The following has been issued from the Minister of Finance and Planning, Omar Davies re: Letters of Undertaking and Comfort Letters:
"Over the past few days following the
special PAC meeting held on Tuesday, March 22, the news media have been highlighting claims of fiscal irresponsibility on the part of the Ministry of Finance, specifically as it applies to the issuance of Letters of Comfort and Letters of Undertaking. It is not surprising that members of the public may be
confused about the true situation given the headlines and the outlandish claims from Mr Shaw, et al. The following are irrefutable facts on the whole matter which should clarify the situation.
1. Letters of this type issued by the Ministry of Finance fall roughly into three categories:
(a) Letters of Guarantee (b) Comfort Letters and (c) Letters of Undertaking.
It is unambiguously clear that Letters of Guarantee must first receive support from Parliament before they can be issued. There is no question about full adherence to this requirement.
2. The controversy therefore relates to Letters of Comfort and Letters of Undertaking which have traditionally been regarded as being of a "lower order" of commitment on the part of the government. The focus of attention has arisen because the auditor general has argued that, in certain instances, the language used in these latter documents has increasingly approached that in the Letters of Guarantee. In other words, the distinction has become blurred and it is his belief that in such cases the modus operandi which applies to Letters of Guarantee should also apply.
3. It is a matter of record that in my
contribution to the debate on the 2nd Supplementary Estimates in the House on Wednesday, March 16, I explicitly indicated that the Ministry of Finance must lead by example and that once the auditor general had spoken we would take action to comply with his suggested remedies, including a full presentation to Parliament on a regular basis of information on the letters issued.
practical issues
4. However, I also indicated to Parliament that there are some practical issues to be
considered. In several instances, these letters have been issued to allow government
companies involved in commercial activities, e.g. Petrojam and the Port Authority to carry out their prescribed tasks at reduced cost and with the greatest efficiency. In the case of
the Port Authority which has benefited
from several government-to-government
agreements, such Letters of Comfort or Undertaking result in significant interest
savings. Similarly, for Petrojam, such Letters of Undertaking facilitate its obtaining credit to purchase oil with full repayment taking place within a year.
5. Even whilst this debate is taking place, Petrojam requires a Letter of Undertaking to facilitate its importation of a shipment of oil which is part of its normal business activity. The Ministry of Finance has never had to meet any of the obligations associated with such
letters.
6. Attention has also been drawn to Letters of Undertaking issued to allow the Development Bank of Jamaica (DBJ) to borrow $4.25
billion from various institutions to finance the Differed Financing Programme. It is puzzling that this is raised as an example of the ministry seeking to conceal financial activities as this arrangement was explicitly presented to Parliament as a way of regularising the Differed Financing Programme whereby all contractors would then obtain funding through the DBJ.
7. The final point which should be noted by the public is a refutation of the notion that the Ministry of Finance was operating outside of the law in providing such guarantees. The fact is that the ministry obtained an opinion from the attorney-general's office on this very issue in July 2001. This opinion stated, inter alia, "The terms of Section 43 of the Financial Audit and Administration Act are not applicable to guarantees, undertakings and other such arrangements that are not intended to be paid directly from the Consolidated Fund.
In these cases, the Government is free to
conclude and will be legally bound by
such arrangements without the need for
parliamentary approval."
8. I sincerely hope that the points listed above have clarified this situation. The Ministry of Finance and the government have nothing to hide and will proceed in future to regularly take to Parliament full information on such Letters of Undertaking and Comfort Letters."
