Andrew Green, Staff Reporter
DR. OMAR DAVIES, Minister of Finance and Planning, has admitted that Government policies contributed to the financial sector collapse in the 1990s.
Dr. Davies said runaway inflation and the giving of 'blys' to entrepreneurs by officials, including himself, had contributed to the "disaster."
He was speaking at the official opening of the new office of the Jamaica Deposit Insurance Corporation (JDIC) in New Kingston on Thursday.
"In the past, and here I do not hesitate in saying mea culpa (my fault), we have sought to mix business with nationalism," Dr. Davies said. This was, "by giving institutions a 'bly', a second chance, ostensibly with the objective of stimulating domestic entrepreneurial talent." The minister said, "The results have been disastrous."
Minister Davies in the past has blamed the fallout on poor management practices in companies which folded. He has also said the weak regulatory environment facilitated the mismanagement, but had not acknowledged that Government actions played a role.
At the JDIC opening he said bringing inflation down by the Government has not been recognised in terms of the impact on the socio-economic environment.
"Out of control inflation was a major contributor of insurance companies in particular, departing from core business and seeking to engage in activities which placed their clients' funds at risk," Dr. Davies said. "Control of inflation is a non-negotiable pre-requisite for stable growth in the financial sector."
Annual inflation surged from 8.8 per cent in 1988 to 17.2 per cent the next year and 29.8 per cent in 1990 before peaking at 80.2 per cent in 1991, according to Bank of Jamaica data. It began to fall thereafter to 40.2 per cent in 1992, 30.1 per cent in 1993, 26.8 per cent in 1994, 25.6 per cent in 1995 and 15.8 per cent in 1996.
Single digit inflation
Inflation only reached back into single digits in 1997 when it fell to 9.2 per cent.
Inflation control is a responsibility shared by the Ministry of Finance and Planning and the Bank of Jamaica, according to generally acknowledged rules of public administration.
The cost of the financial sector crisis now accounts for a third of the country's total domestic debt, the minister said.
"We have learned from our mistakes," Dr. Davies said. "We have significantly improved the legislative and regulatory framework, moving our standards to those that obtain in the most stringently regulated countries."
The Jamaica Deposit Insurance Corporation building symbolises the new regulatory and legislative foundation which has been laid in the financial sector, Dr. Davies said.
"The Corporation has developed plans and systems to handle failure of any insurance institution," said Ambassador Herbert Walker, JDIC chairman. It is now carrying out tests to ensure "appropriate compatibility with the systems of our policyholders and real time delivery in the unlikely event of pay-out of depositors."
The basic covered limit of insured funds has been increased from $200,000 to $300,000 from July 1 last year, said JDIC Chief Executive Officer, Winston Carr. To ensure sufficient funds are available to cover these pay-outs, approval has been obtained from the Ministry of Finance and Planning to raise the assessment rate from 0.10 per cent to 0.15 per cent later this year.
Insurance coverage applied to 2,340,000 accounts in commercial banks, 1.1 million accounts in building societies, and 6,000 accounts in merchant banks at October 31, 2001, Dr. Davies said. A total of 3.4 million accounts with a value of $190 billion was covered.
The country now has "a much stronger and safer financial sector," Ambassador Walker said.
