EDITORIAL - Use divestment to clear back pay

The Government, in the documentation supporting its request for US$1.3 billion in loans from the International Monetary Fund, says that it marked 20 state-owned firms and parastatal entities for divestment.

All the institutions with for-sale shingles on them have not been identified. But we suppose they include big lemons like Air Jamaica, which is to be taken over by the Trinidad and Tobago government-owned Caribbean Airlines, and the residual assets of the Sugar Company of Jamaica in which the administration has been unable to maintain the interest of potential suitors.

Obviously, the divestment of such deeply indebted assets that have lost so much money, that operate in difficult markets and will require huge investment to rehabilitate will best be achieved by private treaty in negotiated deals.

For most of the rest, we support the suggestion of investment banker Chris Williams that the administration should consider sales via listings on the Jamaica Stock Exchange (JSE).

Mr Williams' idea, which has some support from Finance Minister Audley Shaw, who has raised the prospect of listing the heavily indebted Port of Authority of Jamaica, makes sense on several fronts.

In the first instance, these IPOs, if properly picked, should be relatively easy to sell. For, among the divestment bundle, we are sure, are some worthy assets which, even if they are not now profitable, demand just decent management for a turnaround.

Moreover, as Mr Williams suggested at last week's JSE investment and capital markets conference, these IPOs would help to stimulate the equities market, bringing in new players, while allowing the Government to raise non-debt cash. Indeed, such a move would be timely, given the lower yields that would come from the Government's domestic bonds with the 'voluntary' restructuring of its domestic debt at longer tenors and lower interests.

The JSE could help to facilitate such offers by simplifying the listing arrangements, including the application of the rules of its junior exchange - no matter the size of the offers.

But there is another potential creative way, as has been suggested by this newspaper in the past, that the Government could use the IPO shares to help offset debt obligations.

Payment schedule

Currently, it owes teachers around $7 billion in back pay from the market-rate adjustment scheme it began implementing in 2008. It has agreed to a payment schedule to clear the debt, but will soon face another big bill from the reclassification of the jobs of health workers.

Additionally, civil servants' wages are being frozen for two years, but there will be some adjustments to be made. And at the end of the freeze period hikes will be inevitable.

It is possible, we suggest, that some of the existing, as well as future wage obligations can be settled with equity stakes in divested companies. It might be possible, assuming that the IPOs could be done in relatively close sequence - if not simultaneously - through a mixed portfolio of equities.

The Government's 1990s encouragement of market participation by private-sector workers through employee share-ownership schemes was hardly a success. Here, though, some creative thinking could create a new class of owners for the equities market.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.