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NCB closing most cambio accounts

Published: Sunday | October 13, 2013 0 Comments

National Commercial Bank Jamaica will be locking down most accounts held by cambios in three months' time.

In a release last Friday, NCB said that having concluded an internal assessment, it made the decision to exit most relationships with persons holding licences to operate cambios "in order to ensure that we employ a solid governance structure and operate within a robust compliance framework".

"We will therefore terminate most relationships in the next three months, and have ceased opening new accounts for such entities," the release said.

The bank began putting distance between itself and its cambio clientele earlier this year when it curtailed certain foreign-exchange transactions. The current decision further severs those ties.

The release last Friday said the decision was taken in light of "globally recognised exposure to money laundering and terrorist-financing risks associated with these businesses and the extensive effort required to continue managing those risks while providing the services required going forward".

The release did not qualify which cambios would survive the cut.

In January, the members of the Cambio Association of Jamaica sought the intervention of the minister of finance and the Bank of Jamaica in a bid to have NCB reverse course on its policy.

The BOJ indicated at the time it was unlikely to have much impact on what it said was essentially a commercial decision.

After NCB's policy shift became public, the bank qualified that it was not closing accounts; rather, it would no longer accommodate wire transfers and other foreign- currency transactions.

A similar decision was taken by RBC Royal Bank back in 2011.

OVERSEAS DIRECTIVES

Both banks said they were acting in accordance with the wishes of their overseas correspondent banks.

"NCB's continued provision of banking services to cambio businesses has been challenged as some of our correspondent bankers overseas, on whom we rely to facilitate international and foreign-currency transactions for our customers, asked that we not transact businesses through them for these businesses," NCB reiterated last Friday.

"Although cambios are regulated in Jamaica, regulation does not remove the risk, and our correspondent bankers' postures have been driven by their desire to effectively manage the risks they face by the sector," it said.

NCB points out that this approach is not unique to Jamaica.

There has been an international movement among banks to distance themselves from money-management companies, including cambios and money-transfer operators.

The issue has caught the attention of the World Bank, which warned that the trend is potentially harmful to remittance-dependent economies. The World Bank has floated the idea that national banks could explore ways of helping the money companies in their jurisdictions.

NCB's current release did not reference accounts held by remittance companies.

The bank said its own business could be disrupted were it to maintain certain accounts.

"Our correspondent banking relationships are very important and directly impact the extent of the bank's reach in the international financial market and ability to facilitate our customers doing transactions overseas and in foreign currencies," said the NCB release.

marcella.scarlett@gleanerjm.com

BOJ won't accept disorder in forex market - Wynter

Published: Wednesday | October 16, 2013 0 Comments

The rapid depreciation in the value of the Jamaican dollar over the past three weeks will not continue in that manner over the rest of the 2013-2014 fiscal year, Bank of Jamaica (BOJ) Governor Brian Wynter assured yesterday.

"That's not going to happen," Wynter said.

However, he said the exchange rate, which closed at J$104.85 to US$1 yesterday, was in line with the bank's expectations.

Wynter said it was also factored into the BOJ's inflation projections.

Speaking in an interview with The Gleaner, the BOJ governor explained that Jamaica was facing a balance of payments problem, and as a result, last fiscal year, the current-account deficit was 12.4 per cent of gross domestic product, or US$1.5 billion to US$2 billion.

To fill the gap, funds had to be borrowed from overseas or otherwise sourced, he said.

However, the economic programme supported by the International Monetary Fund (IMF) is now focused on reducing debt.

EXCHANGE-RATE ADJUSTMENT

Under the programme, Wynter said, the exchange rate has to be adjusted as part of the effort to improve competitiveness for Jamaican businesses.

Another fundamental impacting the movement in the foreign-exchange rate was seasonal in that at this time of year, there is an increased demand for foreign exchange and somewhat less supply, he said.

Asked where the dollar is likely to settle, Wynter said: "You know, that's a question I ought not to answer, because it's important that we have a market-determined exchange rate. We do manage it … because what we won't accept - the BOJ will not accept - is a disorderly foreign-exchange market."

He added: "Movements like the one that occurred in the last two weeks or so, if it continues, we would be having a disorderly market. We are not going to let that happen."

As to whether the fall in value of the Jamaican dollar has been exaggerated to some extent due to sentiments to the fundamentals alone, or both, Wynter said: "That is why we value markets, but at the same time, markets can overshoot. People can be so fearful that they overdo readjustment."

At the same time, Wynter said: "We do want to have a dollar that is competitive, but the level we are at now, there is more fear than there needs to be, that's true, but I hope that that fear will, over time, subside."

mcpherse.thompson@gleanerjm.com

Gov't won't mess with imports to stop dollar slide -- BOJ

BY BALFORD HENRY Observer senior reporter balfordh@jamaicaobserver.com

Monday, October 21, 2013

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THE Government is convinced that pressure on the Jamaican dollar will only ease with an improved balance of payment situation, but Bank of Jamaica Governor Brian Wynter says there will be no imposition or intensification of import restrictions to improve the situation.

"The concern is that we have a rate which is market-based and it was very clear that we had a major deficit in our balance of payments. Essentially, we won't be able to overcome that deficit until we produce and sell more and the condition we have to face now is how we are able to produce and sell more," Minister of Finance and Planning Dr Peter Phillips was quoted as saying recently.

But, according to Opposition Member of Parliament Mike Henry, who sits on Parliament's Public Administration and Appropriations Committee (PAAC), there must be concern as to whether the Government can continue to stick to its commitments in the revised Letter of Intent (LOI) to the International Monetary Fund (IMF) in September, while the dollar continues to slide against the US currency.

Henry raised the issue at last Wednesday's meeting of the PAAC, at which Ministry Paper 116/13 -- which includes information on the First Quarterly Review of the current IMF Extended Fund Facility (EFF) and the revised Letter of Intent to IMF Managing Director Christine Lagarde, as well as the Supplementary Memorandum of Economic and Financial Policies -- was discussed with the BOJ governor, Financial Secretary Devon Rowe, and Director General of the Planning Institute of Jamaica (PIOJ) Colin Bullock.

The PAAC member insisted that the current economic programme must be IMF-driven, and not IMF-supported as Wynter insisted, because the Government is committed to the Fund's standard performance criteria, which blocks it from taking certain actions in support of the currency.

"Do we have a forecasting chart for the four years of this programme?" Henry asked the team, pointing to recent developments including the Jamaica Conference Board third quarter findings revealed Tuesday by Professor Richard Curtin, head of the Survey Research Centre at the University of Michigan.

The report showed that both business and consumer confidence in Jamaica had slipped to their lowest levels in several years. It said that rising unemployment and the continuing depreciation of the Jamaican dollar had weakened domestic demand and reduced revenues and profits, leading to a plunge in business confidence to the lowest level since 2009. It also held that consumer confidence had fallen to its second lowest level during the past 12 years, largely due to less favourable prospects for incomes and jobs

Henry contended that these developments were contrary to the economic picture painted by the Government in its letter to Lagarde, and specifically quoted the section which stated the Government's commitment to "observe the standard performance criteria against imposing or intensifying exchange restrictions, introducing or modifying multiple currency practices, concluding bilateral payment agreements that are inconsistent with Article VIII of the Fund's Articles of Agreement, and imposing or intensifying import restrictions for balance of payments reasons".

But, Wynter responded that the insertion in the letter was a "boilerplate", or a standard insertion in such contracts.

"The answer to this is the language is required by the IMF in such letters, because they will not enter into an agreement with you, unless you can commit to this," Wynter said.

"So, in a sense, it is boilerplate language, but it actually is important and Jamaica does not have any such intention nor will it have any need to go through that kind of a path of intensifying or imposing import restrictions for balance of payment reasons," he stated.

"We have operated an open account for decades, and that is not in question, at all," he added.

Wynter remarked that he felt it important to make the issue clear to the committee, since Henry had raised it in his observations on the Letter of Intent.

"I should add, in respect to the letter, that I signed the letter and I am accountable for its content and it represents the embodiment of an entire team and, of course, it is the Government of Jamaica's formal position that it has taken," he explained.

In response to Henry's question about a "forecasting chart" for the life of the programme, Wynter said that there is a standard letter that is produced every three months after the quarterly review which, essentially, updates the position that was established when the programme commenced.

"As things change, you will see things change here," he said, explaining that the letter leads to an IMF staff report which is taken to the Fund's board for approval. He said that the IMF staff report details past performances and projections up to 2020 for key variables that relate to the programme's parameters.

"So one can draw conclusions and understand how that changes, as the world changes," he said.

But, Henry suggested that wasn't good enough.

"We must know that if the dollar devalues and prices go up if that's going to put more people in unemployment lines or under PATH needs; and since that is a part of the programme, I would have thought that you would have had a graph which says when the dollar declines how it is going to affect poverty levels," the MP insisted.

However, Wynter referred him to the Fiscal Policy Paper (FPP) which, he said, includes projections over several years, as well as documents available from the PIOJ that addresses the questions.

He said that it would be ill-advised for any market determined system to be putting out projections for the exchange rate.

"That's probably why we continue to decline," Henry commented.

Rowe, meanwhile, explained that the FPP is tabled by the minister of finance and planning each year in Parliament, setting out a macro-economic framework, a fiscal responsibility statement, and a fiscal management strategy.

"Did it state what the dollar would be today?" Henry asked.

"I don't think there is anybody in the world who can tell us where an exchange rate can be at any particular time," Rowe insisted.

"I disagree with you," Henry reacted.

Read more: jamaicaobserver.com/news/Gov-t-won-t-mess-with-imports-to-stop-dollar-slide----BOJ

Exporters frownon J$ depreciation

Published: Wednesday | October 30, 2013 0 Comments


The continued deprecia-tion of the Jamaican dollar against the benchmark currencies is severely impacting exporters' ability to plan, budget, negotiate and do accurate forecasting, according to president of the Jamaica Exporters' Association (JEA), Andrew Collins.

"There are those who believe that exporters are happy with the exchange movements," but "that is furthest from the truth," Collins told members at a breakfast forum at the JEA's Winchester Road, St Andrew, offices yesterday.

The JEA, which held the forum under the theme, 'Jamaica's Growth Strategy and the Alignment with Targets under the International Monetary Fund (IMF) Agreement', said members were concerned about the need to realise economic growth and to see the stabilisation of the Jamaican dollar against the US dollar and other major currencies.

However, the IMF Resident Representative Dr Bert van Selm, answering questions from JEA members, said the depreciation in the exchange rate should help to bring it to a level to improve competitiveness.

Senior vice-president for treasury, trading and asset management at Mayberry Investments, Dino Hinds, who was addressing the same function, said the Jamaican dollar has depreciated by 13 per cent year to date, the highest since 2009.

He said the depreciation is expected to continue for the remainder of the year and into next year.

Collins reiterated one of their concerns and sought the assurance of the IMF that while Jamaica implements the terms of the four-year loan agreement that consideration be also given to the vulnerability of the export sector and that sufficient flexibility will be exercised to enable the Government to make the necessary investments to stimulate and grow the economy.

Plans to streamline duty drawback scheme

The JEA, he said, submitted recommendations for increased support to the sector for inclusion in the draft of the Omnibus Tax Incentives legislation with a view to growing exports.

That includes a proposal to streamline the Duty Drawback Scheme, where exporters benefit from having duties on all imported inputs waived.

"This is consistent with the emergence of global value chain with their attendant rise in the trade of intermediaries which makes such a policy mandatory," Collins said.

"We are also asking that tax credits ... be introduced to spur innovation, enhance competitive-ness, boost productive capacity and facilitate the emergence of new goods and services," he added.

The JEA president also called for special tax incentives for the sector to attract new investors and support existing exporters.

They would also like to see a stronger push for the implementation of outstanding initiatives under the national export strategy, which provides an ideal programme for developing and growing exports, he said.

"We call for a more facilitating business environment," said Collins. "For almost 15 years, the country has been working on the development and implementation of a trade portal-trade point system. We welcome steps by the Trade Board to advance the single-trade electronic window and await the completion of the initiative," he added.

mcpherse.thompson@gleanerjm.com

BOJ governor admits to pressuring dollar slide

Sunday, May 11, 2014 1 comment

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Bank of Jamaica

BANK of Jamaica (BOJ) governor Brian Wynter admitted that the bank at times opted to build reserves, which exacerbated the slide of the dollar.

The governor told his peers in Latin America at a meeting in Brazil that the central bank had the burden of managing inflation and the exchange rate.

"Depreciation in the nominal exchange rate has also, at times, been exacerbated by our own efforts to rebuild reserves," said Wynter in a speech addressing the XCVII Meeting of Central Bank Governors of the Centre for Latin American Monetary Studies, held in São Paulo, Brazil. "The challenge for us has been to manage this adjustment without igniting a depreciation/inflation spiral and hence the need for a sharp rise in nominal interest rates."

The speech posted to the BOJ's website was dated April 29, 2014.

The net international reserves dipped some US$18.5 million to US$1.28 billion in April 2014 compared with a month earlier. It, however, climbed from just above US$800 million in November 2013, according to BOJ data.

His speech also indicated that the central bank had to manage the potential for a "rapid correction in the real exchange rate" in the context of an "unsustainable" current account deficit and reduced capital inflows.

The dollar which trades at over $110.43 to US$1 lost some 15 per cent of its value in 2013. The currency movement is an implicit conditionality of a loan agreement between the International Monetary Fund and Government.

The island's debt stock nearly hit $2 trillion, or approximately 132 per cent of the nation's output at the end of financial year 2013/14, mainly due to the dollar slide, according to the Fiscal Policy Paper (FPP) tabled by Minister of Finance and Planning Dr Peter Phillips in the House of Representatives last Thursday.

Despite the negatives of depreciation the perceptions about present and future business conditions improved in the latest BOJ Inflation Expectation Survey.

The bulk of Wynter's speech addressed the policy challenges faced by Jamaica in this "post-crisis" period.

Wynter stated that the central bank has kept interest rates low in the single digit territory while also maintaining single-digit inflation.

"It has involved a difficult balancing act, one whose precariousness also contributes its own dose of uncertainty even as the central bank attempts to steer a course towards a more stable growth-enhancing equilibrium," his speech stated.

"A key result of our efforts is that Jamaica's external competitive position has improved. Inflation has continued to fall even while the nominal exchange rate depreciated at a faster pace relative to historical norms. The current account deficit is improving and economic growth has resumed. There has been notable progress in other areas of our economic programme and international rating agencies, investors and our multilateral development partners are showing signs of renewed confidence in Jamaica."

Last week, the World Bank board of directors endorsed a new four-year country partnership strategy for Jamaica 2014-17 which proposes to lend up to US$510 million to support conditions for growth.