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Shaw promises rollback of forex investment restrictions, tax reform review

Published:Saturday | February 6, 2016 | 11:02 PMMcPherse Thompson
Opposition spokesman on finance, Audley Shaw.

Opposition spokesman on finance, Audley Shaw, has given an undertaking to reverse regulations that restrict businesses from raising foreign exchange financing on the local market, if appointed finance minister after the upcoming general election.

"I'm giving you an undertaking ... that there is one vexing issue that must be dealt with and I refer to the question of the commercial paper market ... and the ability of companies to raise foreign exchange bonds on the local market," Shaw said at the Jamaica Securities Dealers Association annual luncheon on Thursday.

"I cannot for the life of me understand why the Bank of Jamaica has found it necessary, from 2014, to essentially lock down the ability of companies in Jamaica to raise foreign exchange financing in Jamaica," he said.

He was speaking against the background of restrictions on the ability of some institutions and investment vehicles to own US dollar-denominated securities issued by local corporations.

Regulations now limit the nature of instruments in which securities dealers, collective investment schemes and pension funds are allowed to invest, even as the BOJ has began the process of lifting the cap on the size of forex investment portfolios.

Shaw said the debt capital markets has been particularly hard hit in regards to new interpretation of allowable assets by the Financial Service Commission (FSC), which he said results in all Jamaican companies' US dollar debt being excluded from the universe of assets that local dealers, collective investment schemes and in most cases pension funds can invest in because they do not have an investment grade rating.

investment grade rating

"The government does not have an investment grade rating and therefore it means that everybody is automatically deemed as not having investment grade rating," he said.

As a result, the Opposition spokesman said, "the market in Jamaica is being locked out of trading in commercial paper."

He noted that companies such as Jamaica Public Service and Jamaica Energy Partners have in the past raised foreign exchange on the local commercial market, but could no longer do so.

"Because of this decision, if you want some foreign exchange to finance your operation you have to go and purchase a bond overseas," said Shaw.

"The likelihood is that you are purchasing that bond from somebody who doesn't know you, so they don't necessarily trust you, and then they have to do a long and drawn out due diligence on you and ... at the end of the day you have to pay a higher premium to get that money," he said.

He contended that the decision by the central bank and the FSC "seems to be, on the face of it, a decision to try to preserve the Net International Reserves."

Questioning whether "we going to lock off every door to satisfy the IMF", the finance spokesman said there are significant amounts of foreign exchange assets in private hands in Jamaica, so "why can't they be given the opportunity to invest their foreign exchange in companies in Jamaica that need money for expansion?" he asked. "It makes absolutely no sense."

Having earlier alluded to the general election scheduled for February 25, Shaw said that "as Minister of Finance I intend to reverse this position which is hostile to the ability of the local investment community to raise foreign exchange for business expansion on the local capital market."

He suggested that with the restrictions on businesses raising funds locally, it would drive up the cost of foreign exchange required for local business expansion, citing Sagicor's fundraising last year on the overseas market at interest rate of more than nine per cent.

"My reliable information is that if Sagicor had sought to raise that money in Jamaica in the commercial paper market they probably would have got that money at seven per cent - two per cent cheaper," he said.

Shaw said he would not give an undertaking with respect to the asset tax which was introduced in 2013 and has been a source of concern to sections of the financial sector.

But he resolved to review "the entire architecture of so called tax reform" promulgated under Finance Minister Dr Peter Phillips, which Shaw described as generally hostile and anti-business.

"It is complicated, it is hostile and it does not generate a platform to generate large-scale investment and large-scale growth," he said.

The Opposition spokesman acknowledged that there was confidence in the economy now, but asked, "Where is the confidence demonstrating itself in the incremental growth that is needed on the massive scale that is needed?"