago in May 2009 to an EU funding facility known as PROINVEST for a regional project titled "Capacity building of Caribbean Private Sector Environmental and Energy Management Capabilities".

On December 22, 2009, the EU notified that the project was provisionally selected for funding pending receipt of documentation to confirm the eligibility of the PSOJ and the CAIC. These documents were sent to Brussels, and we are awaiting final confirmation of the award of the contract, which should occur by the end of January.
The proposed project size is 790,518 Euros and the project duration is 15 months (ending by March 31, 2011 as required). Project activities will take place in Jamaica and Trinidad and Tobago. The activities will consist of training in environmental/energy management best practices, and the carbon trading market; private/public sector dialogue; workshops in Jamaica and Trinidad; a regional conference in Trinidad; research projects to establish the current state of environmental/energy efficiency in Jamaica and Trinidad, including the adequacy of the existing regulatory framework; development of tool-kits and a regional internet information resource; a mission to the U.K. and Belgium for 5 private sector representatives from Jamaica and 5 from Trinidad, from the agro-processing, manufacturing, energy and tourism sectors, to meet with EU private and public sector officials involved in environmental and energy management to determine partnership opportunities.
US Trade Mission to the Caribbean set for March 15-19, 2010
The U.S. Department of Commerce is organising a trade mission to the Caribbean nations of Jamaica and Dominican Republic for March 15-19 to include pre-scheduled meetings with potential buyers.
The products/services that will be showcased in the mission include hotel supplies, medical supplies, auto parts, construction materials and renewable energy.
In 2008, South Florida traded $4.5 billion in goods with the Dominican Republic and $871 million with Jamaica, according to U.S. sources.
The Dominican Republic ranked as the fifth largest trade partner for South Florida in 2008, trailing only after Brazil, Venezuela, Colombia and China.
Jamaica still exploiting CBI biofuels incentives
According to the JIS, the Government will be giving renewed focus to develop the local biofuels industry, producing ethanol from local feedstock and boosting exports under the Caribbean Basin Initiative (CBI).
CBI beneficiary countries have never reached the capacity of the CBI ethanol quota, partly due to insufficient capacity, but production has been increasing over the past few years.
Between January and July 2009, Jamaica exported some 51 million gallons of ethanol to the USA. This represents just 15 per cent of the 2009 quota and is an indication that less than half of the quota for the year will be met. However, Jamaica earns some $140 million annually from ethanol exports to the US.
The Caribbean Basin Trade Preference Act (CBTPA), which comes up for review periodically, will expire on September 30, 2010, or when the US and individual CBTPA beneficiary countries enter into a free trade agreement, whichever comes first. There is a threat of the elimination of the ethanol tariff, which expires at the end of 2010, and the changing of the excise tax credit for CBI countries to a small producer tax credit.
The Minister of Energy and Mining also indicated that, under the Renewable Fuels Standard (RFS) introduced by the US's Energy Policy Act, there is also the possibility that sugar-based ethanol will be classified as an advanced biofuel. This would mean that the quota for fuels from this source would be only four billion gallons, compared with the provision for 15 billion gallons for conventional biofuels set out in the RFS mandate.
There is also the threat that the Environment and Protection Agency will determine that sugar-based ethanol production and exports do not meet the threshold of a 50 per cent net offset in greenhouse gas emissions.
However, Robertson said that there are indications that the Obama administration is supportive of continuing the CBI arrangement.
Jamaica Civil Aviation Authority wants more open skies agreements
The Jamaica Civil Aviation Authority (JCAA) is seeking to arrange more open skies agreement which could reap tremendous benefits for the Jamaican economy.
Prior to open skies agreements, bilateral air service agreements operated mainly to the benefit of the major provider, and offered very little economic gain to partnering states. However, increased open skies partnerships have allowed for greater competition, and have forced airlines to become more efficient, in order to survive on routes. Traffic on routes where such agreements now exist tends to increase and airfares tend to decrease.
Currently, approximately 90 % of Jamaica's agreements are said to be with the United States. Liberalised agreements with other member states would allow the opportunity to expand to routes outside of just traditional US corridors.
The airports are currently using approximately 57% of total airport passenger throughput capacity. With more airlines coming to Jamaica by way of these agreements, the airports would be able to get up to 100% capacity and would be able to continue their development to increase capacity.
The Acting JCAA Head expressed the hope that pending Cabinet's approval, Jamaica will move to adopt a totally liberalised format of air service agreements in time for June 2010, when the country will host the third annual ICAO Air Service Agreement Negotiations Conference. ICOA members will converge to seal air service deals and lobby for support of their bid for a council seat.
Jamaica on track for US$2bn tourism earnings
The Director of Tourism John Lynch said that Jamaica should realize earnings of US$2 billion for 2009, despite the global economic downturn.
Up to the end of October 2009, tourism revenues were in the region of US$1.4 billion and with expected earnings to reach the US$2-billion target during the winter season.
Jamaica has secured one million airline seats out of the United States, Canada and Europe for the upcoming winter season.
New carriers to Jamaica include US Air, which started service between Montego Bay and Phoenix in December 2009; Jet Blue which began service from New York to Kingston and will begin service between Orlando and Montego Bay on January 11, and AirTran out of Baltimore, starting February 10.
British Airways recommenced service from Gatwick, London to Montego Bay, after an absence of seven years.

2012 Group
As part of the 2012 PSOJ Group initiative, Earl Jarrett of JNBS, and Steven Sykes of National Bakery have proposed to participate in JAMPRO's representation at the Birmingham Trade Fair in March 2010, and would like to use this opportunity as a launching pad for a proposed EU mission later in the year and the UK 2012 Olympics Jamaica promotion programme.

The plan for the 2012 programme would involve utilising Diaspora resources and facilities. A Jamaica village would be created leading up to the 2012 Olympics in the UK in an appropriate location and/or existing Jamaican businesses in Birmingham would be invited to participate in providing a unified Jamaican experience for customers.

The 2012 group will be seeking the assistance of the following members for the indicated activities:
• Jamaica Producers - Logistics
• Gleaner - Communications and PR
• Cable and Wireless/Digicel - Events and Entertainment

MEMBERSHIP

2010 Subscription
Subscription letters and invoices were prepared for distribution to PSOJ members.

CORPORATE AND PUBLIC AFFAIRS DEPARTMENT (CPAD)
Meetings/ Functions/ Events
• Actg. Commissioner of Police meets with Business Community December 4
• PSOJ Membership Christmas Luncheon December 9
• PSOJ Standing Committee on National Security December 15

PSOJ Membership Christmas Luncheon
The Luncheon was different from what obtained traditionally. The Speaker was Mr. Arthur Lok Jack, Master Entrepreneur and Chairman of Guardian Holdings Limited as well as founder of Associated Brands Investments Limited in Trinidad & Tobago. The event, dubbed "A Conversation with Arthur Lok Jack", took the format of a talk show interview with host, veteran broadcaster Erica Allen.

Questions from participants were centred on his life as an entrepreneur, his business strategies and challenges as well as his views on regional and international issues. The function was well attended and received good media exposure.

Media Coverage
PSOJ
• Wednesday December 2 - The Jamaica Observer - Congratulatory message from PSOJ President in Megamart's 10th Anniversary supplement

• Wednesday December 9 - The Daily Gleaner - Article captioned "Belgians position as trade hub for Jamaica in Europe - Exploring partnerships in Jamaica, PSOJ planning trade mission"

• Monday December 14 - Media advisory on handover of a motorcycle donated by Jamaica Public Service to the JCF at the Standing Committee on National Security meeting (December 15)

• Friday December 11 - Financial Gleaner - Letter to the Editor written by Patricia Peart of the JCC informing that the Belgian Mission was conceptualised and organised by the Jamaica Chamber of Commerce and not the PSOJ

• Thursday December 17 - TVJ - President Matalon participated in a panel discussion on IMPACT, analysing the IMF deal presented to the country after Parliament met on Tuesday December 15.

• Friday December 18 - The Daily Gleaner - Photograph of President Matalon and new President of the Jamaica Used Car Dealers Association, Ian Lyn

• Monday December 21 - The Daily Gleaner - Article captioned "Matalon disappointed with ‘fairly narrow range' of taxes"

• Wednesday December 23 - The Daily Gleaner - Sagicor's advertisement announcing their company's winning the PSOJ Corporate Governance Award at the Jamaica Stock Exchange Best Practices Awards

• Wednesday December 23 - The Jamaica Observer - Sagicor's advertisement announcing their company's winning the PSOJ Corporate Governance Award at the Jamaica Stock Exchange Best Practices Awards

• Wednesday December 23 - The Jamaica Observer - Article by Keith Collister captioned "How to fix the budget" which mentioned the PSOJ.

• Sunday December 27 - The Sunday Gleaner - Trade article by Omar Chedda with caption "Competition in the wake of the global economic crisis"

THE JAMAICA INSTITUTE OF BANKERS

MBA PROGRAMME

• Applications for 2010
The application deadline was extended to mid-December to facilitate applicants who had indicated an interest in applying, but needed assistance with the process.

• Study Material for January 2010
The study material for the January 2010 semester arrived in mid-December and the distribution process started.

DEVELOPMENT PROGRAMMES

• In-house Training Programmes
• November 30 -December 3 - National Bank of Anguilla in-house training programme on Loan Securities Documentation. Shirley Ann Eaton was the presenter.

• December 16, 2009 - Proceeds of Crime Act (POCA), was held for the staff of Cuna Mutual Insurance Society on December 16, 2009. Ms. Shirley-Ann Eaton was the presenter.