bank of jamaica nethersole place kingston · a n n u a l r e p o r t 2 0 0 0 bank of jamaica...

A N N U A L R E P O R T 2 0 0 0

BANK OF JAMAICANETHERSOLE PLACE

KINGSTON

30 March 2001

Dr. The Hon. Omar DaviesMinister of Finance & PlanningNational Heroes CircleKingston 4

Dear Minister:

In accordance with Section 44 (1) of the Bank of Jamaica Act, 1960, Ihave the honour of transmitting herewith the Bank’s Report for the year 2000and a copy of the Statement of the Bank’s Accounts at 31 December 2000 dulycertified by the Auditors.

Yours sincerely,

Derick LatibeaudiereGovernor

B A N K O F J A M A I C A

Board ofDirectors

Derick LatibeaudiereGovernor & Chairman

Christopher Bicknell

Colin Bullock

Carlton Davis

Jeffrey Hall

Kenneth Hall

Patricia Hayle

Keith Senior

Shirley Tyndall

A N N U A L R E P O R T 2 0 0 0

PrincipalOfficers

GOVERNOR & SUPERVISOR OF BANKSDerick Latibeaudiere

DEPUTY GOVERNORSAudrey Anderson Financial Institutions Supervisory Division

Colin Bullock Research & Economic Programming DivisionBanking & Market Operations Division

GENERAL COUNSELRudolph Muir Secretary’s Division

DIVISION CHIEFSMyrtle Halsall Research & Economic Programming Division

Gayon Hosin Financial Institutions Supervisory Division

Livingstone Morrison Finance & Technology

Kenloy Peart Administration & Technical Services Office

Faith Stewart Banking & Market Operations Division

SENIOR LEGAL COUNSELRandolph Dandy Legal Department

CHIEF INTERNAL AUDITOREvadnie Sterling Internal Audit Department

SENIOR ADVISOROswald Tie Protective Services


Contents 1 Overview

5 The Financial SystemBase Money ManagementMonetary SurveyCommercial BanksOther Financial Intermediaries

Financial Institutions Act LicenseesBuilding SocietiesCredit Unions

Development BanksDevelopment Bank of JamaicaTrafalgar Development BankNational Export Import Bank of Jamaica

28 Financial Market Operations

31 Supervision of Financial Institutions

44 External Sector DevelopmentsInternational Economic DevelopmentsBalance of PaymentsForeign Exchange Management

Foreign Exchange Receipts and PaymentsBank of Jamaica International ReservesThe Foreign Exchange MarketCambios

72 Production and PricesProductionPrices

82 Banking and Currency OperationsBankingCurrency

85 Financial Legislation

86 Administration

88 Compensation of Executive Management

89 Calendar of Monetary Policy Developments

i - xxi Final Accounts for the Year Ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

1

Bank of Jamaica’s policy focus on monetary stability and financial system soundness

bore encouraging results in 2000. Inflation fell toa new low of 6.1 per cent continuing the steadydrop from 9.2 per cent in 1997, 7.9 per cent in1998 and 6.8 per cent in 1999. The context ofthe improvement was particularly heartening asit included the re-emergence of real growth inGDP, gains in external competitiveness and a neardoubling of the net international reserves (NIR).In the financial system, all the indicators ofsoundness and efficiency improved, including aresurgence of lending to the private sector undermore prudent practices and careful regulation.

The out-turn for inflation in 2000 reflected theextent to which improvements in domesticagriculture supply conditions moderated theimpact of a rise in the prices of imported goods.Chief among the commodity price hikes was oiland petroleum products which, in response toOPEC management of supply, increased by 70per cent over the first three quarters and onlysoftened in the December quarter. The exchangerate also moved by 9.0 per cent in 2000 addingdirectly to the cost of all imports. The combinedeffect of these price changes was mitigated byan apparent narrowing of the margins taken bylocal distributors and the delay in the full pass

Overview

through to administered prices such as bus fares.In the latter part of the year, the normalization ofweather conditions generated a significantincrease in the supply of domestic agriculturalproducts such that prices for locally grown fruitsand vegetables fell sharply in the Decemberquarter, reversing some of the increase in pricesthat had been recorded up to September. Theoverall result was a fall in the 12-month rate ofinflation to 6.1 per cent and a rate of 4.8 percent for the nine months of the fiscal year toDecember.

Core inflation was estimated at 4.0 per centfor the year due largely to the continuingclose management of base money by theCentral Bank. For 2000, base money declinedby 5.4 per cent with liquidity levels in thebanking system being managed by variationsin the terms and intensity of open marketoperations. For the year as a whole, therewas an easing of monetary policy conveyedthrough successive reductions in the cashreserve requirements of deposit-takinginstitutions and the reduction of the Bank’sbenchmark interest rate. By August the30-day “signal” rate was reduced to 16.45per cent from the 17.35 that prevailed at thebeginning of the year. In the latter part ofthe year, an increase in the demand forforeign currency disturbed the relatively stablemonetary conditions and delayed furtherreductions in benchmark interest rates. Indeed,on two occasions - in October and November


- Bank of Jamaica (BOJ increased the rateapplicable to its longer term instruments to restoreorder to the foreign exchange market.

Nonetheless, the 14.9 per cent growth in thedeposits of banks and other financial institutionscreated the basis for an expansion of credit toboth the private and public sector at lower interestrates than in the previous year. Credit to theprivate sector was concentrated in the tourism,distribution and utilities sectors and representeda substantial upturn relative to recent years. Thepublic sector’s use of credit was seasonal andvaried with the timing of the receipt of foreignloans. On average, commercial banks’ lendingrates fell by 2.5 percentage points to 22.1 percent reflecting the general improvement in liquidityand the prevailing rates on competing moneymarket instruments. The difference between theaverage rate charged on commercial bank loansand the average rate offered on deposits fell to9.9 percentage points at December 2000,compared to 11.3 percentage points in December1999.

The growth in loans was only one of manypositive indicators in the financial system. As agroup, the measures of profitability, liquidity andcapital adequacy improved for commercial banks,merchant banks and building societies. The shareof non-performing loans in the system fell from12.8 per cent in 1999 to 9.6 per cent at December2000. For past due accounts three months andover, the level of provisioning exceeded 116 percent thus posing no threat to near-termprofitability. Institutional consolidation through

mergers and rationalization continued in theindustry with the number of licensees falling by3, to 22 . Significant progress was made towardsthe divestment of state-owned banks with therestructuring of the ownership of NationalCommercial Bank (NCB) and the undertaking ofa formal agreement to sell Union Bank. Fordeposit-taking institutions as a whole, there hasbeen general compliance with prudentialstandards. New regulations that have beendrafted will further enhance the ability of thesupervisory bodies in the financial sector toenforce the best prudential standards in theindustry.

The international economy was buoyant in 2000as the continuing strength of the United States(US) economy was supported by improvementsin the economies of Jamaica’s trading partnersin Europe, East Asia and Latin America. Againstthis background, earnings from exports, tourismand other services expanded. Total merchandiseexports which grew by a modest 3 per cent wasretarded by a 23 per cent fall in bauxite shipmentsas these continued to be affected by the loss ofprocessing capacity for most of the year. Thevolume of sugar and banana exports also fell asthese commodities were affected by pricereductions of 43.6 per cent and 29.4 per cent,respectively. The overall growth in exports wasmainly attributable to sharply improved earningsfrom alumina (9 per cent or US$56 m.) whichbenefited from a rebound in its price, coffee (34per cent), gypsum (87.6 per cent) and re-exports.These gains were more than offset, however, bythe US$278 million increase in the cost of imports

2 Overview

A N N U A L R E P O R T 2 0 0 0

such that the trade deficit deteriorated by US$213million to US$1346 million. An increase of US$214million in the value of fuel imports accounted formost of the change in the value of imports.

Growth of US$99 million in net earnings fromtravel dominated the improvement in the balanceon services. Visitor arrivals rose by 10.7 per centover 1999 to reach over 2.2 million persons. Cruisepassenger arrivals expanded by 18.7 per centwith more vessels calling at all the major northcoast ports. Estimated expenditure rose by 6.3per cent to a record US$1360 million. Whileincreased interest payments and the repatriationof profits worsened the income account by US$60million, the sale of licenses for cellular telephonesand an increase in remittances buoyed currentinflows and moderated the decline in the currentaccount deficit to US$285 million or an estimated4.0 per cent of GDP from US$252 million or 3.5per cent of GDP in 1999.

Private investment inflows amounted to overUS$400 million in 2000 which, when added tonet official borrowing of US$378 million, weremore than sufficient to finance the current accountdeficit. As a consequence, the NIR of the BOJgrew by US$519 million to end the year at arecord high of US$969.5 million.

Despite an increase in foreign exchange earningsand the heavy inflow of financial investments, theforeign exchange market exhibited a period ofintense demand pressure between late Augustand October. Much of the additional demandwas related to the desire of local investors to

subscribe to a Government of Jamaica (GOJ)Eurobond that was floated in August at arelatively attractive yield. The Bank respondedto this by selling foreign exchange to the inter-bank market and later, by introducing 9-monthand 12-month Jamaica dollar instruments onwhich it added an attractive premium. By mid-December, normality had returned to the marketsand the Bank began reducing the premium on itslong-term rates late in the month. For the yearas a whole, however, the Jamaica dollardepreciated by 9 per cent against the UnitedStates dollar. With the difference in inflationbetween the two countries being about 3 percent, the 12-month change in the exchange rateimplied a substantial gain in externalcompetitiveness.

The indicators of output showed an overall upturnin 2000, led by an expansion in services,construction and manufacturing. Goodsproduction as a whole is estimated to have fallenunder the weight of a significant decline in theweather-sensitive agriculture sector for most ofthe year as well as the temporary cutback inmining activity. On the other hand, basic services- electricity, water and transportation- tourism andfinancial services are estimated to have grown in2000.

On current trend, the growth prospects in all ofthese areas seem even more favourable for2001. Basic services should continue to reflectgrowth particularly with the recent privatizationof the electricity company and the anticipatedinvestments and greater efficiencies expected in

Overview 3


power generation and distribution. The outputof the communication sector should also beboosted with two new telecommunicationcompanies becoming operational. Government’scommitment to facilitate and promote newinvestment in information technology also holdsout the promise of expansion in this sector.Among the other services sectors, developmentsin tourism and financial services are expected tobe positive given the proposed level of publicinvestment in infrastructure and marketing as wellas the expansion in rooms and attractions alreadyunderway. Further, planned development in portfacilities in Port Antonio should help to bolster thecruise shipping industry and marine basedtourism.

Growth in the goods producing sector of theeconomy is expected to resume in 2001. Theresurgence in agriculture which began in the fourthquarter of 2000 is expected to extend through2001. A similar path would apply to the miningsector with the normalization of operations at theKaiser refinery at Gramercy, Louisiana in theUnited States. The outlook for the worldaluminium industry remains positive as it continuedto show growth even in the face of a slowdownin the United States economy towards the endof 2000. This growth continues to be spurred bythe strong recovery in Asian economies andgreater momentum in Europe. With the Bank’scontinued emphasis on stability in prices and infinancial markets, the outlook for each of the mainsectors of the economy in 2001 point to fasteroverall growth.

4 Overview

The Bank celebrated its 40th anniversary in 2000and marked the occasion with religious, socialand educational events. Bank of Jamaica is theoldest central bank in the Caribbean and all theregional central banks joined in the celebrationof this milestone. As the head of the financialsystem, the Bank also began to place moreemphasis on public education by adding to itsregular publications a series of pamphlets whichexplain various aspects of its work. Thesepamphlets are aimed at the general public. Acollection of staff research papers was alsolaunched in October with the objective of sharinginternal policy based research with otherinstitutions and with academia. In the same vein,the first of a new series, the Quarterly MonetaryPolicy Report was published in February, 2001.The Bank intends to publish a book in 2001covering the 40 years of its existence as apermanent record of its stewardship since May,1961.

A N N U A L R E P O R T 2 0 0 0

5

The Financial System

Base Money Management

Introduction

Monetary policy decisions during 2000remained focused on engendering a

stable environment that would support the Bank’sbroader objective of price stability. In this regard,liquidity impulses emanating from a build-up inforeign reserves and the reduction in the cashreserve requirement were more than offset bythe Bank’s open market operations and thereforedid not undermine the established low inflationpath.

Developments and Challenges

As shown in Table 1, the monetary base recordedan overall decline of $1 972.9 million, a reductionof 5.4 per cent, during 2000. This reduction wasconsistent with the targets outlined in the IMF StaffMonitored Programme (SMP). The Bank’s foreignreserve position was significantly boosted byforeign currency flows from various sourcesincluding GOJ Eurobonds, multilateral loans anda relatively buoyant foreign exchange market. Inthis regard, the NIR of the BOJ increased byUS$519.4 million during the period to US$969.5million, a record high for Jamaica.

TABLE 1

BANK OF JAMAICA - SUMMARYFLOWS (J$M)

253.310 640.3

-16 578.3

-6 674.8-2 098.7-5 053.32 339.2-382.2

-1 480.0

-1 044.6-10 204.0

1 345.2

-5 938.0-5 321.2

-688.471.6

703.5-16.3

1.2

53.02 251.3

-2 292.3

4 120.92 744.02 597.7

-1 635.3-59.1473.6

-82.5-5 575.3

-755.4

-41.1127.0

-270.0102.0

756.5-0.12.3

179.07 607.9

-8 201.0

-1 360.5-81.3

-1 395.51 151.3

897.4-1 932.4

88.2-6 819.4

-109.4

-593.1390.1

-907.1-76.2

935.5-2.02.9

34.11 531.3

3 067.9

228.9-2 136.4

844.81 128.9

758.9-367.3

2 647.084.7

107.3

4 599.24 564.8

-11.045.4

969.515.4-0.5

519.422 030.8

-24 003.7

-3 685.5-1 572.5-3 006.32 984.21 215.1

-3 306.1

1 608.1-22 514.0

587.7

-1 972.9-239.3

-1 876.5142.9

969.5-5.46.1

Total2000Oct-DecJul-SeptApr-JunJan-Mar

Total1999

NET INTERNATIONAL RESERVES (US$)NET INTERNATIONAL RESERVES (J$)

NET DOMESTIC ASSETS

Net Claims on Public Sector- Central Government Deposits- Government Securities- FINSAC Securities- Other- Other Public Sector

Net Credit to BanksOpen Market OperationsOther

Monetary Base- Currency Issue- Cash Reserve- Current Account

NIR Stock (US$M) eopGrowth Monetary BaseInflation

-131.8-2 626.9

5 553.3

3 926.6-1 760.51 375.84 552.7

538.9-780.2

974.12 346.7

-1 692.3

2 926.45 623.3

-2 684.8-12.1

450.28.76.8


The growth in the NIR represented the primarysource of Jamaica dollar liquidity, which requiredintense open market operations for sterilization.The resulting decline in the Net Domestic Assets(NDA) was more than sufficient to offset theliquidity emanating from the net accumulation inforeign reserves thereby limiting the impact onthe monetary base. In addition, Governmentoperations were broadly supportive of the Bank’soperations with net claims on the public sectordeclining by $3 685.5 million during the year.

Money and foreign exchange market conditionsremained relatively stable up to end-July andfacilitated a reduction in the BOJ’s signal rate.However, after July pressures in the foreignexchange market constrained any furtherreductions in this rate and necessitated theintroduction of longer tenors to assist in liquiditymanagement.

i. January to June 2000

For the first two quarters of the year, the monetarybase declined by 17.3 per cent, with a contractionof 16.3 per cent occurring during January to March2000. The sharp contraction was dominated bythe net currency reflows from the financial systemfollowing the abnormally high currency issue inDecember 19991 . Additional liquidity wasgenerated by BOJ’s accumulation of foreignreserves during the period. In this regard, liquidityinjection of $12 891.6 million reflected BOJpurchases of the proceeds from the GOJ

Eurobond 2002 and direct market purchases. Theimpact on the base from these two liquiditysources was limited by the extent to which theBank engaged in open market activity. Withinthis context the BOJ absorbed $15 779.3 million(net) through regular open market operationsand $2 455.6 million through the outright sale ofsecurities.

The Bank’s liquidity management was supportedby commercial banks’ reduced reliance on directcredit from the BOJ. With most of the liquidity andsolvency issues of the banking system addressedby the Government through the Financial SectorAdjustment Company (FINSAC), credit to banksfell by $1 281 million during the six-month period.

Liquidity management was therefore conductedin a relatively stable monetary and financialenvironment, which allowed the Central Bank toprogressively reduce its signal 30-day reverserepurchase rate. The interest rate declined by 1.9percentage points from 18.35 per cent inDecember 1999 to 16.45 per cent by end July2000 (See Chart 1). Interest rates on the otherexisting tenors of 60-day, 90-day, 120-day, and180-day instruments were also reduced.

ii. July to December 2000

Following relative stability during the first sixmonths of the year, conditions in the money andforeign exchange markets changed bySeptember.

6 The Financial System

1 The abnormal growth in currency issue during December 1999 related tocommercial banks increasing holdings to cover year 2000 demands.

A N N U A L R E P O R T 2 0 0 0

The management of the monetary base duringthe period required a more aggressive policystance to restore foreign exchange marketstability and limit the impact on inflation. The offerof the GOJ Eurobond in the latter part of Julyspurred increased demand for foreign currencyin the domestic market during the second half ofthe year as investors sought to secure placementsin this instrument. In addition, the reduction inthe cash reserve ratio from 14 per cent to 13 percent in September added liquidity to the financialsystem. However the expected demand for creditdid not materialize.

Against the background of these developments,the demand for foreign currency instrumentsrelative to Jamaica dollar denominated assetsincreased significantly in September as thedifferential in interest rates narrowed. Thispresented a challenge for the Bank’s ability toabsorb liquidity via its open market window giventhe existing interest rate structure. It thereforebecame necessary to adjust the range ofinstruments offered and the interest rate structure

with a view to restoring stability to the foreignexchange market and ultimately maintaining pricestability. In this regard, new 270-day and 365-day tenors on open market instruments wereintroduced on 18 September at premium ratesof 17.6 per cent and 18.0 per cent respectively,relative to the shorter-term rates.

In light of a resurgence of instability in the foreignexchange market, the Bank tightened itsmonetary policy by increasing interest rates onthe 270-day and 365-day instruments to 20.0per cent and 22.0 per cent, respectively, on 4October 2000. This measure proved to beeffective as evidenced by a speedy return tostability in the foreign exchange market.

On 23 October 2000 the Bank loosenedmonetary policy by returning the rates on thelonger tenors to their original levels of 17.6 percent and 18.0 per cent on the 270-day and 365-day tenors, respectively, in the context of anormalization of foreign exchange inflows.Pressures soon re-emerged in the foreignexchange market however, and the exchangerate depreciated despite the BOJ’s intervention.The Bank therefore responded by returning therates on the longer tenors to 20 per cent and 22per cent on 24 November 2000, which resultedin a tightening of liquidity, an increase in short-term interest rates and a reduced demand forforeign currency. The resulting yield curve on openmarket instruments became steeper (See Chart2).

The Financial System 7

CHART 1

15.50

16.00

16.50

17.00

17.50

18.00

18.50

Jan-00 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-01

Month

BANK OF JAMAICA 30-DAY REVERSE REPURCHASE RATECALENDAR YEAR 2000


CHART 2


for July to December the NIR increased by US$213million buoyed by the proceeds from governmentloans and increased surrenders from the market.The liquidity impetus of over $9 000 millionemanating from the growth in the NIR waspartially countered by a reduction in the NDA. Inaddition, credit to banks was particularly highduring the period contributing a further liquidityimpetus of $2 735.2 million. Of this, the CentralBank absorbed $6 734.7 million through openmarket operations during the period. The basemoney expansion for the six-month period was13.2 per cent, with most of this expansionoccurring in the December quarter to coincide withthe seasonal demand for currency. The 22 percent growth in currency issue relative to December1999 was greater than expected, and may haveresulted from over-stocking by banks during thefestive season. In this context it was not deemedprudent to totally remove the premium on thelonger tenors. Accordingly, the rate on the 365-day instrument was cut by 1.0 percentage pointto 21.0 per cent on 28 December 2000.

Headline inflation for the year was 6.1 per centwith core inflation estimated at 4.0 per cent. Thedevelopments during the last quarter havecontinued into 2001, albeit at a more subduedrate. The immediate challenge for the Bank isrestoration of the downward path in interestrates, which is conditional on sustained foreignexchange market stability.

Monetary Survey

During 2000 money supply1 , expanded by 10.6per cent relative to an increase of 17.3 per centin 1999. This 10.6 per cent increase reflected a2.4 per cent decline in M1 and a 16.9 per centincrease in quasi money.

The fall in M1 reflected declines in both currencywith the public and demand deposits. Althoughcurrency with the public stood at $17.6 billion atthe end of December 2000, this represented adecline of 1.3 per cent below the record high of$17.8 billion, which obtained in 1999 as a resultof the Y2K contingency plans. The relatively highlevel of currency at end December 2000 occurredbecause of the seasonal demand for currencycoupled with the fact that commercial banksordered precautionary currency stocks for ATMsin anticipation of the long holiday weekend. Theexcess currency issue was howeversubsequently redeemed by the Bank inJanuary 2001.

1 Includes local and foreign currency liabilities

YIELD CURVE ON BANK OF JAMAICA OMO INSTRUMENTSCALENDAR YEAR 2000

A N N U A L R E P O R T 2 0 0 0

An increase in the net foreign assets (NFA) of thebanking system was the major source of theexpansion in money supply for the period. Thiswas due mainly to the increase in the NIR of theBOJ which doubled during the year by J$22 030.8million or the equivalent of US$519.4 millioncompared to a decline of $2 626.9 million or theequivalent of US$131.9 million during 1999.However, the increase in the NFA of the bankingsystem was sterilized by $22 514.0 million in openmarket operations, thus neutralizing the monetaryimpact of the expansion in the NIR.

Money supply expanded by 2.2 per cent for theMarch quarter. During the quarter, the NIR wasbolstered by proceeds from GOJ bonds, along

with net purchases of foreign exchange from themarket. This had a potential expansionary impactof over $10.6 billion in money supply but wasalmost completely sterilized by $10.2 billion inopen market operations. Because of its relativelystrong cash flow during the quarter, there wasno need for Government to increase its borrowingfrom the banking system. As a result, net creditto the public sector had a contractionary impactof $11.9 billion during that quarter.

During the June quarter, money supply increasedby 2.1 per cent but unlike the March quarter, themajor expansionary impulse to the increaseemanated from the expansion in credit to thepublic sector. The Government embarked on a


TABLE 2

COMPONENTS OF MONEY SUPPLY(DOMESTIC AND FOREIGN CURRENCY)

FLOWS (J$M)

17 728.4

8 892.24 315.34 576.9

8 836.25 305.13 531.1

2 083.0-2 626.84 709.8

-5 511.1

17 756.7

7 370.9

2 349.7

-6 317.8

17 728.4

12 739.0

-956.9-227.0-729.9

13 695.97 481.86 214.1

24 026.422 030.81 995.6

3 055.0

4 406.6

-1 163.3

-22 514.0

4 928.3

12 739.0

17.3

29.532.027.4

12.210.118.0

9.2-12.2386.3

-15.0

21.3

-38.4

-7.4

-60.2

17.3

10.6

-2.4-1.3-3.4

16.912.926.9

96.7116.533.7

9.8

4.4

9.8

76.9

118.0

10.6

Dec’99Dec 00Dec ‘99 Dec 00

Money Supply (M2)

Money Supply (M1)Currency with the publicDemand Deposits

Quasi MoneySavings DepositsTime Deposits

Net Foreign AssetsBank of JamaicaCommercial Banks

Loans and Advances to Private Sector

Net Claims on Public Sector

Net Claims on Financial Institutions

BOJ Open Market Operations

Other Items (Net)

TOTAL

SOURCES OF MONEY SUPPLY


programme to borrow less from the domesticmoney market during the quarter, which wouldmake more resources available to the privatesector. However, foreign commercial borrowingwas postponed to the September quarter dueto unfavourable conditions on the internationalmarket and hence, the Government resorted tothe banking system to fulfil its budgetary needs.Banking system credit to the public sectorexpanded by $12.9 billion during the quarter. TheNIR accumulation was marginal in this period andresulted mainly from net purchases from themarket. The increase in open market operations,along with other contractionary impulses, was notsufficient to offset these expansions.

Money supply grew by 2.1 per cent during theSeptember quarter. The NIR benefited fromsignificant build-up due to the planned financingin foreign currency from both the domestic andforeign capital markets. This build-up wassubsequently moderated as the BOJ intervenedby selling foreign exchange to maintain stabilityin the foreign exchange market. The receipt offoreign financing enhanced cash flow forGovernment operations and hence Governmentoperations had a contractionary impact on themoney supply. Open market operations, thoughseverely challenged due to the demand forforeign assets, managed to absorb a significantportion of the impulse to money supplyexpansion.

During the December quarter, money supplyexpanded by 3.9 per cent and mainly reflectedthe usual high seasonal demand for currency.

Among the major sources of the increase wasthe expansion in banking system credit to boththe public and private sectors. The high demandfor foreign assets which began in late August,led the BOJ to increase the rates on the longertenors of its reverse repurchase instruments inOctober. These rates were subsequently reducedbut following a resurgence of instability in theforeign exchange market, the Central Bank againresponded by increasing these rates inNovember. In this regard, the Governmentthought it more prudent to borrow from thebanking system while limiting its borrowing fromthe domestic money market. Although there weredemand pressures in the foreign exchangemarket up to early December, the quarterrecorded a build-up in the NIR as there were netpurchases of foreign currency in the latter half ofDecember. The expansion in the stock of reverserepurchase instruments during the quarter wasalmost sufficient to sterilize the flows from theunwinding of Central Bank deposits which wasused to fund currency payments.

Overall, the BOJ was fairly successful in containingmoney supply during the year and this shouldhave significant influence on future inflation. Itshould be noted that while the expansion in publicsector credit slowed significantly during 2000 to4.4 per cent, private sector credit rebounded, withcredit denominated in local currency recordingan increase of $3 055 million or 9.8 per cent forthe year. This increase in local currency privatesector credit compares to a 15 per cent decline in1999 and can be viewed in the context of a morefavourable financial environment during 2000.


A N N U A L R E P O R T 2 0 0 0


Commercial Banks

There were six (6) commercial banks operatingin Jamaica on 31 December 2000, whichremained unchanged since April 1999, when thenumber of banks was reduced from nine to six,as part of the financial system restructuringexercise. During the year FINSAC moved closer tocompleting the restructuring of the bankingsystem by reorganizing the ownership structureof the largest bank and by purchasing additionalnon-performing loans in another bank. As awhole, the sector grew at a faster rate than in1999 and this performance included an expansionin loans and an overall improvement in liquidity.

Assets and Liabilities

Total assets and liabilities of the commercialbanking system stood at $216.6 billion atDecember 2000, a growth of $28.3 billion or 15.1per cent. Within the assets, growth of $14.7 billionor 17.4 per cent in the investment portfolioresulted in its share of total assets changingslightly from 45 to 46 per cent. Despite the overallincrease in investments, year-on-year holdings ofJamaica Government Securities contracted by10.9 per cent compared to an expansion of 17.3per cent in the previous year. The decline inholdings of LRS and other GOJ securities wasmore than offset by the 28.9 per cent or $15

TABLE 3

COMMERCIAL BANKS’SUMMARY OF ASSETS AND LIABILITIES (J$M)

188 278.345 681.884 321.676 406.123 679.551 965.0

761.77 918.85 035.3

32 192.112 468.74 693.13 885.8

188 278.3126 813.994 698.432 115.5

1 526.53 063.69 564.0

18 650.910 651.018 008.4

216 618.953 782.999 000.389 366.021 100.066 991.31 274.79 637.7

11 357.935 436.98 235.04 738.54 067.6

216 536.6149 666.8109 739.9

39 926.8

3 043.93 084.99 502.7

16 905.413 343.320 989.6

14.14.9

28.727.517.336.0

-49.132.3

174.6-8.365.2-4.3

-40.7

14.111.210.812.3

1 415.9-16.8-19.630.8

-21.4141.3

15.117.717.417.0

-10.928.967.321.7

125.610.1

-34.01.04.7

15.118.015.924.3

99.40.7

-0.6-9.425.316.6

%19992000

Stock1999

%2000

ASSETSCash and Bank BalancesInvestments

Domestic CurrencyJamaica Government SecuritiesOther Public SectorOther Local

Foreign CurrencySecurities Purchased for resaleLoans (Net of provisioning)Accounts ReceivableFixed AssetsOther Assets

LIABILITIESDeposits

DomesticForeign

Due to Bank of JamaicaDue to Commercial BanksDue to Specialised InstitutionsSecurities sold under Repurchase AgreementsOther LiabilitiesCapital Account

23 238.72 115.9

18 801.216 498.8

3 486.513 748.3

-736.01 933.53 201.7

-2 926.74 921.6-213.2

-2 661.9

23 238.712 722.9

9 195.43 527.6

1 425.8-616.8

-2 335.94 393.4

-2 895.310 544.5

Flows1999

28 340.68 101.2

14 678.712 959.8-2 579.515 026.3

513.01 718.96 322.53 244.8

-4 233.745.4

181.7

28 258.322 852.915 041.57 811.3

1 517.421.3

-61.3-1 745.5

2 6922 981.2

2000

Data account for provisioning


billion increase in ‘Other Public Sector’ securities,which itself is partly explained by the capitalizationof interest on the holdings of FINSAC notes. Totalcredit extended by the commercial banks grewby 10.1 per cent to $35.4 billion relative to thecontraction of $2.9 billion or 8.3 per cent in 1999.Concurrently, accounts receivable fell by $4.2billion or 34.0 per cent, which helped toaccommodate the increase in interest-bearingassets.

On the liabilities side of the balance sheet, totaldeposits rose by 18.0 per cent relative to growthof 11.2 per cent in the previous year. Domesticcurrency denominated deposits increased by $15billion or 15.9 per cent to $109.7 billion at theend of December 2000. Foreign currency depositsalso registered a significant increase of 24.3 percent, which exceeded the growth recorded in theprevious year. Expressed in US dollars, using end-December exchange rates for correspondingyears, the increases in foreign currency depositswere US$67.3 million or 11.6 per cent in 1999


and US$68.1 million or 10.5 per cent in 2000. Thisindicates that the exchange rate movementaccounted for more than half of the increase inforeign currency deposits as expressed in localcurrency.

As depicted in Table 4, Government depositsgrew sharply in 2000. Despite this, however, the18 per cent ($22.8 billion) growth in total depositswas dominated by the $13 billion increase inprivate sector deposits. Growth in private sectordeposits was reflected in time and savingsdeposits, as demand deposits fell, relative toDecember 1999. Other depositors, includingchurches and NGOs increased their holdings withcommercial banks by $1.6 billion or 15 per cent.

A breakdown of private sector deposits bycurrency reveals that both local and foreigncurrency deposits increased for the calendar yearended December 2000 (See Table 5). In bothcases, however, the increases were below thatrecorded in 1999. The ratio of foreign currency

TABLE 4

COMMERCIAL BANKS’LOCAL AND FOREIGN CURRENCY DEPOSITS (J$M)

126 813.9102 673.421 482.558 059.523 131.313 657.810 482.7

149 666.8115 629.5

20 743.165 541.329 345.121 984.112 053.2

11.215.429.510.118.025.4

-26.5

18.012.6-3.412.926.961.015.0

%19992000

Stock1999

%2000

DepositPrivate Sector

DemandSavingsTime

GovernmentOther

12 722.913 736.1

4 899.65 305.03 531.52 769.2

-3 782.4

Flows1999

22 852.912 956.1

-739.47 481.86 213.78 326.21 570.5

2000

Other Deposits include Financial Institutions and Overseas Residents

A N N U A L R E P O R T 2 0 0 0

deposits increased marginally from 24.8 per centin 1998 to 26.6 per cent and 27.9 per cent in1999 and 2000, respectively. The private sector’sholding of foreign currency deposits in commercialbanks was US$716.8 million as at 31 December2000 and US$661.5 million at the end of 1999.

Liquidity

In 2000, the statutory cash reserve ratio for localand foreign currency prescribed liabilities wasreduced by three percentage points, over three


TABLE 5

COMMERCIAL BANKS’LOCAL AND FOREIGN CURRENCY DEPOSITS

PRIVATE SECTOR (J$M)

102 450.175 208.027 242.1

115 415.483 163.932 251.5

15.112.323.3

12.710.618.4

%19992000

Stock1999

%2000

Private Sector DepositsLocal CurrencyForeign Currency

13 413.68 261.75 151.9

Flows1999

12 965.27 955.85 009.4

2000

1/ Deposits adjusted for Net Items in the Process of Collection

1/

successive quarters, and as at 31 December 2000stood at 13 per cent. The statutory liquid assetsrequirement declined in line with the cash reserveratio moving from 34 per cent at December 1999to 31 per cent at December 2000. The reductionin the statutory requirement has continued aprogramme, which began in 1998, when the cashreserve ratio was 25 per cent and was expectedto facilitate a decline in the interest rate structure.Despite the reduction in the liquid assets ratiohowever, commercial banks’ average liquidityholdings at December 2000 remained high at46.9 per cent despite a fall from 50 per cent at

TABLE 6

COMMERCIAL BANKS’STATUTORY LIQUIDITY AS AT 31 DECEMBER

21.043.0

50.16.1

16.034.0

50.013.0

13.031.0

50.319.0

13.031.0

46.915.3

Sep

1999 1998

DecStatutory Liquidity (%)

Cash Reserve RatioLiquidity Ratio

Average Liquidity HoldingsLiquidity Holding (%)Excess Reserves (J$BN)

15.033.0

50.617.4

Mar

14.032.0

49.718.5

Jun

2000


December 1999. Excess liquid assets reservesapproximated $15.4 billion at December 2000relative to $13 billion in December 1999.

Interest Rates and Spreads

Interest rates continued on the generaldownward path which was observed, in spite ofcountervailing pressures during the year. Onesuch manifestation of pressure occurred in theDecember 2000 quarter when turbulence in theforeign exchange market prompted policy actionby the Central Bank. The trend of falling interestrates was interrupted following temporaryincreases in the 270-day and the 365-day reverserepurchase rates in an effort to divert Jamaicadollar liquidity away from the foreign exchangemarket into longer-term domestic instruments. Asa result, money market rates, and consequentlycommercial banking system rates, which followthese rates, did not decline as fast as anticipated.However, commercial banks have not been as

quick to adjust loan rates upwards suggestingthat average loan rates will continue to decline.

The 30-day reverse repurchase rate, a key policyvariable of the BOJ, maintained the downwardtrend of the previous year with a consecutiveDecember year-on-year decline of 190 basispoints to 16.45 per cent. This decline in the signalrate was less than that of 1999 when the ratefell by 365 basis points. The yield on the 180-day Treasury bill was 20.2 per cent at December2000, relative to the end December 1999 yieldof 22 per cent.

Table 7 shows that the weighted average depositrate declined by 110 basis points to 12.2 per centduring 2000. Time deposits held over one monthbut less than three months offered the highestaverage rate of 14.25 per cent compared to 3-month and 1-year average time deposit rates of12.98 per cent and 12.35, respectively. Over theyear weighted average loan rates fell by 244basis points to 22.12 per cent. As a result of the

TABLE 7

INTEREST RATES (%)

22.024.023.5

17.0215.8610.66

33.015.5

18.3519.9522.0

13.8914.9813.4124.613.3

16.4517.0517.1

13.2114.5212.0722.212.6

16.4517.0520.2

12.9814.2512.3522.112.2

Sep

1999 1998

DecReverse Repurchases

30-day180-dayTreasury Bill Yield (180-day)

Commercial BanksAverage Deposti Rates

- 1 Month- 3 Month- 1 Year

Weighted Average Loan RatesWeighted Average Deposit Rates

17.3018.5518.0

13.7514.7713.4824.313.0

Mar

17.0017.6517.5

13.3214.5812.3423.512.7

Jun

2000


A N N U A L R E P O R T 2 0 0 0

decline in loan rates of commercial banks, thesimple computed interest rates spread contractedfrom 11.29 per cent at December 1999 to 9.91per cent at December 2000.

Loans and Advances

The stock of commercial bank loans and advancesexpanded by $3.8 billion or 10.5 per cent for2000. This is in contrast to the $6.4 billion or 14.8per cent contraction in the preceding year, whichwas mainly attributable to the purchase of non-performing loans by FINSAC. Of the overallincrease in loans, the private sector benefitedfrom $2.6 billion, representing growth of 8.4 percent in local and foreign currency loans to thissector while loans to the public sector increasedby $1.8 billion or 36.8 per cent for the period.

Sectoral analysis of private sector loans bycurrency denomination reveals that domestic

currency loans to the sub-sectors Tourism,Distribution and Electricity had the highest growthrates during the twelve-month period. Othersectors such as Transport, Storage &Communication and Manufacturing also recordedgrowth. For the year, Personal Loans, and loansto Mining and Agriculture & Fishing, declined.

Foreign currency loans to the private sectorincreased by US$6.8 million or 3.5 per cent for2000 relative to the US$45.6 million or 19 percent decline in 1999. Tourism and Electricity, andto a lesser extent Manufacturing, accounted forthe bulk of loan receipts in 2000 while Distribution,Professional & Other Services and Construction& Land Development recorded contractions. Asin the case with local currency loans, theconcentration of foreign currency loans was in theProfessional & Other Services, and Tourism sub-sectors as well as the Personal Loans category.


TABLE 8

COMMERCIAL BANKS’LOANS AND ADVANCES (J$M)

4 894.01 260.9

30 564.11 589.1

98.72 992.42 029.01 445.93 560.72 833.14 507.3

11 225.066.5

151.365.1

36 719.1

6 696.8747.3

33 123.41 557.2

87.23 046.82 026.11 525.74 747.73 563.94 723.7

10 882.8773.9137.550.8

40 567.4

3.8-52.2-14.5-19.6-48.3-25.2-20.1-23.9-16.4-21.5-29.9

6.5-2.521.1

-20.8-14.8

36.8-40.7

8.4-2.0

-11.71.8

-0.15.5

33.325.8

4.8-3.0

1 063.1-9.1

-22.010.5

%19992000

Stock1999

%2000

Public SectorFinancial InstitutionsPrivate Sector

Agriculture and FishingMiningManufacturingConstruction & Land DevelopmentTransport, Storage & CommunicationTourismDistributionProfessional & Other ServicesPersonal LoansElectricityEntertainmentOverseas Residents

TOTAL

177.7-1 377.7-5 164.8

-387.9-92.3

-1 009.6-511.2-455.3-699.8-777.4

-1 920.3681.5

-1.726.4

-17.2-6 364.8

Flows1999

1 802.8-513.6

2 559.2-31.9-11.554.4-2.979.9

1 187.0730.8216.4

-342.2707.4-13.8-14.3

3 848.4

2000


With respect to non-performing loans, the ratioof loans more than three months past due to totalloans has declined from 14.0 per cent at the end-1999 to 9.5 per cent at the end of 2000. Thiswas below the international benchmark ceilingof 10 per cent.

Outlook

The improvement that has been observed in thecommercial banking sector is expected to continueinto the medium term. The sale of the mergedbank should significantly improve the overallperformance of the sector as the new ownersare expected to recapitalise the institution andreturn it to a profitable position in the near term.Profitability and liquidity should be enhanced onceFINSAC paper is converted to LRS in 2001. Fromall indications credit activity is gaining momentumand should continue on this path supported by areduction in borrowing costs as interest ratescontinue to fall. Also, the strengthening oflegislation, which has enhanced the Central Bank’ssupervisory authority, should go a far way inpreventing a recurrence of the problems thatarose in the last few years. The future of thecommercial banking sector therefore appearspositive.

Other Financial IntermediariesFinancial Institutions Act Licensees (FIAs)

The number of institutions operating under theFinancial Institutions Act stood at 11 at the endDecember 2000 relative to 14 at the beginningof the year. The merger of the operations of two


licensees, the merger of another institution witha commercial bank and the winding up of aninstitution during the first half of the yearaccounted for the contraction in the number oflicensees. The slowdown in the exit of firms fromthe sub-sector in the latter half of the year wouldsuggest that the consolidation process is nearcompletion.

As indicated in Table 9, total assets declined by$2 515.7 million over the twelve-month period,marking the fifth consecutive year that theconsolidated balance sheet has contracted. Thereduction in assets can be attributed to the exitof the two firms from the sub-sector during 2000,one of which was the largest institution withassets of $2 235.0 million. Excluding the impactof these two institutions, the asset base of thesub-sector would have grown by approximately$1 264.7 million.

The contraction in the balance sheet reflects thereduction in deposits and “other liabilities”. Duringthe twelve-month period to December, there wasa net reduction of $750.4 million in deposits and$2 395.6 million in “other liabilities”. Only one ofthe licensees that departed the sub-sector haddeposit liabilities as the deposits of the otherinstitutions were previously transferred to acommercial bank by FINSAC. The remaininginstitutions were able to garner just under $400million in additional deposits.

As a result of the exit of the FINSAC-operatedmerchant banks from the sector, the activities ofFINSAC within the sub-sector tapered off during

A N N U A L R E P O R T 2 0 0 0

2000. This was reflected in the elimination of theholdings of FINSAC securities by near banks, whichdeclined by $1131.7 million. Thus, at the end ofDecember 2000, the line item which comprisedmainly FINSAC securities represented 4.2 per centof total government securities held by these FIAinstitutions, relative to 55 per cent of governmentsecurities as at December 1999. Capital andreserves of the entire sector declined by $361.9million during 2000. However the capital base ofthe 11 institutions now comprising the sub-sectorhas improved significantly during the twelve-month period to December.

Sectoral Distribution of loans

The reduction in the number of FIA licensees andthe subsequent contraction in the deposit base


TABLE 9

ASSETS AND LIABILITIES OF THE INSTITUTIONS LICENSED UNDERTHE FINANCIAL INSTITUTIONS ACT AT THE END OF 2000

WITH ANNUAL CHANGE DURING 2000 (J$M)

5 759.1866.4215.8220.0

2 312.423.0

2 449.711 823.4

951.6259.9

1 287.8491.9

3 088.01 875.32 055.33 066.0

622.911 823.4

18

4 937.60.00.0

211.62 383.5

19.23 311.3

10 844.0

323.8241.8740.2

1 392.62 109.71 176.3

162.52 909.02 964.4

10 844.0

14

December1999

December1998

LiabilitiesDepositsBalances due to Commercial BanksBalances due to Other Financial InstitutionsForeign LiabilitiesCapital & Reserve

- Foreign CapitalOther Liabilities

TOTAL

AssetsCash and Balances with other Commercial BanksBalances with Other Financial InstitutionsBalances with Bank of JamaicaForeign AssetsGovernment Securities

of which FINSAC and other BondsOther Local Investments*Loans and Advances*Other Assets

TOTAL

Number of Licensees

4 187.2628.4226.1349.2

2 021.619.2

915.88 328.3

164.4189.3431.5

1 718.21 066.3

44.6123.1

2 611.22 024.38 328.3

11

December2000

-750.4628.4

0.0226.1137.6

-361.90.0

-2 395.5

-2 515.7-159.4-52.5

-308.7325.6

-1 043.4-1 131.7

-39.4-297.8-940.1

-2 515.7

Annual Change1999-2000* * *

* Includes Provision for Loan Losses

of the financial sub-sector translated into areduction in total loans extended by theseinstitutions.

The sectoral distribution of loans and advancesby FIAs in Table 10 shows that outstanding loansto the private sector fell from $2 877.8 million to$2 454.9 million, with most sub-sectors in thiscategory experiencing a significant reduction intotal loans. The Distribution and Manufacturingsub-sectors were the only ones that recorded anynoteworthy increase in loans, with marginalgrowth recorded by a few of the other sub-sectors. The majority of the fall-off in credit fromFIA licensees occurred towards the beginning ofthe year when the large FIAs exited the sector.Since April 2000, there has actually been anincrease in credit.


Construction and Land Development, Agriculture,and Tourism were the sub-sectors that accountedfor most of the contraction in credit. Loans toProfessional and Other Services, althoughrecording a net reduction of $9.8 million, remainedthe largest category with loans valued at $772.1million, accounting for 29.1 per cent of total loansdisbursed in 2000. There was a $303.2 millionreduction in the stock of loans to ‘Construction andLand Development’, as most of these loans wereon the books of one institution that exited thesub-sector. The share of loans going to theTourism sector was 8.2 per cent of total credit, 5percentage-points below the share at the endof 1999. Loans to the public sector continued toaccount for a relatively small proportion of loansextended by the FIAs.

The strengthening of the capital base and theexpansion in deposits and loans of the institutions


that are currently in operation, though relativelysmall, are positive signs which emerged during2000 and point to the restoration of some amountof health to the sub-sector. The relative successof the consolidation process and strengtheningof the regulatory and supervisory frameworkaugur well for the future performance of the sub-sector.

Building Societies

At the end of December 2000 there were fiveinstitutions operating under the Building SocietiesAct, the same number that obtained at thebeginning of the year. Table 11 which shows theassets and liabilities of the building societies atthe end of December 2000, highlights significantgrowth in the sub-sector, with assets close tolevels that existed in 1998. There was aresurgence of growth in mortgage loans and the

TABLE 10

SECTORAL DISTRIBUTION OF LOANS AND ADVANCES OFINSTITUTIONS LICENSED UNDER THE FINANCIAL INSTITUTIONS ACT

AT DECEMBER 1999 AND 2000 (J$M)

0.80.2

99.04.5

17.813.8

0.31.8

13.28.6

26.99.71.70.70.0

100.0

6.00.0

94.02.5

22.83.60.41.38.2

11.629.111.12.31.10.0

100.0

2000Share ofTotal (%)

1999Share ofTotal (%)

Public SectorFinancial InstitutionsPrivate Sector

AgricultureManufacturingConstruction & Land DevelopmentMining & QuarryingTransport, Storage & CommunicationTourismDistributionProfessional & Other ServicesPersonal Non-Business Loans to IndividualsElectricityEntertainmentOverseas Residents

TOTAL

155.90.4

2 492.865.7

604.596.413.434.8

216.4307.2772.1294.4

59.928.00.0

2 649.1

Stock

131.3-6.2

-384.8-65.785.8

-303.23.7

-18.1-167.7

58.7-9.812.312.47.9

-1.1-259.7

Annual Changein stock*

24.66.6

2 877.6131.4518.7399.6

9.752.9

384.1248.5781.9282.147.520.1

1.12 908.8

Stock

* *

A N N U A L R E P O R T 2 0 0 0


savings fund over the twelve-month period toDecember when viewed against the backgroundof the contraction that took place during 1999.

During the twelve-month period the assets ofbuilding societies grew by 10.5 per cent. Thiscompares with commercial banks which had assetgrowth of 15.1 per cent. During 2000 buildingsocieties grew at rates comparable to those thatexisted prior to the restructuring of the financialsector.

The liabilities of building societies increased by$4 195.3 million or 10.5 per cent over the twelve-month period, reflecting mainly $2 619.6 millionincrease in the savings fund. The increase in thesavings fund is important in light of the contractionthat took place in 1999 as depositors moved theirfunds in search of better rates of interest due tothe implementation of the withholding tax atsource. Growth of 8.2 per cent in theshareholder’s component was the maincontributor to the expansion in the savings fund.

The increase in the savings fund facilitated anexpansion of $896.5 million in loans and advancesto $15 573.9 million primarily through mortgageloans. There was an expansion of $1 070.1million or 7.8 per cent in mortgage loans in 2000.Even as loans and advances increased, most ofthe growth in the savings fund of building societieswent towards the acquisition of ‘other assets’,which grew by $2 719.2 million, to $10 534.6million at end-December 2000. The growth in‘other assets’ represented an increase in holdingsof BOJ’s reverse repurchase instruments.

During 2000 the capital base of the sub-sectorwas bolstered through a $559.2 million increasein capital and reserves. At the end of December2000 capital and reserves amounted to $4 029.6million or 9.1 per cent of total assets.

At the end of 2000 provisions remained in placefor building societies to hold cash reserves as lowas 1 per cent of deposits, if they held at least 40per cent of their qualifying assets as residentialmortgages. If this requirement was not met thenthe cash reserve ratio applicable to other financialinstitutions would also apply to building societies.As at 31 December 2000 all five building societiesqualified for preferential cash reserve requirementof 1 per cent.

The lower panel of Table 11 shows selectedindicative ratios of building societies. Theindicators show that building societies becameless liquid over the twelve-month review periodreflecting policy-induced reductions in theirstatutory liquidity requirements. The ratio of liquidassets to total assets fell from 30.1 per cent to27.2 per cent in the course of the year resultingin a contraction in the ratio of liquid assets tosavings fund to 34.2 per cent. This was 2.8percentage points below the ratio at end of 1999.There was also a marginal decline in the advanceto deposit ratio reflecting the slower growth inloans and advances relative to that of the savingsfund.

Over the twelve-month period 388 newmortgage loans were extended by buildingsocieties relative to 591 new loans in 1999. This


fall-off was due mainly to a reduction inAgricultural and Other loans extended by onebuilding society, 206 in 1999 to 15 in 2000.Although the number of additional mortgageloans extended during 2000 was significantlybelow that in 1999, the average size of loans in2000 was about 22.1 per cent larger than in1999. Thus, despite the reduction in the numberof new loans there was an increase in the valueof new mortgage loans.


While there has been no change in the overallweighted interest rate on mortgage loans overthe review period, special facilities have been putin place by at least one building society toencourage additional mortgages. Particularattention has also been paid to attracting first-time borrowers to these facilities.

Credit Unions

During 2000, the credit union movement wascharacterised by continued expansion in its

TABLE 11

ASSETS AND LIABILITIES OF THE INSTITUTIONS LICENSED UNDERTHE BUILDING SOCIETIES ACT AT THE END OF 2000

WITH ANNUAL CHANGE DURING 2000 (J$M)

34 545.8114.3817.0

1 527.026.0

3 606.24 692.8

45 329.1

3 516.8163.2

1 348.74 489.77 601.95 070.0

15 758.413 640.37 380.4

45 329.1

39.045.639.551.2

8

6

32 576.80.00.0

1 455.426.7

3 470.42 593.7

40 123.0

640.30.0

818.35 537.49 750.8

853.414 677.413 712.47 815.4

40 123.0

30.145.142.137.0

5

4

December1999

December1998

LiabilitiesSavings FundBalances due to the Bank of JamaicaBalances due to Commercial BanksBalances due to Other Financial InstitutionsForeign LiabilitiesCapital & ReserveOther Liabilities

TOTAL

AssetsCash and Balances with other Commercial BanksBalances with Other Financial InstitutionsBalances with Bank of JamaicaForeign AssetsGovernment SecuritiesOther Local Investments*Loans and Advances*

- of which MortgagesOther Assets

TOTAL

Liquid Assets: Total AssetsAdvance: Savings FundMortgage Loan: Savings FundLiquid Assets: Savings Fund

Number of LicenseesNumber of Licensees qualifying for preferential reserve requirements

35 196.40.00.3

1 519.80.0

4 029.63 572.2

44 318.3

662.30.0

771.26 159.59 684.6

932.215 573.914 782.510 534.644 318.3

27.244.242.034.2

5

5

December2000

2 619.60.00.3

64.4-26.7559.2978.5

4 195.3

22.00.0

-47.1592.1-66.278.8

896.51 070.12 719.24 195.3

Annual Change1999-2000* * *

INDICATIVE RATIOS (%)

* Includes Provision for Loan Losses* * Provisional

A N N U A L R E P O R T 2 0 0 0


activities and facilities as it sought to providefinancial service to its increasing membership.Developments in the legislative and regulatoryframework, aimed at establishing BOJ as thesupervisory authority, made progress in 2000.The Jamaica Cooperative Credit Union League(JACCUL) sought to prepare its members for thenew supervisory and monitoring arrangementswhich are expected to be implemented in 2001.

Total membership within the movement continuedto expand, moving from 572 074 at the end of1999 to 606 286 at the end of 2000, an increaseof 6 per cent or approximately the same rate ofincrease recorded in 1999. This growth inmembership may be partly attributable to strongmarketing activities on the part of the individualinstitutions in an effort to compete effectively inthe wider financial environment. The expansionand upgrading of services by the credit unionsalso assisted in the drive towards mobilizingsavings and reinforcing public confidence.

Measures by the League aimed at strengtheningthe movement were further reinforced in 2000

following the establishment of an examination unitin 1999, to monitor credit unions’ progress inattaining required prudential and operationalstandards. In an effort to meet the higherstandards under the programme, a number ofmergers and liquidations occurred in 2000. Thisconsolidation resulted in the existing number ofcredit unions in the league falling to 61 at theend of 2000 from 65 at the end of 1999.

The assets and liabilities of the members of thecredit union league amounted to $14 397.6 millionat the end of 2000. This represented an increaseof $2 298.8 million or 19.0 per cent over theposition at the end of 1999, and compares withgrowth of $2 651.8 million or 28.1 per cent during1999.

Total savings increased by $1 811.1 million or 18per cent following growth of $2 271.5 million or29.4 per cent in 1999. This growth in savings in2000 was accompanied by an increase of$1 134.0 million or 17 per cent in loans during2000 which compares with a 1999 loan increaseof $1 133.4 million or 20.4 per cent. The loans to

TABLE 12

JAMAICA CO-OPERATIVE CREDIT UNION LEAGUE ACTIVITIES ASSETS AND LIABILITIES

807773676561

3 444.24 728.76 206.47 724.19 995.6

11 806.7

TotalSavings(J$M)

No. ofCredit UnionEnd of Year

199519961997199819992000

2 723.53 578.14 489.25 549.26 682.67 816.6

LoansOutstanding

(J$M)

79.175.772.371.866.966.2

Loans/SavingsRatio

477 131502 090514 103539 194572 074606 286

Membership

4 097.55 832.67 621.69 447.0

12 098.814 397.6

Assets &Liabilities

+ Revised

+


savings ratio which stood at 66.9 per cent at theend of 1999 fell slightly to 66.2 per cent at theend of 2000.

Development BanksDevelopment Bank of Jamaica

The publicly owned development banks,Agricultural Credit Bank (ACB) and NationalDevelopment Bank (NDB) merged to form theDevelopment Bank of Jamaica (DBJ) in April 2000.This was done in an effort to enhance the levelof efficiency of the development banking sector.

Table 13 delineates the balance sheet of thenewly formed DBJ.

With DBJ assuming the liabilities of ACB and NDB,the Caribbean Development Bank (CDB)remained the major source of financing,accounting for over 50 per cent of the financialsupport received from overseas institutions. Othersuch sources of long term overseas fundingincluded the European Investment Bank (EIB) andthe World Bank.

During the year, 50 per cent of the liquiditygenerated from the reduction in the cash reservesrequirement for commercial banks and FIAs waschanneled into the Development Bond 2000.These funds were earmarked for on-lending tovarious sectors including tourism, agriculture andmanufacturing. As at 31 December 2000 the twoissues of the Development Bond 2000 hadyielded a total amount of $840.9 million ofwhich $100 million was on-lent to the NationalExport-Import Bank of Jamaica (EX-IM BANK).


TABLE 13

DEVELOPMENT BANK OF JAMAICAASSETS AND LIABILITIES (J$M)

DECEMBER 2000

AssetsCash and Bank BalancesReceivables and PrepaymentsInvestmentsLoans to Financial Institutions

- Loans to People’s Co-operative Banks- Loans to A.F.I.- Other Loans

Fixed AssetsOther AssetsLess Current Liabilities

TOTAL ASSETS

LIABILITIES AND SHAREHOLDER’S EQUITYShareholder’s EquityLong Term Liabilities

- From Overseas Institutions- From Government of Jamaica- Other Loans

Short Term LiabilitiesTOTAL LIABILITIES

342.22 199.2

85.88 618.5

829.13 537.04 252.4

116.01 574.51 508.5

11 427.7

2 423.47 886.34 173.41 742.61 970.31 118.0

11 427.7

The Bank continued to lend through financialinstitutions such as People’s Co-operative (PC)Banks and Approved Financial Institutions (AFI)as its predecessors did. In this regard loans to PCBanks and AFIs amounted to $4 366.1 millionwhile other loans totaled $4 252.4 million. In the‘Other Loans’ category 44 per cent of loans wentto the agricultural sector. The Bank aims to furtherrestrict direct lending and promote on-lendingthrough the relevant financial institutions.

Trafalgar Development Bank

Table 14 summarizes the consolidated assetsand liabilities of the Trafalgar Development Bank(TDB).

The assets and liabilities of TDB increased by$505.1 million or 17.6 per cent to $3 378 millionin the course of the year.

A N N U A L R E P O R T 2 0 0 0


TDB accessed local and foreign fundingamounting to $J45.2 million and US$823.6 million,respectively, through the DBJ. In addition, theJamaica Exporters’ Association (JEA) alsoprovided foreign financing of US$55 000 to theBank.

Total loan disbursements amounted to $93.6million. Of this amount, the manufacturing andtourism sectors received $42.1 million (45 percent) and $43.2 million (46.1 per cent),respectively, while a further $8.3 million (8.9 percent) was disbursed to the services sector.

During the year 2000 TDB made arrangementsfor the sale of its 51 per cent interest in the

TABLE 14

TRAFALGAR DEVELOPMENT BANKASSETS AND LIABILITIES (J$M)

AssetsCash ResourcesInvestmentsLoans and LeasesOther Assets

TOTAL ASSETS

Liabilities and Shareholder’s EquityCustomer’s DepositsLong Term LoansOther LiabilitiesMinority interestStockholders’ Equity

TOTAL LIABILITIES

673.6300.5

1 539.3359.4

2 872.9

592.81 290.9

430.736.2

522.32 872.9

Stock

636.1946.8

1 461.6333.5

3 378.0

471.61 228.51 150.8

40.8486.3

3 378.0

2000

-37.5646.3-77.7-25.9

505.1

-121.2-62.3720.1

4.6-36.0

505.1

Change

-5.968.3-5.3-7.8

15.0

-25.7-5.162.611.3-7.4

15.0

%Change

Trafalgar Commercial Bank (TCB) and thepurchase of 100 per cent of Pan CaribbeanMerchant Bank (PCMB). It is expected thatsignificant cost-benefit as well as further

enhancement in productivity will be generatedfrom the consolidation of PCMB and TDB.

National Export-Import Bank of Jamaica

During the year 2000, the National Export-ImportBank of Jamaica (Ex-Im) continued to fulfil itsmission by providing financing and Export CreditInsurance to the Jamaican productive sector, inkeeping with Government’s strategic objective tostimulate and expand non-traditional exports.

The Bank was again challenged to deviseinnovative financing programmes to stimulategrowth in the productive sector, particularly thenon-traditional exporting sector. Within thiscontext, two new programmes were introducedduring the year. These were the Factoring ofExport Receivables and the Co-Pack Facilitythrough export trading houses.

During the first quarter of 2000, the Bank finalisedand launched its Factoring of Export ReceivablesProgramme. This programme is aimed atproviding continuous working capital, from Ex-Imto exporters, against the presentation of exportreceivables to a factoring house overseas. Interms of utilisation levels and market demand,the programme has not yet met the Bank’sexpectations but continuous analysis of thenegative factors that have hindered this demandand possible solutions, are being undertaken bythe Bank.

The Co-Pack Facility through export trading houseswas introduced during the final quarter of the


year. This facility provides working capital loansto backward linked agro-processing companies,which produce under contractual arrangementswith export trading houses. The Agro-Processingsub-sector has displayed a high level of interestin the facility and disbursements are expected tocommence early in 2001.

During the review period the Bank also carriedout a comprehensive review of its total loanportfolio. To facilitate greater utilisation, thetraditional loan programmes were modified andenhanced. As a result some uniformity in theinterest rate structure was achieved. The interestrates charged on medium term facilities werereduced from 18 per cent to 12 per cent andcollateral requirements were modified to includea mix of securities. These changes not onlybrought these facilities in line with short-termfacilities but also stimulated increased usage bysmall to medium sized companies in need ofcapital injection and modernisation.

Efforts to promote the Cuban line of creditcontinued throughout the year. This facility offersJamaican exporters the unique opportunity tosupply goods to the Cuban market and receiveimmediate payment from the Ex-Im Bank.Disbursements are funded through a Can$5million Line of Credit. Under the auspices of theBank there was a joint public/private sectordelegation to Cuba, whilst dialogue continuedwith potential Jamaican exporters wishing toenter the Cuban market.

The Printing and Packaging sub-sector, which wasearmarked for special funding under theModernisation Fund for exporters, did not utilisethe facility as anticipated. However, the Bankcontinues to promote the programme as it isconsidered vital for export promotion.

In keeping with the Government’s stated intentionof urging commercial banks and other financialinstitutions to channel to the productive sectorsome of the funds released by the twopercentage points reduction in the Cash ReservesRatio (CRR) of these institutions, the Bankaccessed J$100 million from the DBJ for on-lending. This was extended at a preferred rateof interest of 9.5 per cent and on-lent throughthe Pre and Post Shipment financing schemeswhich provide working capital support to theexporting sector.

For the upcoming year, the Bank recognises theneed to further diversify its product base and toredefine non-traditional exports to include andput more emphasis on the Services Sector. In thisregard the Bank has been conducting fact-findingexercises to establish relevant loan programmesto assist the Information Technology Sector, whichtogether with Ornamental Fish Farming has beenidentified as new growth areas with vast exportpotential.

As in previous years the Bank has remained aprofitable institution. For the 9-month period, Aprilto December 2000 the Bank recorded an


A N N U A L R E P O R T 2 0 0 0

unaudited net profit of approximately J$122.3million compared with a profit of J$117.11 millionfor the corresponding 9-month period, April toDecember 1999.

Local Currency Disbursements

During 2000, total local currency loans disbursedwas approximately J$1 878.65 million (See Table15). While this achievement was encouraginggiven the current economic environment, it fellbelow the level of business achieved in theprevious year. The overall decline ofapproximately J$120 million was mostlyattributed to reduced demand for the Appareland Modernisation Fund for Exporters Schemes.In terms of the Apparel sub sector, factorscontributing to this situation were the closure and/or contraction of some companies due toincreased competition in the internationalmarketplace.

Despite the downturn, the Bank is encouragedby the performance of the Small Business andEX-BED facilities which offer financing to the small/medium sized business sectors. EX-BED is a loanscheme funded by the Ex-Im Bank for the purposeof assisting small exporters to finance theirworking capital requirements as they seek toexpand their export markets. The scheme isadministered by the JEA. Eligible users canborrow up to J$1.0 million on a short term basisat a concessionary rate of 12 per cent per annum.Borrowers are not required to provide a bankguarantee but should demonstrate their credit-worthiness and ability to service the loan. Due


mainly to increased marketing and enhancementsto the loan programmes to include the acceptanceof a mix of securities, usage of the Small BusinessFacility increased by 65 per cent over last year,while the JEA/Ex-Bed facility increased by J$20million relative to J$2.5 million utilized in 1999.

TABLE 15

LOCAL CURRENCY DISBURSEMENTS (J$M)

Facilities

Bankers Export Credit Facility

Export Credit Facility

Insurance Policy Discounting

Facility

Pre-Shipment Facility

Apparel Sector Financing

Modernization Fund for

Exporters

Small Business Facility

JEA/Ex-Bed

TOTAL

1 179.8

483

61.0

4.3

146.7

94.5

26.6

2.5

1 998.4

Jan-Dec1999

1 044.0

566.4

50.9

28.5

78.3

43.9

44.1

22.6

1 878.7

Jan-Dec2000

(135.8)

83.4

(10.1)

24.2

(68.3)

(50.6)

17.4

20.1

(119.7)

Change

(11.5)

17.3

(16.5)

562.8

(46.6)

(53.6)

65.5

802.8

(6.0)

%

Approved Local Currency Loansby Industry

Table 16 indicates that the Food and Beveragesector continued to be the primary beneficiary ofthe Bank’s funding in 2000. Utilisation of J$1 061.7million represents a J$47.4 million increase overthe previous year. The Agro-Processing Industryalso made a reasonable contribution to the year’sdisbursement figure.



Foreign Currency Disbursements

During 2000, foreign currency loans remainedconsistent with levels achieved in 1999. Loansapproved through the lines of credit facility weremainly in favour of the public sector asGovernment continued to upgrade the Healthand Transportation sectors. Due to the closure ofsome manufacturing companies and other factorsstemming somewhat from developments ininternational trade, demand for the ExportFactoring and Bankers Export Credit Facilities wasminimal. (See Tables 17 and 18).

Export Credit Insurance

In addition to the financing schemes, the Ex-ImBank continued to offer its Export Credit InsuranceScheme. The Bank continued to be the onlyinstitution in Jamaica that offers this facility.Through this facility policyholders are insuredagainst commercial and political risks, whichinclude non-acceptance by the buyers or non-payment due to political instability in the buyers’country.

TABLE 16

APPROVED LOANS BY INDUSTRIES (J$M)

IndustriesAgro-ProcessingFood & BeverageTextile & ApparelOther ManufacturingDistribution Services

TOTAL

418.11 014.3

339.2112.6114.1

1 998.3

20.950.817.0

5.65.7

100

%

439.11 061.7

114.5167.795.8

1 878.8

23.456.46.18.95.1

100

%

Jan-Dec 1999 Jan-Dec 2000

In recent years, the performance of the portfoliohas been severely affected by the generalcontraction in business and the decline in non-traditional exports, in particular. In spite of thesechallenges, the Bank recognised that this productis necessary for export expansion into new areasand continued to market and explore new waysto make the product more attractive toprospective clients.

The Bank maintained its membership in theInternational Union of Credit and InvestmentInsurers (Berne Union) which, through regularmeetings and workshops keeps its membersabreast of current underwriting practices ininternational export credit insurance.

TABLE 17

FOREIGN CURRENCY DISBURSEMENTS (J$M)

Facilities

Lines of Credit

Export Development Fund

Foreign currency Loans

Factoring of Receivables

Programme

Bankers Export Credit Facility

TOTAL

13.5

0.8

-

0.6

14.9

1999

14.1

0.0

0.6

14.7

2000

0.6

-

-

Change

4.4

-

-

%

TABLE 18

UTILISATION OF FOREIGN CURRENCY BYECONOMIC SECTORS (J$M)

SectorsPrivatePublic

TOTAL

11.33.5

14.8

76.323.7100

%

4.110.614.7

27.772.3100

%

Jan-Dec 1999 Jan-Dec 2000

A N N U A L R E P O R T 2 0 0 0


The Bank also continued to have a portion of itsinsurance portfolio underwritten in the UnitedKingdom under a Quota Share ReinsuranceTreaty.

In its endeavour to stimulate growth in theproductive sector during the year the Bankimplemented new loan facilities aimed at the non-traditional exporting sector. The demand forthese facilities was not fully realised. However, itis expected that in 2001 there will be greaterutilisation and the Bank will also be doing somerestructuring on these programmes. The greaterloan utilisation by small to medium sizedcompanies was attributed to uniformity in theinterest rate structure resulting from themodifications and enhancements on the Bank’sloan portfolio. Ex-Im is looking at several newgrowth areas for which it could develop new loanprogrammes and has identified the ServicesSector as an area on which it intends to placemore emphasis particularly with respect to theInformation Technology Sector.


New Developments

As part of its continuing efforts to deepen and enhance the efficiency of the money and

foreign exchange markets, the BOJ took stepsto upgrade the underlying information andreporting structure by implementing a newelectronic front-end system in November 2000.The system is called e-Gate, an acronym forElectronic Gateway for Auctions, Trade andForeign Exchange Management.

The new system has automated the interfacebetween the BOJ and its clients, allowing primarydealers, authorised dealers, cambios and banksto trade with, and report to the Central Bankelectronically. The e-Gate has facilitated:

l the reporting of foreign exchangetransactions by both authoriseddealers and cambios and

l the electronic processing of all primaryissues of Government securities byauction or otherwise.

With the implementation of e-Gate, cambios arenow required to report their foreign exchangeactivity to the BOJ on a daily basis. Thisinformation is included in the daily ForeignExchange Trading Summary, and the published

Financial Market Operations

and official data now reflect the transactions ofboth cambios and authorised dealers. Prior tothis, foreign exchange transactions of cambioswere excluded from the computation of the dailyweighted average exchange rate. The reportingof consolidated trading information for the twogroups is an important step towards creating amore efficient and unified spot market.

With the implementation of e-Gate, all bids/applications for GOJ securities are keyed andprocessed electronically, whether the applicationis made through a broker or at the BOJ. The e-Gate has significantly enhanced the efficiency ofthe auction process, allowing for the promptnotification of auction results to brokers and theprompt publication of results to the media.

Money Market DevelopmentsBank of Jamaica Operations

The BOJ continued to utilise primary dealers andcommercial banks as its main means for theconduct of open-market operations in 20001 . Inits implementation of monetary policy the Banksought to maintain liquidity conditions consistentwith low inflation and stability in the foreignexchange market. The major thrust throughoutthe year was the absorption of liquidity throughreverse repurchase arrangements and to a lesserextent, the outright sale of securities by the Central

1 As a result of the merger of the operations of two Primary Dealers, theirnumber declined from 16 at the end of 1999 to 15 at the end of 2000.

28

A N N U A L R E P O R T 2 0 0 0

Bank. For the year, the Bank absorbed a netamount of $18.62 billion from the system, withthe bulk of this absorption occurring in the firstquarter. The significant absorption, which resultedin the stock of open-market instruments increasingby $22.4 billion, was largely in response to theliquidity impetus of NIR accumulation over theyear.

Government Activities

Throughout the year, the Government continuedits efforts to lengthen the maturity structure of itsdebt so as to manage its annual debt servicerequirement. The stock of Treasury Bills wasreduced by $3.05 billion, from $10.65 billion atthe end of 1999 to $7.60 billion at the end of2000. Simultaneously, the Government increasedits stock of medium and long-term instruments,with maturities ranging from one year to tenyears. The total stock of domestic debt increasedby $10.8 billion in the review year while theGovernment successfully extended the maturityprofile of its LRS to include instruments withmaturities of 5-years, 7-years and 10-years. Thesuccess of these issues via the auction mechanismand at progressively lower yields reflected and

TABLE 19

BANK OF JAMAICA OPEN-MARKET OPERATIONS - 2000(J$M)

A. Net Outright Sales (+)/

Purchases (-)

B. Net Rev. Repo

C. Net Absorption (+)/

Injection (-)

2 969.01

8 850.06

11 819.07

Q1

-

5 271.68

5 271.68

Q3

( 875.06)

(1 536.13)

(2 411.19)

Q4

1 560.01

17 058.81

18 618.82

Total

(533.94)

4 473.20

3 939.26

Q2

reinforced the general perception of stablemacroeconomic conditions and the expectationof further reductions in domestic interest rates.

Throughout the year the BOJ continued andexpanded its fiscal agency function with respectto primary issues of Government securities.Having executed 38 debt issues in 1999, the BOJadministered a total of 60 debt issues on behalfof the Government in 2000, an increase of (58)per cent. The Bank conducted 33 auctions ofTreasury Bills and 21 auctions of LRS. During 2000the Central Bank also administered three issueseach of fixed rate Debentures and US dollarIndexed Bonds.

In addition to those issues of primary securitieshandled by the BOJ, the Government also issuedUS dollar denominated instruments in the localmarket, raising US$105 million and US$77.85million in March and July, respectively. InFebruary, the Government accessed theEuropean capital market for its first euro-denominated debt. A total of 200 million euroswas raised on a three- year instrument. In August,the Government floated a seven-year, 12.75 percent US$225 million bond which receivedoverwhelming support from both local andinternational investors.

Interest Rates

In the context of some demand pressure on theforeign exchange market for most of the firstquarter of the year, there were no adjustments

Financial Market Operations 29


in BOJ interest rates until the middle of March.Thereafter, improving macroeconomic conditionsenabled successive reductions in the Bank’s 30-day reverse repurchase (signal) rate betweenmid-March and August 2000. Beginning the yearat 18.35 per cent, the 30-day reverse repurchaserate was reduced twice in March, ending thatmonth at 17.3 per cent. Gradual reductionsbetween March and August took the signal rateto 16.45 per cent where it remained for the restof the year.

Up to August, domestic investors had shown apreference for instruments of longer maturity withfixed coupon rates. This changed when the GOJfloated its US$225 million Eurobond with a couponrate of 12.75 per cent at the end of August. Theinitial yield of 13.125 per cent on this instrumentrepresented an attractive alternative to localinvestors and the demand for the bond fuelledpressure on the foreign exchange market. Thetax-free status of these bonds pushed theireffective yield close to that of domesticinstruments and coupled with this the bondscarried no foreign exchange risk.

The Bank responded to the demand pressuresby intervening to augment the supply of foreignexchange in the inter-bank market. For a shortperiod in October and more effectively duringNovember and December, the Bank tightenedmonetary policy by sharply increasing interestrates on its own 9-month and 12-monthinstruments, from 17.6 and 18 per cent perannum to 20 and 22 per cent per annum,respectively. As conditions eased, the 12-month

reverse repurchase rate was reduced at the endof December.

The movement in the Central Bank’s signal ratewas consistent with the trend in money marketrates throughout most of the year. The reductionin the six-month Treasury Bill rate also mirroredthe expectations of declining rates which prevailedup to August. After falling shrply from 22.03 percent at the beginning of the year to 17.96 percent in March, rates declined more gradually to17.04 per cent at the end of August. An increasein the Treasury Bill rate during the fourth quarterfrom 17.13 per cent in September to 20.16 percent in December reflected the market’s responseto the liquidity tightening effect of the higher rateson BOJ’s longer term instruments.

TABLE 20

SIX-MONTH TREASURY BILL AVERAGE YIELD (%)2000 - (END OF PERIOD)

JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctober*NovemberDecember

20.5420.0517.9617.5817.6417.4717.3217.0417.1317.1317.2820.16

* There was no six-month Treasury Bill auction in October

30 Financial Market Operations

A N N U A L R E P O R T 2 0 0 0

Introduction

Pursuant to The Bank of Jamaica Act, the Bankof Jamaica has supervisory responsibility for

deposit-taking financial institutions licensed underfinancial legislation administered by the CentralBank. These are commercial banks (governedby The Banking Act), institutions licensed underThe Financial Institutions Act (e.g. merchant banks)and building societies (governed by The BuildingSocieties Act and related Regulations)1 . TheCentral Bank has also recently been assignedformal regulatory responsibility for credit unionsby virtue of their designation by the Minister ofFinance, as specified financial institutions. TheBank is currently formulating an appropriate legaland regulatory framework to encompass theactivities of these institutions.

Supervisory responsibilities involve the continuousassessment of the quality of licensees’ operationsand financial condition and ensuring that eachlicensee possesses an appropriate level oftechnical, financial and personnel resources at itsdisposal to ensure efficient, prudent, sound andprofitable operations on an ongoing basis.Discharge of these responsibilities is achievedusing a combination of established supervisorytechniques, including regular on-site examinationsand ongoing off-site monitoring of institutions with

Supervision of Financial Institutions

Supervision of Financial Institutions 31

the aim of ensuring sound and prudent practicein their individual operations and overall stabilityin the deposit-taking sector.

The Supervised Environment

The contraction in the banking system, resultingfrom the Regulatory Authorities’ continuingprogramme of restructuring and consolidation,which has been ongoing since 1997, continuedduring 2000. Contraction resulted from acombination of mergers and closures, facilitatedpartially through FINSAC rehabilitation andfinancial assistance programmes and partiallythrough the merger of smaller merchant banks.This was supported by the continued tighteningof prudential capital requirements, a cross-sectorreserve equalization programme as well as aprogramme for overall reduction of liquidityreserve requirements which commenced in 1998.FINSAC support continues to be informed by anassessment of the specific circumstances of eachentity intervened, and may include any one or acombination of recapitalization, liquidity supportand bad assets purchase.

As at the end of December 2000, the BOJsupervised population was 22, down from 25 atthe end of 1999 as outlined:

1 The Central Bank also has supervisory responsibility for Authorised Industrial& Provident Societies under the Bank of Jamaica (Industrial & ProvidentSocieties) Regulations, 1995. As at the end of 2000, no approval hadbeen granted by the Minister of Finance for any Industrial & ProvidentSociety to conduct deposit-taking business.



TABLE 21

INSTITUTIONS SUPERVISED BY THE BANK OF JAMAICA

Commercial banks

FIA licensees

Building societies

9

27

10

46

1997

9

18

8

35

1998

6

14

5

25

1999

6

11

5

22

2000

During January 2000, the designated businessof NCB Trust and Merchant Bank Limited wastransferred to National Commercial Bank Limited(NCB) under a Scheme of Arrangement andAmalgamation dated 7 December 1999. Undera separate Scheme of Arrangement, FINSACincreased its shareholding in NCB from 67 per centto 76 per cent during November 2000. Thisresulted in the conversion1 of:

(a) the shareholdings of the minority interestsof NCB Group into shares in NCB; and

(b) $5.3 billion FINSAC preference shares in NCBto 940,151,975 ordinary shares.

NCB Group was subsequently restructured anddelisted from the Jamaica Stock Exchange (JSE)and is now a wholly-owned subsidiary of FINSACas well as a repository of all non-core assets ofthe former group of companies. NCB has sincebeen listed on the JSE and is now the holdingcompany for NCB (Investments) Limited, OMNIInsurance Services Limited, Edward Gayle &Company Limited, West Indies Trust Company

1 Conversion was based on a factor which resulted in a FINSAC/NCB Groupminority shareholders ownership split of 76% : 24%.

Limited, Data-Cap Processing Limited and N.C.B.Jamaica (Nominees) Limited (all formersubsidiaries of NCB Group).

During the year, FINSAC, the principal shareholderof Union Bank of Jamaica Limited (UBJ), com-menced negotiations with the Royal Bank ofTrinidad and Tobago Holdings Limited (RBTT) forthe sale of UBJ to RBTT. This resulted in a 30June 2000 signing of a Memorandum of Under-standing (MOU) between FINSAC and RBTT forthe sale of FINSAC’s shares in UBJ. At the end of2000, negotiations for the sale of UBJ were welladvanced.

In February 2000, Eagle Merchant Bank of Ja-maica Limited ceased its deposit-taking businessin accordance with the Financial Institutions Actand surrendered its licence to the BOJ. On 6April 2000, First Life Insurance Company Limitedacquired the ordinary issued shares of KnutsfordCapital Merchant Bank Limited (KCMB). The Min-ister of Finance subsequently granted approvalfor the amalgamation of KCMB and Pan Carib-bean Merchant Bank Limited (PCMB) followingwhich the licence of KCMB was surrendered.

Policy Developments

For the year 2000, the Bank of Jamaica achievedsignificant progress in its efforts to have finalizedby the relevant agencies, the introduction ofseveral pieces of subsidiary Legislation which willcodify the regulatory approach on specific areasof banking practice. These include:

A N N U A L R E P O R T 2 0 0 0


l Capital Adequacy Regulations forcommercial banks, merchant banks andbuilding societies;

l Credit Classification, Provisioning andNon-Accrual Regulations for the abovenamed sub-sectors; and

l Regulations to introduce the collectionof licensing fees from merchant banksand to revamp existing Regulationsfor commercial banks and buildingsocieties, to ensure equity across all threesectors as well as c onsistency in thecalculation and payment of fees due.

Progress was also achieved in efforts to finalizethe draft regulations relating to the Qualificationof Auditors who conduct external audits ofcommercial banks, merchant banks and buildingsocieties. Feedback has been received fromlicensees, their external auditors and the Instituteof Chartered Accountants of Jamaica (ICAJ) andfinal discussions on all significant areas with allrelevant parties are in the process of being held.On completion, the necessary interactions will beundertaken with the Offices of the AttorneyGeneral and the Chief Parliamentary Counselwhose input is required to complete the legalprocess in order to bring the regulations intooperation.

In 1999 credit unions were designated as“specified financial institutions” under the Bankof Jamaica Act, by the Minister of Finance andPlanning. This represented a preliminary step to

Government’s stated intention of initiatingbroader legislative changes through themodernization of the Co-operative Societies Actwith particular reference to credit unions.Development of both the legislative andregulatory framework for the supervision of theseinstitutions progressed smoothly during 2000.Regulations that will form the legal basis for theirsupervision and govern their activities weredrafted, disseminated and discussed with thecredit union movement through consultations anddialogue with the JCCUL1 . Arising from thisfeedback, the draft regulations are presentlybeing modified, prior to final discussions with theJCCUL and the commencement of the legalenactment process. A preliminary reportingframework is already in place and the structuraland administrative arrangements andoperational plan that will govern the ongoingmonitoring and supervision of individual creditunions are in the process of being finalized.

As part of a programme to strengthencoordination between the BOJ and supervisoryagencies of non-banking financial institutions, aninter-agency “Financial Regulatory Council” (theCouncil) was established during the year. TheCouncil, which has the Supervisor of Banks (CentralBank Governor) as its Chairperson, comprises theBank of Jamaica, the Jamaica Deposit Insurance

1 The JCCUL is a long established cooperative set up by the credit unionmovement to, inter alia encourage prudential financial practice among itsmembers


Corporation, (JDIC) the Financial ServicesCommission2 (the soon to be established non-bank supervisory entity) and the FinancialSecretary. Its mandate includes the developmentof policies and strategies to facilitate greatercoordination and information sharing betweenthe various supervisory agencies operating in theJamaican financial industry. A Memorandum ofUnderstanding (MOU) addressing such issues asinformation sharing, lead regulator and theconduct of coordinated examinations for duallylicensed entities has been signed by the aboveagency heads and meetings of the Council havecommenced.

Capital Adequacy Regulations

Regulations, which have previously beendisseminated to and discussed with all deposit-taking financial institutions, are currently awaitingthe completion of the legal enactment process tobring them into full legal operation. TheseRegulations, which are based on the Basel CapitalAccord, address minimum risk-based capitalstandards for licensees. The Capital AdequacyRegulations introduce the concept of Tier 1 andTier 2 capital3, define eligible capital componentsand provide the framework for assigning riskweights to on-and off-balance sheet items, insome cases on an even more stringent basis than

the minimum presently required under the BaselAccord. Once approved by the Minister,supervised entities will be legally required tomaintain an overall minimum capital in relation torisk assets of 10 per cent4 . The legal enactmentprocess is well advanced and at 31 December2000, all supervised institutions were incompliance with the proposed Regulations.

Credit Classification, Provisioning and Non-Accrual Regulations

Regulations which provide specific legal guidelinesfor credit classification, provisioning and relatedmatters (e.g. credit renegotiations and incomewrite back) are currently awaiting the completionof the legal enactment process to bring them intofull operation. These Regulations which, inter alia,codify the Central Bank’s approach to classifyingcredits into defined loan categories and alsostipulate specific provisioning levels, have alreadybeen disseminated and discussed withsupervised entities. All commercial banks,licensees under the FIA and building societies havebeen requested by the BOJ to implementmeasures to ensure fullest possible compliancewith the requirements by the date of finalpromulgation. Already most are in full compliance.

Qualification of Auditors Regulations

The Regulations drafted by the BOJ have alreadybenefited from feedback from the licensees and

2 The Securities Commission and Superintendent of Insurance will have proxymembership until the Financial Services Commission is fully constitued.

3 Capital that is fully paid-up in cash and realized profits, which cannot bewithdrawn, repaid, or used for any purpose except as a cushion to absorblosses so that the interest of depositors is always protected.

4 This compares to the 8% Basel minimum and is in addition to the presentstatutory gearing ratios (deposits and borrowings to capital) of 25:1 and20:1 (banks and merchant banks, respectively) and primary ratio (capitalto total assets) of 6 per cent.


A N N U A L R E P O R T 2 0 0 0

their existing external auditors as well as the ICAJ.Among other requirements, these Regulationsspecify the qualifying standards for auditorsundertaking an external audit of a deposit-takingfinancial institution and require prior notificationto the Central Bank of proposed appointments.Final discussions with all relevant parties on allsignificant areas is expected to be completedearly 2001, following which, the legal enactmentprocess to bring them into full operation willcommence.

Bank of Jamaica (Credit Unions)Regulations

Regulations that prescribe prudential criteria andminimum solvency standards covering inter alia,essential areas such as capital, reserves, liquidassets, loan loss provisioning, submission ofprudential returns and audited financialstatements and remedial action by thesupervisory authorities in respect of problem creditunions have been drafted. Consultations with theJCCUL in respect of the content, impact andimplementation of these regulations are welladvanced and the legal enactment process tobring them into operation is to commence shortly.

Prudential DevelopmentsBasel Core Principles

The Bank of Jamaica has conducted a self-assessment of Jamaica’s compliance with theBasel Core Principles1 with respect to deposit-

taking financial institutions using the Basel CorePrinciples Methodology (the Methodology)2 .Arising from this self-assessment, a specificprogramme is being implemented to furtherstrengthen the existing legislative and regulatoryframework in the areas of market risk, complexfinancial groups and mixed conglomerates.Consistent with the Methodology, a follow upindependent assessment is scheduled to beconducted during the second quarter of 2001.

Performance Targets

The programme of quarterly performance targetsthat was implemented during 1999 continued in2000. The programme is aimed at ensuring thatall supervised entities maintain certain minimumprudential and regulatory standards consistentwith international practices and norms. Thisinvolves the setting of quarterly targets with eachinstitution in certain key operational areas,including capital adequacy in relation to riskmanagement, asset quality, earnings andliquidity.

Where institutions already operate above therequired minimum industry standards, theirrespective managements are requested tomaintain the higher standards in order to preservethe financial soundness and integrity of theiroperations. In some instances however, wherejustified by an individual institution’s specificbusiness strategy, such ratios may be lowered,

1 The twenty-five principles on Banking Supervision that have become themost important global standard for prudential regulation and supervision.

2 A harmonised assessment methodology developed in order to ensureconsistency in assessing effective implementation of the Basel CorePrinciples.



provided that the minimum industry standards arenot violated. The BOJ assesses each institution’sadherence to the prescribed targets on anongoing basis through both on-site and off-sitemonitoring. (See Table 24 Assessment ofPerformance of Supervised Institutions againstPrudential Targets as at 31 December 2000.)

Legislative DevelopmentsProposed Amendments to LegislationGoverning Deposit-taking Institutions

Consequent on the self-assessment of Jamaica’simplementation of the Basel Core Principles, theMinister of Finance has agreed that certainproposals be made to Parliament requiringamendments to various pieces of legislationgoverning deposit-taking institutions during 2001.The proposed amendments are intended toeither transfer certain powers now resting withthe Minister of Finance to the BOJ or grant to theBOJ, additional powers which do not now exist.These include:l Transferring from the Minister of Finance

and vesting in the BOJ, certain powersof intervention including the power toassume temporary management of a

licensee.

l Empowering the BOJ to assessmonetary fines for particular breaches ofregulatory statutes in accordance with apre-established schedule.

l Transferring certain other powers andresponsibilities of a technical nature from

the Minister of Finance to the BOJ.

l Empowering the BOJ with the authorityto require the shareholders of licenseesto reorganize their group structure byestablishing a sufficiently capitalisedholding company to be the parentcompany of the licensee in keeping withinternational norms. This is in recognitionof the potential threat which may beposed to a licensee by the existence ofa certain corporate group structuring andassumes particular importance where amixed conglomerate poses a stronglikelihood of contagion to the operationsof the licensee.

l Empowering the BOJ with the authorityto issue Regulations, as currently existsfor the Securities Commission under the

Securities Act.

l Amending or clarifying the Bank’s secrecyprovisions in the existing law to allow forinformation exchange with supervisoryauthorities of non-bank financialinstitutions, in keeping with the signedMOU on the establishment of theFinancial Regulatory Council.

Other Notable DevelopmentsYear 2000 (Y2K) Compliance

No disruptions resulting from the Century DateChange (CDC) were detected by commercialbanks and other deposit-taking financialintermediaries during 2000 or in the rollover of


A N N U A L R E P O R T 2 0 0 0

systems from 2000 to 2001. This is consistentwith expectations arising from the structurednature of the Y2K readiness programmes thatwere pursued by these entities and the ongoingoversight and monitoring by the BOJ.

Money Laundering

Arising from the 1999 amendments to the moneylaundering legislation, the specific Anti-MoneyLaundering Guidance Notes1 previously issuedto supervised entities were reviewed, revised,expanded and reissued during July 2000.Reviews of licensees’ policies, procedures andcontrols relating to money laundering preventionand detection form part of the BOJ’s FinancialInstitutions Supervisory Division’s normalsupervisory functions. These reviews are guidedby specific internally developed supervisoryguidelines and a comprehensive examinationworksheet that take account of statute andinternationally recognised anti-money launderingstandards and methodology.

International Conference of BankingSupervisors

The bi-annual International Conference of BankingSupervisors (ICBS) which has been held since1979 was designed to promote cooperationamong national supervisory authorities, and toenable senior representatives from a large

number countries to exchange views on a rangeof current issues of common concern.

The 11th biennial ICBS was held at the Bank forInternational Settlements (BIS) in BaselSwitzerland, in September 2000, and hostedjointly by the BIS, the Swiss National Bank andthe Swiss Federal Banking Commission.

The two main themes of the conference were thenew Capital Accord and the financial industry inthe 21st century and related consequences forbanking supervision. The Bank of Jamaica washonoured to have the Deputy Supervisor of Banksinvited to chair the workshop on the “SupervisoryTreatment of Insolvent Banks” at the conference.

System Review

The on-going monitoring of licensed deposit-taking financial institutions entails assessing thesafety and soundness of the entities, providingfeedback on a timely basis to management,policy makers and the investing public andrequiring corrective action, where necessary. Thisis achieved by, among other things, evaluatingrisk management processes, compliance withapplicable laws and regulations and assessingthe financial condition of the individual institutionsas well as the supervised financial system as awhole.

In general, the three supervised financial sub-systems operated soundly during the year. The

1 Represent minimum standard requirements necessary to give effect tothe provisions of anti-money laundering legislation.



prudential indicators that are used to measurethe performance of individual licensees as wellas the consolidated supervised financial systemreflected significant improvements, primarily in theareas of asset quality and earnings. As regardsliquidity, the supervised insstitutions, seen in theirentirety, maintained lower, but still satisfactoryliquidity levels. System-wide, capital wasadequate to support operational activitiesinclusive of off-balance sheet contingent liabilities,and at year-end, all institutions were incompliance with capital adequacy requirementsand reported positive net worth positions withregard to their respective on-balance sheetoperations.

Combined assets of commercial banks, buildingsocieties and licensees under the FIA (net ofprovisions for losses and contingent liabilities)increased by 12.2 per cent to total $268.0 billionrelative to 8.0 per cent and 12.8 per cent in 1999and 1998, respectively). Total combined assetsof the three sub-systems as a percentage of GDP(as currently measured) increased from 93.0 percent as at 31 December 1999 to 104.4 per centat the end of the year.

As at 31 December 2000, the commercial bankingsector controlled 81 per cent of the asset baseof the BOJ supervised financial system andaccounted for 97 per cent of incremental assets.Bank of Nova Scotia (BNS), NCB and UBJcontrolled, in total, 74 per cent of total assets, 57per cent of loans and advances and 69 per centof aggregated system deposit liabilities. Theasset profile of the combined balance sheets

showed, for the second consecutive year, thegreatest concentration of funds in investments (inthe main, FINSAC securities). The increase in thisasset category was occasioned by thecapitalization of interest payments due on FINSACsecurities held primarily by two FINSAC intervened/assisted entities. Such securities represented 28.3per cent of total system assets and 56.3 per centof total investments. There were also notableincreases in cash and bank balances whichrelated primarily to balances held with BOJ(Central Bank Deposits) and foreign currencyplacements with financial institutions.

Total loans and advances (gross) of the threesub-sectors grew by $4.4 billion or 8.2 per centbringing the stock of outstanding credit to $58.7billion as at 31 December 2000. Foreign currencyloans which offered a cheaper alternative todomestic currency credit increased by US$24.0million or $2.0 billion to total US$322.0 million orJ$14.4 billion. Main beneficiaries in terms ofeconomic sub-sectors were tourism, distribution,electricity, gas and water and loans to selectedpublic entities.

It should be noted that growth in the Jamaicadollar equivalent of foreign currency loan balanceswas occasioned in part by foreign currencyrevaluation, concomitant with the depreciation inthe value of the exchange rate.

Deposit liabilities, which continued as the principalsource of funding, increased by $24.5 billion or14.9 per cent to total $188.8 billion. Foreigncurrency deposits accounted for 30 per cent of


A N N U A L R E P O R T 2 0 0 0

TABLE 22

MARKET SHARE OF FINANCIAL SUBSECTORS (ASSETS)*

Commercial BanksBuilding SocietiesFIA Licensees

TOTAL

165.044.311.8

221.1

75205

100

%December 1998

J$BN

188.339.810.8

238.9

79174

100

%December 1999

J$BN

216.643.18.3

268.0

81163

100

%December 2000

J$BN

* Assets net of contingent liabilities and provisions for losses.

new system deposits and one commercial bankwas responsible for 47 per cent of total domesticand foreign currency inflows into the system.Other less notable funding sources were internallygenerated capital, clearing items and borrowingsfrom BOJ (the latter was largely confined to onebank).

Although the commercial banks’ interest ratestructures favoured time funds, savings anddemand accounts benefited from notable inflowsof $8.8 billion and $8.1 billion, respectively. Timefunds increased by a lower $5.9 billion and werelargely short-term maturities.

Funds Under Management and RepurchaseAgreements (Repos) for on-trading to Clients

Based on the data submitted by FIA licenseesand commercial banks at the end of December2000, funds under management and Repos foron-trading to clients increased by $4.5 billion and$6.0 billion, to total $23.0 billion and $41.0 billion,respectively. These funds are garnered principallyby FIA licensees and are reported as off-balancesheet transactions, and therefore not included inthe system figures shown above.

Asset Quality

Total past due loans (3 months and over)contracted by $1.3 billion to total $5.6 billion. Thisrepresented 9.6 per cent of the system’s totalloan stock, as against 12.8 per cent and 22.9per cent at the end of 1999 and 1998,respectively. 13 of the 22 supervised institutionswere responsible for the decline in total past dueloans (3 months and over). The reduction indelinquent facilities resulted from aggressive debtcollection drives, sale of pledged assets to recoverdebts, loan write-offs, loan sale as well as fromsignificant strengthening of credit risk mitigationtechniques in a number of institutions (forexample, ensuring that loans were made on asound and collectible basis) to reduce the risk ofproblem credits.

Notwithstanding the contraction in the systemratio, some institutions exhibited levels of arrearswhich surpassed the prudential benchmark of 10per cent of total loan portfolio. These institutionsare being monitored by the Central Bank toensure that effective loan review systems thattreat asset quality problems expeditiously, areimplemented.

Despite the contraction in past due loans (3months and over), there was further evaluationof provisioning levels resulting in an appreciablerise in both general and specific provisions by $1.0billion or 19.2 per cent, to total $6.5 billion as at31 December 2000. This offered full coverage of116.6 per cent against potential losses on thesystem’s total non-performing loans (3 months



and over) as against 79.2 per cent a year earlier.Increased provisioning levels have largely beenin keeping with the Credit Classification andProvisioning Regulations which are still awaitingthe completion of the legal enactment process.Where institutions report inadequate levels ofloan loss provisions and the evaluation processis deemed insufficient or is based on an unreliableinternal review, corrective action is enforced bythe BOJ.

Liquidity

Supervised financial institutions, in general,maintained adequate, albeit lower, levels ofdomestic currency liquid assets during 2000.While lower system-wide liquidity levels may havebeen attributable to the reduction in the statutoryCash Reserve and Liquid Asset ratios by threepercentage points during the year, there weresome institutions which maintained comfortablebands of liquidity throughout the year. One bank,however, experienced liquidity tightness andreceived liquidity support from the Central Bankas well as borrowed on the inter-bank and Repomarket to fund its operations.

On a consolidated basis, the three supervisedsub-sectors reflected average domestic currencyliquid reserves of 41.3 per cent in respect of themonth of December 2000. Additionally, thecommercial banking and building societies sub-systems reported excess liquid asset reserves of$15.3 billion and $5.7 billion, respectively, whilstFIA licensees exhibited a much lower level of$836.1 million. Excess reserves chiefly comprised

Central Bank Deposits, assets purchased with aview to resale and GOJ investment debenturenotes eligible for treatment as statutory liquidassets.

The minimum cash reserve ratio was breachedon a few occasions. However, the deficienciesidentified were not symptomatic of liquidityconstraints, but arose as a result of latelodgements/transfers of funds to respective cashreserve accounts, and in a few instances,calculation errors. Institutions which operatedbelow the minimum statutory requirementsincurred interest penalties in accordance withSections 14 and 15 of The Banking and FIA Actsand in the case of building societies, Regulations35 and 42 of the BOJ (Building Societies)Regulations. During December 2000, all licenseeswere in compliance with both the statutorydomestic and foreign currency cash reserve andliquid asset ratios of 13 per cent and 31 per centof average prescribed liabilities, respectively.

Capital

The financial system’s overall net worth andstatutory capital base increased by J$2.8 billionand $2.2 billion to total $28.8 billion and $23.9billion, respectively. Statutory capital wasgenerated largely by way of share premiumresulting from the issuance of shares to FINSACby two commercial banks and to a lesser extentby transfers of internally generated capital to theStatutory Reserve Fund and the discretionaryRetained Earnings Reserve Account. The increasein statutory capital was also due to the reduction


A N N U A L R E P O R T 2 0 0 0


in impairment by net losses which moved from$3 billion as at 31 December 1999 to $2 billion atthe end of 2000.

With the faster growth in assets, the systemreflected a slight reduction in the primary capitalratio from 9.1 per cent to 9.0 per cent which stillexceeds the international benchmark of 6 percent. As at 31 December 2000, the system asa whole had adequate statutory capital to coverdeposits and other borrowing activities and allcommercial banks and FIA licensees operatedwithin the respective deposit taking limits of 25:1and 20:1.

With regard to the minimum risk-based capitalratio of 10 per cent (the ratio of capital base torisk adjusted assets), all institutions were incompliance at year-end.

Profitability

The aggregate of the three sub-systems’unaudited quarterly data reflected superior profitmargin which moved from 9.7 per cent in respectof 1999 to 16.0 per cent for 2000. Improvedrates of return were also evident on averageasset utilization of 2.6 per cent (1.8 per centpreviously) and on equity employed of 26.2 percent (previously 16.7 per cent).

Income profile remained unchanged and for thecalendar year, investment income (predominantlyinterest income on FINSAC securities) accountedfor 54 per cent of total income (55 per centpreviously) whilst interest differential business

(loan income) contributed 25 per cent resultingfrom interest spreads (in some cases in excessof 800 basis points, occasioned by a slower fallin loan rates as against rates paid on depositliabilities). Despite the trend toward lower rateson securities, the supervised industry continuedto benefit from attractive rates of return especiallyduring the second half of 2000 as measuresaimed at, inter alia, maintaining the stability ofthe exchange rate were implemented.Additionally, bottom lines for the supervisedindustry as a whole benefited from the reversalof provisions for losses on non-performing loanssold and or recovered through the sale ofcollateral.

The main expense items were deposit costs, 40.6per cent of total expense, (previously 50.2 percent), borrowing expenses, 14.6 per cent, (15.5per cent during 1999), staff expenses andprovisions for loan losses, 20.6 per cent and 6.2per cent, respectively, ( 17.9 per cent and 7.6per cent in the corresponding year).

All supervised institutions, with the exception ofone building society, reported positive operationalresults for the 2000 calendar year.



TABLE 23

ANNUAL PRUDENTIAL INDICATORS OF COMMERCIAL BANKSLICENSEES UNDER THE FINANCIAL INSTITUTIONS ACT (FIA) AND BUILDING SOCIETIES

Overall StructureNumber of institutions in operationTotal Assets (incl contingent liabilities) (J$M)Total Assets (excl contingent liabilities)Total Deposits (J$M)Total Loans (gross) (J$M)Total Loans (net of prov.) (J$M)Past Due Loans (PDL) (3 Mths & >) (J$M)Provision for Loan Losses (J$M)Investments (inc. Sec. Purchased) (not of prov.) (J$M)Capital BaseContingent Liabilities (Acceptances LC’s & Guarantees)Fund Under ManagementRepos on behalf or for on-trading to clients

Rate of Asset Growth (%)Rate of Deposit Growth (%)Rate of Loan Growth (gross) (%)Rate of Capital Base GrowthRate of PDL (3 mths & >) Growth (%)

Investments: Total AssetsFixed Assets: Total AssetsLoans (net of prov) Total AssetsLoans (gross): Deposits

LiquidityAverage Domestic Currency Cash Reserves:

Average Prescribed LiabilitiesAverage Domestic Currency Liquid Assets

Average Prescribed Liabilities

Asset QualityProv. for Loan Losses: total Loans (gross)Prov. for Loan Losses: PDL (3 mths & >)PDL (3 mths & >): Total Loans (gross)PDL (3 mths & >): Total Assets

+ Provision for Loan Losses

Capital AdequacyDeposits + Borrowings: Capital Base (:1)Capital Base: Total AssetsRisk Asset Ratio (RAR) (estimated)PDL (3 mths & >): (Capital Base

+ Provision for Loan Losses)

ProfitabilityPre-Tax Profit Margin (for the calendar year)Return on Average Assets (for the calendar year)Income Assets/Expense Liabilities (as at 31 Dec)

Dec ‘989

172 871165 040114 09143 08435 11911 0567 965

67 354

5 2197 831

n.a.n.a.

15.9%4.4%

-27.4%93.9%-35.5%

40.8%3.0%

21.3%37.8%

21.0%

55.8%

18.5%72.0%25.7%

6.4%

28.53.2%5.2%

83.9%

-2.8%-0.5%80.7%

Commercial BanksDec ‘99

6194 957188 278126 81436 71932 1925 1314 527

89 357

14 7426 679

50460

14.1%11.2%-14.8%182.5%-53.6%

47.5%2.5%

17.1%29.0%

15.8%

48.3%

12.3%88.2%14.0%

2.7%

11.07.8%

18.5%

26.6%

7.4%1.3%

89.1%

Dec ‘006

222 048216 629149 66740 56735 3193 8495 248

110 507

18 1255 419

50586

15.1%18.0%10.5%22.9%

-25.0%

51.0%2.2%

16.3%27.1%

13.0%

45.6%

12.9%136.3%

9.5%

1.7%

10.1%8.4%

21.9%

16.5%

15.5%2.6%

97.5%

FIA Licensees

Dec ‘9818

13 55911 8235 7593 0662 2921 140774

4 708

2 3841 736

17 97325 156

-25.7%-16.1%-44.5%206.8%-57.7%

39.8%3.2%

19.4%53.2%

18.3%

50.1%

25.2%67.9%37.2%

9.0%

3.320.2%17.3%

36.1%

3.3%1.1%

91.5%

Dec ‘9914

12 00810 8034 9382 9092 545

577364

3 100

3 6201 205

18 50534 391

-8.6%-14.3%-5.1%51.8%-49.4%

28.7%2.7%23.6

58.9%

16.5%

58.9%

12.5%63.1%19.8%

5.2%

1.633.5%49.8%

14.5%

24.2%8.6%

128.2%

Dec ‘0011

9 1928 3243 9662 6112 453

198158

3 030

1 867868

22 95840 174

-22.9%-19.7%-10.2%-48.4%-65.7%

36.4%3.2%

29.5%65.8%

13.1%

85.5%

6.1%79.8.%

7.6%

2.3%

2.622.4%34.1%

9.8%

30.2%10.5%

137.5%

Building Societies

Dec ‘988

44 31544 31534 54615 75815 0011 967

75817 327

1 493000

17.6%11.7%-2.5%-0.6%-9.8%

39.1%2.8%

33.9%45.6%

4.1%

21.8%

4.8%38.5%12.5%

4.4%

27.63.4%3.6%

87.4%

-0.3%-0.1%90.7%

Dec ‘995

39 83839 83832 57714 67714 0721 232

60518 586

3 300000

-10.1%-5.7%-6.9%

121.0%-37.4%

46.7%3.0%

35.3%45.1%

1.0%

19.2%

4.1%49.1%8.4%

3.0%

10.58.3%

13.4%

31.5%

12.0%2.2%

101.1%

Dec ‘005

43 12243 12235 19615 57414 4301 5721 144

21 373

3 875000

8.2%8.0%6.1%

17.4%27.6%

49.6%2.9%

33.5%44.2%

1.0%

23.9%

7.3%72.8%10.1%

3.6%

9.79.0%

15.3%

31.3%

13.3%2.4%

100.3%

System Total(Consolidation of all

3 sectors)

Dec ‘9835

230 745221 178154 39661 90852 41214 1639 497

89 389

9 0969 567

17 97325 156

12.8%4.9%

-23.6%83.0%

-35.6%

40.4%2.9%

23.7%40.1%

16.7%

47.1%

15.3%67.1%22.9%

6.1%

21.84.1%5.8%

76.2%

-1.7%-0.3%83.2%

Dec ‘9925

246 803238 919164 32954 30548 8096 9405 496

111 043

21 6627 884

18 55534 851

8.0%6.4%

-12.3%138.1%-51.0%

46.5%2.6%

20.4%33.0%

12.6%

42.1%

10.1%79.2%12.8%

2.8%

9.39.1%

19.8%

25.6%

9.7%1.8%

92.2%

Dec ‘0022

274 362268 075188 82958 75252 2025 6196 550

134 910

23 8676 287

23 00840 760

12.2%14.9%8.2%

10.2%-19.0%

50.3%2.3%

19.5%31.1%

10.3%

41.3%

11.1%116.6%

9.6%

2.0%

9.58.9%

21.2%

18.5%

16.0%2.8%

98.8%

A N N U A L R E P O R T 2 0 0 0


TABLE 24

ASSESSMENT OF PERFORMANCE OF SUPERVISED INSTITUTIONS AGAINST PRUDENTIAL TARGETS(Commercial Banks, Building Societies, FIA Licensees)

Risk Assets Ratio (RAR)Capital Base: Total AssetsPDL: Capital Base + Prov.PDL: Total LoansProv. For Loan Losses: PDL*Prov. For Loan Losses: Total Loans*Income Assets: Expense LiabilitiesReturn on Average Assets**

InternationalBenchmark

8.00%6.00%

n/a10.00%

--

n/an/a

JamaicanPrudentialBenchmark

> 10.00%> 6.00%< 20.00%< 10.00%

--

>100.00%> 0.60%

Actual

19.8%9.1%

25.6%12.8%79.2%10.1%92.2%

1.8%

Variance

9.8%3.1%5.6%2.8%

--

7.8%1.2%

Actual

21.2%8.9%

18.5%9.6%

116.6%11.1%98.8%

2.8%

Variance

11.2%2.9%1.5%0.4%

--

1.2%2.2%

Dec ‘99 Dec ‘00

Notes:

1. Actual ratio results generated from unaudited prudential data submitted by supervised institutions.

ii. Capital Base = Paid-up Capital + Reserve Fund + Retained Earnings fund + Share Premium less impairment by net losses of individual institutions.

iii. Capital used in the estimated RAR computation represents capital base less investment in subsidiaries.

iv. PDL - Past Due Loans

v. Income Assets comprise FC Cash Reserves, Placements, Investments, Repo Assets and Loans less PDL (3 mths & over).

vi. Expense Liabilities comprise Deposits, Borrowings including Repo liabilities (from BOJ, Banks, OFI etc)

vii. Variance = Actual - Prudential Benchmark

viii n/a - not applicable - no industry benchmark set internationally.

* No industry prudential benchmark set. Targets established based on requirements for provision in each case.

* * The range of acceptable performance for this ratio varies with, inter-alia, the size of the institution, national and regional economic factors.

The minimum acceptable level for most institutions is 0.6%


International Economic Developments

During 2000, there was a further expansionin global economic activity, following the

rebound in 1999. The continued improvement inoutput growth was influenced mainly by thecontinued buoyancy of the US economy, thestrengthening of the economies in the euro areaand also the sustained improvement in a numberof emerging market economies in East Asia andLatin America. Among the primary contributoryfactors to the increase in economic output wasthe commitment to economic stability on the partof policy makers in these economies, coupled withcontinued structural reforms. This was supportedby increased earnings from exports, despite thestrong presence of price volatility in the commoditymarkets during the year.

Industrial Countries

The major industrial economies showed someimprovement in economic activity in 2000. Thisemanated from the protracted robustperformance of the US economy in the first halfof the year, supported by the upswing ineconomic activity in the euro area, during the latterpart of the review period. The US economyregistered an expansion in real GDP estimatedat 3.5 per cent compared with 4.2 per cent in

External Sector Developments

1999. The performance of the US economy, whichwas in its tenth consecutive year of growth wasattributable mainly to a rapid increase ininvestment in the technology sector, following thephenomenal gain in asset prices in 1999. Strongbusiness confidence also helped to mitigate aweakening of economic activity, which had beenanticipated to commence from as early as thefirst quarter of 2000.

The concern about an economic slowdown wasunderpinned by the Federal Reserve Board’scommitment to a restrictive monetary path during2000, following the initiation of a series of ratehikes in 1999. Between June 1999 and May2000, the Federal Reserve increased its overnightlending rate by 125 basis points to 6.5 per cent,and this remained in effect until the end of theyear. The increase in interest rates wasengendered by the threat of inflationarypressures as the leading economic indicatorspointed to a narrowing of the US output gap. Inlight of these developments, the economy beganto exhibit signs of a slowdown in the latter halfof the year, with the projected 1.4 per cent growthrate in the last quarter being the lowest in over adecade. This unimpressive fourth quarter out-turnmirrored a dampening in corporate confidenceas companies began issuing profit warnings.When compared with the rapid asset marketgains in 1999, the fall-off in company earningsfor 2000 had a negative effect on consumerwealth during the year. Moderation in asset

44

A N N U A L R E P O R T 2 0 0 0

market performance coupled with the threat ofwidespread lay-offs led to a partial erosion ofconsumer confidence, which underpinned anotable decline in private demand in the lattermonths of the year. Despite the concern for jobsecurity, labour markets in the US remained tightthroughout the year, as the unemployment ratefell to 4.0 per cent in 2000, from 4.2 per cent in1999, possibly reflecting the lagged effect ofmonetary policy adjustments. To allay fears ofan imminent technical recession, the FederalReserve initiated two interest rate cuts of 50 basispoints each in January 2001, bringing the federalfunds rate to 5.5 per cent at the time of writing.

For 2000, the inflation rate in the US, as measuredby the rate of change in the consumer price index(CPI), increased to 3.4 per cent, from 2.2 per centin 1999. The highly competitive interest rate pathpursued by the Fed in 2000 facilitated astrengthening of the dollar against the othermajor currencies. The appreciation of the dollarwas partly responsible for a further deteriorationof the goods balance during the period underreview. Based on available data to November,2000, the US trade deficit widened to US$441.7billion, from US$335.7 billion in the same periodof 1999.

In Canada, economic growth is expected to haveincreased moderately to 4.7 per cent in 2000,from 4.5 per cent in 1999. This improvedperformance resulted mainly from an increase inexports and higher investment spending. Thesefactors contributed to an expansion inemployment opportunities as the rate of

unemployment contracted to 6.8 per cent in 2000,from 7.6 per cent in 1999. In light of the increasedcapacity utilisation, inflationary pressuresintensified in the latter half of the year, leadingto an acceleration in the inflation rate to 3.2 percent in 2000, from 1.7 per cent in 1999. To staveoff mounting inflationary expectations, the Bankof Canada maintained a restrictive monetarystance throughout the year. This culminated in a50 basis points increase in the Bank’s benchmarkrate, to 6 per cent in mid-May of 2000. ByNovember 2000, Canada’s trade surplus hadwidened to approximately US$33.6 billion,relative to a surplus of US$21.8 billion inNovember 1999. The expansion in the tradesurplus resulted primarily from an increase inexports to its partners in the North American FreeTrade Agreement (NAFTA).

For 2000, the United Kingdom (UK) recorded 2.4per cent economic growth, up from 2.1 per centin 1999. This emanated from a general increasein private demand and a narrowing of the tradedeficit. Based on available data to September2000, the unemployment rate declined to 5.3per cent from 5.9 per cent in the comparableperiod of 1999. Fuelled by the strength ofconsumer spending, inflationary pressuresdeveloped in the latter half of the year, resultingin an inflation rate of 2.9 per cent in 2000, upfrom 2.3 per cent in 1999. Monetary policyremained restrictive throughout the year, in anattempt to lean against the inflationary pressures.However, the Bank of England announced a 50basis points rate cut in February 2001, an attemptat maintaining momentum in the economy. It is

External Sector Developments 45


estimated that the UK trade deficit had narrowedto US$42.4 billion by November, 2000, fromUS$42.9 billion in November, 1999.

Economic growth in the euro area is projected tohave accelerated to 3.5 per cent in 2000, from2.4 per cent in 1999. This stronger growth wasexhibited in all of the major economies in theregion. The main contributors to this improvedperformance were the recovery in business andconsumer confidence, the increasedcompetitiveness of the euro and the ongoingrobustness in the global economy, as reflectedin increased earnings from exports. Consistentwith the resurgence in economic activity in the euroarea was a further narrowing of theunemployment gap. For 2000 the unemploymentrate declined to 8.7 per cent, from 9.6 per cent in1999. Emanating from the tightening labourmarket were higher wage claims, which, coupledwith increased global oil prices, resulted in therate of inflation climbing to 2.6 per cent in 2000from 1.2 per cent in 1999. This doubling of theinflation rate was well in excess of the 2 per centbenchmark rate set by the European Central Bank(ECB). To contain the destabilizing effects of risinginflation and also to ease the downward pressureon the euro, the ECB continued to pursue a seriesof 25 basis points interest rate increases, whichbegan in the last quarter of 1999. At the end of2000, the ECB’s repo rate had risen to 4.75 percent, up from 3 per cent at the end of 1999. Forits part, the trade surplus in the euro areanarrowed to US$13.5 billion in 2000 from US$64billion in 1999.

In Japan, economic growth is expected to haveinched up to 1.4 per cent in 2000, from 0.2 percent in 1999. This outturn came against thebackground of a strengthening in economicactivity in the first two quarters. However, therewas a marked slowdown in economic momentumin the fourth quarter of 2000. This improvementwas an exhibition of the Bank of Japan’scommitment to a steady recovery of theJapanese economy as reflected in its almost zerointerest rate policy. Structural reforms in thebanking sector also provided a basis for themodest strengthening of the economy. For itspart, the technology sector remained the majorfacilitator of growth within the economy asreflected in rising corporate profits andinvestments in the sector. Among the challengesthat continue to affect growth prospects in theeconomy is the depression in corporate andconsumer confidence, accompanied by thepersistence of structural weaknesses. In theforeign exchange market, the yen experienced ahigh degree of volatility during the year,depreciating to 114.20 yen to the US dollar atend 2000, from 102.36 yen to the US dollar atend 1999.

Emerging Market Economies

The pace of recovery in emerging marketeconomies accelerated during 2000. It is projectedthat output in these economies as a wholeincreased by 5.6 per cent, compared with 3.8per cent in 1999. While all the regions in this groupare expected to have experienced economicgrowth, the most significant increase is likely tobe in the Latin American and Caribbean region.

46 External Sector Developments

A N N U A L R E P O R T 2 0 0 0

Economic activity in the Latin American and theCaribbean region is expected to have increasedby 4.3 per cent in 2000, compared with 0.2 percent in 1999. This remarkable outturn is expectedto result from increasing investor confidencearising from the stabilization measures that wereimplemented in a number of these economies andalso the prolonged expansion in the US economy.

Brazil maintained its position as the leader of theLatin American countries, with economic growthaccelerating to 6.5 per cent in 2000, from 1 percent in 1999. The primary impetus to growth inBrazil was the depreciation of its currency, thereal, which occurred in the wake of the 1999 crisis.This provided a boost to the export sector, whichfacilitated an increase in domestic consumerdemand and a rapid expansion in industrialoutput. By the end of December 2000, Brazil’sunemployment rate declined to 5.6 per cent, from7.1 per cent at the end of 1999.

It is estimated that the Mexican economy grewby 6.5 per cent in 2000, up from 3.5 per cent in1999. This was attributable primarily to increasedprivate demand due to more favourable exportprices, especially oil, and the continued buoyancyof economic growth in its NAFTA partners. Theincrease in exports was not sufficient tocompensate for the growth in imports, whichresulted in a widening of the trade deficit toUS$8.0 billion in 2000, from US$5.2 billion in 1999.Inflationary impulses were less pronounced duringthe year. There was a significant reduction in theinflation rate to 9 per cent in 2000, from 16.6 percent in 1999, reflective of the central bank’s pursuitof a restrictive monetary path.

Economic growth in the other major economies inLatin America is estimated to range between 0.5per cent and 6 per cent in 2000, compared witha range of negative 7.3 per cent and 3.8 percent in 1999 (see Table 26). Higher exports, partlyarising from a weakening of some of the majorcurrencies in this group contributed to thestrengthening of these economies. With theexception of Ecuador, the acceleration in economicgrowth was not accompanied by higher inflation,as some economies were still operating wellbelow their potential output. The inflation rate inEcuador which increased to 96.6 per cent in 2000,from 52.2 per cent in 1999, was engendered bya substantial devaluation of the sucre during theyear.

In Trinidad & Tobago, provisional data indicatethat the economy expanded by 7.9 per cent in2000, compared with 7 per cent in 1999. Thispositive growth was attributable mainly to amarked increase in the level of investments in themanufacturing and service sectors (financial, realestate, distribution, transport andcommunications). The trade account registereda surplus of US$540.5 million for the first sixmonths of 2000, compared with a deficit ofUS$131.2 million in the comparable period of1999. Consumer price inflation increased to 3.6per cent in 2000 from 3.4 per cent in 1999.

Preliminary data for Guyana reflect economicoutput increasing by 3 per cent in 2000, the samegrowth rate as in 1999. The primary source ofgrowth was in the mining sector, which recordedincreased investments in the diamond andbauxite industries. For 2000, the inflation rate



declined to 4.8 per cent, from 8.6 per cent in 1999.This was a direct result of the central bank’srestrictive monetary stance and also the relativecalm in the foreign exchange market.

Preliminary data from Barbados indicate that forthe first nine months of 2000, the economy grewby 3 per cent, compared with a growth rate of2.5 per cent in the corresponding period of 1999.The expansion in economic output was reflectiveof the reversal of the slowdown in tourism inflowsduring the year. There was evidence of atransmission of the increased output to consumerprices as the inflation rate for 2000 declined to1.8 per cent, from 2.6 per cent in 1999.

For the East Asia region, it is estimated that theannual economic growth rates ranged between3.9 per cent and 8.8 per cent in 2000 comparedwith a range of 0.3 per cent and 7.1 per cent in1999 (see Table 26). The stronger performanceof these economies is ascribable to thecontinuation of stabilization measures that wereimplemented following the crisis in 1997, and tostrong growth in exports. Despite the continuedpresence of some degree of structural weaknesswithin the region, there has been a furtherstrengthening of the financial system and theaccumulation of foreign reserves. There areindications that the rate of change in consumerprices within the region has been adverselyaffected by the strong expansion in output (seeTable 26).

Increased demand for electronic devices from EastAsia remained the primary source of growth in

export earnings during the review period. The bulkof these exports went to the US market asconsumer demand in the Japanese economyremained sluggish during 2000. The increase inexports was not sufficient to offset the expansionin imports resulting in a further widening of thetrade gap for the region.

Commodity Markets

The recovery in global commodity pricesintensified at the beginning of the year, but lostits momentum following the gradual slowdownin consumer demand in the larger export marketsduring the latter part of 2000. Accordingly, theUS Dollar all items index indicated a 17.31 percent reduction in commodity prices for 2000.Among the major commodities affected were oil,base metals and food.

Based on the benchmark Brent crude oil index,international oil prices declined to US$22.39 perbarrel at end 2000, from US$25.27 per barrel atend 1999. During 2000, oil prices exhibited boutsof instability, climbing to US$36.15 per barrel inSeptember, the highest level since the Gulf Warin 1991. The volatility experienced in the oil marketemanated from the continuation of a series ofdaily production cuts led by the Organization ofPetroleum Exporting Countries (OPEC) whichbegan in March 1999. However, amidst risinginternational pressure and slowing consumerspending, OPEC agreed to restrain the rise in oilprices by introducing a more realistic price settingmechanism, which resulted in the graduallowering of oil prices in the latter part of the year.


A N N U A L R E P O R T 2 0 0 0


During 2000, the prices for base metals fell byan approximate 7.2 per cent, also reflective ofthe decelerated pace of global economic activity.This was due in part to a reduction in automobilesales, which has a high metal content. Ofparticular interest was a marked reduction inaluminium prices which declined to US$1567.50at end 2000, from US$1 624.50 at end 1999.

Food prices continued to decline as growth inoutput outstripped the growth in demand,leading to a 19.4 per cent reduction in the US-based food index for 2000. The most significantdecline was in coffee prices, which fell toUS$46.91 per pound in 2000, from US$88.55 perpound in 1999. On the other hand, there was anincrease in wheat prices, which climbed toUS$2.72 per 60 pound bushel in 2000 fromUS$2.46 per 60 pound bushel in 1999.

Other Developments

During 2000, the issue of currency substitutionbecame quite topical as a number of countriesgrappled with weakening currencies following thefinancial crisis, which developed in 1997. Chiefamong these economies was Ecuador, whichexperienced severe economic instability from1999 into 2000, resulting in a significantdevaluation of the sucre and the subsequentadoption of the US dollar as the official mediumof exchange. The successful launch of the euroalso gave credence to the debate as a numberof non-European Union (EU) countries in Europeare now seeking to gain membership in the euroarea. In addition, the birth of the euro has also

provided an alternate source of external financingas a number of emerging market economiesincluding Jamaica were able to issue euro-denominated bonds at relatively morecompetitive interest rates.

Arising out of the discussions that ensued in 1999between the EU and the African, Caribbean andPacific (ACP) countries was the signing of theCotonou Agreement in 2000. Among thesignatories to this agreement was Jamaica. Theprimary objectives of the agreement are ‘povertyreduction and ultimately its eradication,sustainable development and the progressiveintegration of ACP countries into the worldeconomy’. This agreement encompasses theestablishment of new trading arrangementsunder the Lome 1V Convention, with a scheduledimplementation date for 2008. A major conditionunder which the Cotonou Agreement wasestablished is that it should be compatible withthe World Trade Organisation’s (WTO)guidelines.

Prospects for 2001

Global economic and financial conditions areexpected to continue improving in 2001, albeit ata slower pace than in 2000. With growth in theUS economy projected to slow in 2001, thispositive outlook is posited on a stronger growthin Europe and the emerging markets. As the US

economy appears to be approaching the end ofits business cycle, it is expected that thecommencement of a series of interest rate cuts,initiated by the Federal Reserve in January 2001,


will facilitate some recovery in consumerconfidence and therefore stave off a possiblerecession in 2001.

The prospect for the euro area reflects thesupportive role of the present macroeconomicmeasures, and also ongoing structural reform inthe labour markets within the region. Accordingto the World Economic Outlook, economic growthin the region is expected to rise to 3.4 per cent in2001 out-pacing that of the US economy. One ofthe major challenges for the year is thecontainment of inflation within the EuropeanCentral Bank’s (ECB) target of 2 per cent perannum.

For the economies in Latin America, economicgrowth is projected to increase to 4.5 per cent in2001, from 4.3 per cent in 2000. The emergingmarket economies in East Asia are expected toregister a marginal deceleration in economic

activity to 6.6 per cent in 2001, from 6.7 per centin 2000. The relatively modest outlook for Asiareflects the relative fragility of these economiesin their continuing susceptibility to external shocks.

The favourable outlook for the emerging marketeconomies as a whole is predicated on thestrengthening of business confidence in thefinancial markets within these economies. Thiscomes against the background of a commitmentby the authorities in some of these economies tomaintain and further implement macroeconomicmeasures geared towards sustaining economicgrowth. In addition, with interest rates in the USeconomy on the decline, this will facilitate areduction in the level of interest rates on theinternational capital markets and also domesticmarkets.


JAMAICA CO-OPERATIVE CREDIT UNION LEAGUE ACTIVITIES ASSETS AND LIABILITIES

TABLE 25

ADVANCED ECONOMIESReal GDP, Consumer Prices, Unemployment Rates and Trade Balance

(Annual percentage change and per cent of labour force)

Inflation Rate

Country

USUKEuro areaCanadaJapan

2000

-441.7-42.413.533.6

117.0

Trade BalanceUS$BN

Source: The Economist, the World Economic Outlook and Bloomberg Markets Report.

* As at November 1999 and 2000.

1999

-335.7-42.964.021.8

123.5

2000

3.42.92.63.2

-0.2

1999

2.22.31.21.7

-0.3

2000

4.05.38.76.84.8

UnemploymentRate

1999

4.25.99.67.64.7

GDP

2000

3.52.43.54.71.4

1999

4.22.12.44.50.2

A N N U A L R E P O R T 2 0 0 0


TABLE 26

SELECTED ECONOMIC INDICATORS - SELECTED DEVELOPING COUNTRIESReal GDP, Consumer Prices and Trade Balance

(Annual percentage change)

Inflation Rate

Country

BarbadosGuyanaTrinidad and TobagoArgentinaBrazilChileColombiaEcuadorMexicoPeruVenezuelaChinaHong KongIndonesiaMalaysiaPhilipinesSingaporeSouth KoreaTaiwanThailand

2000

-0.40.010.51.1

-0.71.52..

1.4-8.0-0.214.124.1

-10.928.316.05.74.0

12.18.45.6

Trade BalanceUS$BN

Source: The Economist, the World Economic Outlook, the Central Banks of Barbados.

Guyana and Trinidad and Tobago and the Bloomberg Markets Reports.

* Jan - Jun

1999

-0.4-0.01

-0.1-2.2-1.21.71.31.4

-5.2-0.55.0

29.1-5.624.719.04.53.6

24.811.08.9

2000

1.84.83.6

-0.75.34.58.8

96.69.04.0

13.41.5

-1.89.41.41.46.63.21.71.3

1999

2.68.63.4

-1.24.93.3

10.952.216.6

3.723.6-1.4-4.020.8

2.86.71.41.40.10.3

GDP

2000

3.03.07.91.76.56.03.00.56.54.02.57.58.04.86.03.97.98.86.05.0

1999

2.53.07.0

-3.11.0

-1.1-4.5-7.33.53.8

-7.27.16.10.35.63.33.56.32.94.2

Balance of Payments

Preliminary estimates on the balance of paymentsfor 2000 compared with revised data for 1999and 1998 are provided in Table 27.

The current account recorded a deficit ofUS$337.9 million in 2000. This was US$64.4 millionabove the deficit recorded in 1999. The 2000 out-come was influenced mainly by a US$219.8 millionexpansion in the level of net payments on the

goods account, which was countered primarilyby a US$160.8 million increase in net reciepts fromcurrent transfers.

The capital and financial accounts recordedrespective surpluses of US$2.2 million andUS$335.7 million in 2000, US$13.1 million andUS$51.3 million larger than surpluses recordedon the two accounts in 1999. Within the financialaccount, net private investment inflows ofUS$462.9 million complemented a net inflow of

***

*

***

*


US$395.8 million for official investments. Thesurpluses on the capital and financial accountswere more than sufficient to finance the currentaccount deficit. As a consequence, the NIR ofJamaica grew by US$523.0 million in 2000.

TABLE 27

BALANCE OF PAYMENTS SUMMARY(US$M)

CURRENT ACCOUNTA. GOODS BALANCE

Exports (f.o.b.)Imports (f.o.b.)

B. SERVICES BALANCETransportationTravelOther Services

GOODS & SERVICES BALANCE

C. INCOMECompensation of employeeInvestment income

D. CURRENT TRANSFERSOfficialPrivate

2. CAPITAL & FINANCIAL A/C

A. CAPITAL ACCOUNTCapital transfers

OfficialPrivate

Acq./disposal of non-prod.non-fin’l assets

B. FINANCIAL ACCOUNTOther Official InvestmentOther Private InvestmentsReserves

-305.8-1 130.51 613.42 743.9

501.1-278.4998.9

-219.4

-629.4

-308.166.1

-374.2

631.745.7

586.0

305.8

15.515.5

4.211.3

0.0

290.3-41.3370.9-39.3

1998

-273.5-1 133.71 500.72 634.4

540.5-229.5

1 052.4-282.4

-593.2

-332.570.3

-402.8

652.245.8

606.4

273.5

-10.9-10.9

4.1-15.0

0.0

284.4-331.4482.2133.6

1999

-337.9-1 353.5

1 554.62 908.1

538.6-247.2

1 123.9-338.1

-814.9

-336.067.4

-403.4

813.0147.9665.1

337.9

2.22.2

15.6-13.4

0.0

335.7395.8462.9

-523.0

2000

3/

1/ 1/ 2/

1/ Revised

2/ Provisional

3/ Includes Errors & Omissions

Merchandise TradeExports

During 2000, Jamaica’s total export earningsamounted to US$1 554.6 million. Of this, earningsfrom general merchandise exports amounted toUS$1 293.1 million, while freezone exports andgoods procured in Jamaican ports by foreigncarriers totalled US$223.6 million and US$37.9million, respectively. A breakdown of exportearnings by the major commodity groups for2000, compared with 1999, is provided in Table28.

TABLE 28

TRADITIONAL & NON-TRADITIONAL EXPORTS(US$M)

TOTAL GENERAL EXPORTSMajor Traditional Exports

BauxiteAluminaSugarBananas

Other Traditional ExportsCitrusCocoaCoffeePimentoRumGypsum

Non Traditional Exports

RE-EXPORTS

FREEZONE

GOODS PROCURED IN PORTS

GRAND TOTAL

1 247.3809.1

56.0628.095.329.8

65.54.42.7

24.74.9

27.61.2

338.2

34.5

223.9

29.5

1 500.7

1999

1 293.1836.0

45.5684.383.322.9

73.04.62.3

33.14.4

26.42.2

344.3

39.8

224.0

37.9

1 554.6

2000

45.826.9-10.556.3

-12.0-6.9

7.50.2

-0.48.4

-0.5-1.21.0

6.1

5.3

0.1

8.4

53.9

Change1/ 2/

3.73.3

-18.79.0

-12.6-23.2

11.55.1

-14.334.0

-11.0-4.287.6

1.8

15.3

0.0

28.5

3.6

%Change

1/ Revised

2/ Provisional


A N N U A L R E P O R T 2 0 0 0


Compared with 1999, total export earnings in2000 increased by US$53.9 million, or 3.6 percent. The value of general merchandise exportsand goods procured in Jamaican ports by foreigncarriers expanded by US$45.8 million and US$8.4million, respectively, while earnings from freezoneexports remained relatively stable. Within thegeneral merchandise group of exports, respectiveexpansions of US$26.9 million, US$7.5 million,US$6.1 million and US$5.3 million were recordedfor major traditional exports, other traditionalexports, non-traditional exports and re-exports.

The performance of the major traditional groupof exports in 2000 was influenced principally bya 9 per cent growth in earnings from aluminaexports. In contrast, earnings from bauxite exportswent down by US$10.5 million, or 18.8 per cent,while the value of sugar and banana exports fellby US$12 million, or 12.6 per cent, and US$6.9million, or 23.2 per cent, respectively.

The expansion in the value of alumina exportsimplied an increase of 8.9 per cent in the price ofalumina, given the marginal growth in exportvolumes. For the year, alumina prices averagedUS$191.10 per tonne, relative to the averageprice per tonne of US$175.50 that was realisedin 1999. The strongest growth in prices occurredin the first two quarters of the year. During thefirst quarter, alumina price averaged US$194.90per tonne, 21 per cent higher than the averageprice per tonne that was realised in the firstquarter of 1999, and represented the highestlevel of prices attained in four years. For thesecond quarter, prices averaged US$191.00 per

tonne, 16.4 per cent above the average priceper tonne in the second quarter of 1999. Whileprices remained relatively stable for the remainingtwo quarters of the review year, there wasevidence of a retreat in the last quarter relativeto the average price realised in the third quarterof 2000, as well as relative to prices in the lastquarter of 1999.

The behaviour of alumina prices in the first half ofthe year was set against the background of theexplosion at the Kaiser refinery at Gramercy,Louisiana in July 1999, the effects of whichpersisted for the remainder of 1999 and into2000. The supply constraints created by theclosure of the refinery, as well as increased worlddemand for metal arising from the economicperformance of some developed countries,affected prices positively.

For 2000, the export volume of alumina expandedmarginally by 3.3 thousand tonnes, or 0.1 percent, to approximately 3.58 million tonnes,representing the fifth consecutive year of growth.The higher export volume occurred in the contextof the initiatives and progress made under theMemorandum of Understanding signed in early1998 by the GOJ, the Bauxite/AluminaCompanies and the Trade Unions. The slowdownin growth is, however, an indication that the plantsare operating at almost full capacity, suggestingthat, outside of further capacity expansions withinthe industry, there is little leeway for incrementalimprovements in output.


The decline in the value of bauxite exports for2000 also reflected the impact of the explosionat the Kaiser alumina refinery. Bauxite exportvolumes in 2000 amounted to approximately 2.2million tonnes, 0.6 million tonnes or 23 per centbelow the levels recorded for 1999. In responseto the fallout in the demand from the Gramercyplant for crude bauxite, the Government securedan alternative market from the Ukraine topurchase 250 thousand tonnes of bauxite. Partlyas a consequence of this initiative, export of crudebauxite for the first and second quarters of theyear amounted to 654 thousand and 519thousand tonnes, respectively. With the partialre-opening of the Gramercy plant in the lastquarter of the year, bauxite exports amountedto approximately 573 thousand tonnes for thatquarter.

Relative to 1999, the average price of crudebauxite was adjusted upwards by US$1.10 pertonne, to US$21.15 per tonne. This upwardadjustment occurred because of a change inKaiser’s pricing formula, aimed at facilitatinggreater transparency in the pricing arrangementfor crude bauxite exports.

The prospects for further growth of the domesticbauxite/alumina industry for 2001 are favourableas, with the full resumption of the Gramercyprocessing plant in the early part of the year,bauxite exports are expected to surpass 4 milliontonnes for the year. On the domestic supplyside, incremental growth in capacity and outputis likely in the context of planned increases incapital expenditure by some of the companies.

For example, as part of the 1998 Memorandumof Understanding, Alpart has embarked on anexpansion programme to increase its output from1.6 million to 1.8 million tonnes of alumina peryear by the year 2003. The proposed transfer ofthe Alcan plant to a new owner at the end of thefirst quarter of 2001 is not expected to significantlyaffect the local industry. Despite lower projectedgrowth in the world economy, and in the US inparticular, reduced world supply as a result ofcutbacks by major producers, as well as theconstricted supply conditions in the US PacificNorthwest, should serve to buoy prices aroundthe levels attained in 2000.

Earnings from sugar exports amounted toUS$83.3 million in 2000, US$12.0 million less thanthe level of earnings recorded in 1999. Exportvolumes contracted by 5 per cent toapproximately 169 thousand tonnes, while theaverage price per tonne of sugar realised in 2000fell by approximately 8 per cent. The fall-off inexport volume resulted entirely from the non-shipment of sugar to the US, the consequence ofan oversupply of sugar on that market,necessitating a temporary suspension of thecountry’s import quota. The industry washowever compensated for the suspension. Onthe European market, the export volume underthe regular protocol agreement, and under theSpecial Preferential Sugar (SPS) accessarrangement, expanded by 1.6 per cent, withJamaica surpassing its export quota for the UKby approximately 13 thousand tonnes.Notwithstanding this performance, the averageprice of sugar on the European market fell by


A N N U A L R E P O R T 2 0 0 0

concerned. On the domestic side, producers inthe industry are optimistic of the sector’s abilityto reduce cost from the present US$0.30 perpound of sugar to US$0.20 per pound by 2004.Beyond this, investments in the industry in 1999in terms of new equipment, improved farm roads,and accelerated and improved planting schedulesimply that the industry is poised to significantlyincrease its production and export volumes overthe medium term. In the short run, however, theindustry’s production and exports are expectedto be adversely affected by drought that affectedthe island during the planting season in 2000.

Export earnings from banana amounted toUS$22.9 million in 2000, which was US$6.9 millionor 23.2 per cent below the 1999 level. The lowerearnings from banana in 2000 stemmed fromreductions in both export price and volume. Theaverage price per tonne of banana in 2000 wasUS$549.20, US$29.50, or 5.1 per cent below theaverage price in 1999. Prices were affected bythe depreciation of the Euro vis-à-vis the US dollar.The export volume of bananas in 2000 amountedto 41.7 thousand tonnes, which wasapproximately 9 800 tonnes, or 19 per cent belowthe level exported in 1999. In addition to theeffects of adverse weather conditions, inclusiveof drought and wind damage, the contraction inthe export volume of banana continued to reflectthe impact of praedial larceny and the transitionaleffects of continuing removal of inefficient andunproductive fields from cultivation.Notwithstanding the decline in export price andvolumes, there was marked improvement in thequality of exportable fruits as indicated by the


approximately 9 per cent to US$492.80 pertonne. This decline occurred in the context of a10 per cent depreciation in the average exchangerate for the Euro vis-à-vis the US dollar, over thecrop year, relative to the same period in 1999.The crop year ran from November 1999 to July2000.

It is noteworthy that despite the decline in exportvolume, sugar production in 2000 was maintainedat the levels realised in 1999. This performancewas facilitated by favourable harvestingconditions, which served to enhance the sucrosecontent of the crop, as well as by improvedfactory efficiency, brought about by significantinvestments in the industry by both private andpublic sector interests in 1999. In this context, animprovement in the tonnes of cane to tonnes ofsugar ratio (TC/TS) from 11.3 in 1999 to 9.3 in2000 was achieved.

The medium-term prospects for the sugar industrywill be determined by the outcome of tradeagreements that are currently being re-negotiated, and the ability of the domesticindustry to improve its efficiency. In June 2000,Jamaica signed the ACP/EC partnershipagreement entitled the Cotonou Agreement whichextended the country’s non-reciprocal tradepreferences applied under the Lome IV conventionuntil 2008. However, new initiatives in the wakeof the Cotonou Agreement threaten to negatethe benefits that are anticipated by the ACPcountries from the new agreement, particularlywhere the eight-year preparatory period forliberalisation of the European market is


Percentage Units Weights Specification (P.U.W.S.),and hence the spot price per tonne of fruitexported. This improvement in the spot priceserved to offset some of the adverse effects ofthe depreciation of the Euro vis-à-vis the US dollar.

During the year, there was a continuation of theprocess started in the previous year to restructureand rationalise operations in the banana industry,in order to promote greater all-round efficiencyand productivity. These adjustments cameagainst the background of the WTO’s ruling infavour of the US and against the EU, in relationto the existing banana regime, which givespreferences to former British and French colonies.The banana industry also received a pledge ofEuro 26.5 million over the next five years, providedunder the EU Banana Support Programme(EUBSP), to spur development in the industry.

The value of the other traditional category ofexports expanded by US$7.5 million or 11.5 percent to US$73.0 million in 2000. This growthprincipally reflected increased earnings fromcoffee exports, which expanded by US$8.4 millionor 34 per cent to US$33.1 million. Improvementswere registered in both export volumes and theaverage price of coffee. Compared with 1999,total coffee exports grew by 268 tonnes, or 18.3per cent, to 1 733 tonnes, reflecting increaseddemand from Japan. Similarly, the average priceper tonne of coffee rose by 13.2 per cent, as theexport quality/grade of the coffee improvedrelative to 1999. Also reflecting significantimprovements were citrus and gypsum exports,which recorded increased earnings of US$0.2

million, or 5.1 per cent, and US$1 million, or 87.6per cent in 2000 relative to 1999, respectively.While export volumes for citrus fell relative to1999, the price per tonne exported rose by 11.8per cent in 2000. In conjunction with an increasein price, gypsum exports rose significantly by 75.6per cent to approximately 275.7 thousand tonnesin 2000. The value of rum exports declined by4.2 per cent in 2000, in the context of respectivecontractions of 0.2 per cent and 4 per cent in priceand volume exported.

Earnings from the non-traditional export grouprose by US$6.1 million, or 1.8 per cent, toUS$344.3 million in 2000. Respective expansionsof US$19.4 million and US$3.9 million in chemicaland manufactured exports largely accounted forthis increase. Partly countering this growth werecontractions of US$12.2 million and US$15.8million in miscellaneous manufactured exports andfood exports, respectively. The growth in chemicalexports reflected increased exports of ethanoland aluminum hydroxide, while manufacturedgoods exports benefited from increased sale ofglass, doors and windows. The decline inmiscellaneous manufactured exports was largelyinfluenced by the garment sector as localoperators continued to either scale down activitiesor withdraw from the sector. In the case of foodexports, the drought, as well as export restrictionson selected food items, particularly yams, werethe principal factors affecting sales.

Re-exports of US$39.8 million in 2000 were

US$5.3 million more than in 1999. The dataincludes the re-export of machinery & equipment


A N N U A L R E P O R T 2 0 0 0

by garment operators, who had terminatedoperations in Jamaica.

There was relative stability in the operationswithin the three freezones in 2000. Exportearnings totalled approximately US$224 millionfor the year, similar to the estimated earnings ofthe industry in 1999. In conjunction withgovernment initiatives aimed at stabilising thesector, the passing of the Caribbean BasinInitiative (CBI) Enhancement Bill by the USCongress may have served to defer the decisionby some companies to pull out of the country infavour of lower cost jurisdictions. The Bill, whichwill ensure duty-free and quota-free access forapparel made in CBI countries from US-formedfabrics and US yarn, means that the Caribbeanwill enjoy access to the US apparel market similarto that enjoyed by Mexico under NAFTA.

Bunker supplies and other items procured inJamaican ports by foreign carriers were valuedat US$37.9 million in 2000, US$8.4 million higherthan in 1999. The increase in 2000 largelyreflected a higher value for fuel sold to foreigncarriers, stemming from increases in fuel prices.

Imports

For 2000, total imports (c.i.f.) were valued atUS$3 380.7 million, of which general merchandiseimports amounted to US$3 200.1 million, whilefreezone imports and goods procured in foreignports by the domestic carrier amounted toUS$142.3 million and US$38.3 million,respectively. The out-turn for total imports

represented an expansion of US$293.6 million or9.5 per cent relative to 1999, reflecting increasesof US$296.4 million and US$15.9 million inexpenditure for general merchandise imports andbunker supplies, respectively. The growth in thesetwo subcategories was partially offset by adecline of US$18.7 million in spending on freezoneimports. Table 29 provides details on imports byeconomic functions for 2000 compared with 1999.


TABLE 29

VALUE OF IMPORTS BY END-USE (C.I.F.)(US$M)

TOTAL GENERAL EXPORTS

CONSUMER GOODSFoodOther Non-DurablesDurables(Of which motor car)

RAW MATERIALFuelsOther Raw Material

CAPITAL GOODSTransport & Equipment(of which motor car)Construction MaterialsOther Machinery & Eqp.Other Capital

FREEZONE

BUNKER SUPPLIES

GRAND TOTAL

2 903.7

963.5274.1313.4375.9133.9

1 471.0379.8

1 091.1

469.386.63.6

156.4220.0

6.3

161.0

22.4

3 087.1

1999

3 200.1

975.9264.7324.6386.6138.6

1 713.2593.6

1 119.5

511.0111.4

8.3144.4245.5

9.7

142.3

38.3

3 380.7

2000

296.4

12.5-9.411.110.74.6

242.2213.828.4

41.724.84.7

-11.925.53.4

-18.7

15.9

293.6

Change1/ 2/

10.2

1.3-3.43.62.93.5

16.556.32.6

8.928.6

129.6-7.611.654.2

-11.6

71.0

9.5

%Change

1/ Revised

2/ Provisional

The expansion in the general merchandiseimports category in 2000 was concentrated in theraw material category, which grew by US$242.2


million. Increased spending on consumer andcapital goods imports of US$12.5 million andUS$41.7 million, respectively, was also recordedfor the year. As a consequence of these changes,the share of general merchandise importsaccounted for by raw material imports increasedto 53.5 per cent from 50.7 per cent, while theshares attributable to consumer and capitalgoods declined to 30.5 per cent and 16 per cent,respectively, from 33.2 per cent and 16.2 per centin the previous year.

The growth in the value of raw material importswas largely influenced by a US$213.8 million or56.3 per cent expansion in the value of fuelimports. The sharp rise in the fuel bill in 2000 wasattributable to steep increases in international fuelprices relative to the previous year. Thebenchmark West Texas Intermediate (WTI)measure of oil prices averaged US$30.10 perbarrel in 2000, representing an increase ofapproximately 56.3 per cent relative to the samemeasure recorded for 1999. The increase in fuelprices followed from the decision made by OPECin 1999, to reduce supplies to the market, theeffects of which persisted into 2000. In the contextof the increase in oil prices over the year, thevolume of fuel imported into the island isestimated to have fallen by 1.7 per cent in 2000,reflecting reduced demand for mining-relatedactivities. Notwithstanding this reduction, it shouldbe noted that non-mining related demand for fuelis estimated to have grown by 9.3 per cent.

Other raw material imports also grew by US$28.4million or 3.2 per cent. Within this category,

respective expansions of US$2.6 million, US$2.2million and US$21.5 million were recorded inspending on imports of foods, industrial suppliesand parts and accessories. A wide range of itemscomprised the increase in food imports, with themajor elements being corn, cereals, cheese,wheat, and soybeans. This increase was,however, partially offset by a substantialreduction in the value of white rice imports whichmirrored a fall in world prices for the staple in2000, the second successive year of such acontraction. For industrial supplies, notableincreases were recorded in, among others,imports of cement, steel bars, selected lubricants,garments and optical cables. The principalelement affecting the expansion in parts andaccessories was a growth in the value of importsof transmission equipment and radio receivers.

The increased spending on selected importedbuilding materials is an encouraging sign for thedomestic construction sector in 2000, while theupturn in imports of telecommunications related

items highlights the rapid development takingplace in the communication sector.

Expenditure on imported consumer goods in2000, valued at approximately US$975.9 million,reflected respective increases of US$11.2 m illionand US$10.7 million in the non-durable and

durable subgroups, and was partially offset bya contraction of US$9.4 million in food imports.The growth in non-durable consumer goodsmainly reflected increased imports of medicines,

books and other pharmaceuticals, which waspartially offset by reduced imports by the Informal


A N N U A L R E P O R T 2 0 0 0

Commercial Importers (ICI’s). The increase in thedurables component was partly accounted forby an expansion in the value of motorcar imports.

The value of capital goods imports grew byUS$41.7 million or 8.9 per cent to US$511 millionin 2000. This growth was due to expansions ofUS$24.8 million in transport & equipment, andUS$28.9 million in other machinery & equipment,However, aggregate imports of constructionmaterials fell by US$112 million in 2000. Publicsector capital projects, particularly in the area ofroad repair and construction, transportation, andsecurity services, were the main factorsunderpinning the growth in spending on transport& equipment. In this context, very strongexpansion was recorded in the value of heavyequipment, presumably for the purpose of theroad projects that were undertaken in 2000.

Beyond this, a large number of police cars andmotor buses for the public transportation systemwere imported during the year. The main itemaccounting for the decline in imports ofconstruction materials was prefabricatedbuildings, with partial offsetting increases in thevalue of cement and PVC pipe imports beingrecorded. Increased activity within thetelecommunication sector was largely responsiblefor the expansion of imports of other machinery& equipment, reflected as increased spending onfacsimile machines, cellular telephones, and othertelephone and telegraphic equipment.

CARICOM

Jamaica’s trade with the CARICOM region for2000 compared with 1999 is presented in Table30.

TABLE 30

CARICOM TRADE BY COUNTRY(US$MN)

2000

Trinidad & TobagoGuyanaBarbadosDominicaBelizeSurinameSt. VincentAntiguaSt. LuciaGrenadaSt. KittsMontserrat

TOTAL

1/ Revised

2/ Provisional

Trade Balance

-301.4-30.2

-8.7-12.1

-2.4-5.7-0.62.72.51.21.50.4

-353.0

Imports

322.933.216.514.06.06.71.80.00.00.50.00.0

401.6

Exports

21.53.07.81.93.51.01.22.72.51.71.50.4

48.6

Trade Balance

-273.4-26.1

-9.0-12.4

-3.1-6.8-0.82.32.80.11.90.2

-324.4

1999

Imports

288.929.117.213.95.97.92.00.20.11.00.00.0

366.4

Exports

15.53.18.21.62.81.11.22.52.91.11.90.2

42.0


1/ 2/


During 2000, total merchandise trade with theCARICOM region increased by US$41.8 million toUS$450.2 million. As a consequence, the region’sshare of Jamaica’s total trade increased to 9.2per cent in 2000, from 8.9 per cent in 1999. Thevalue of total exports to the region grew byUS$6.6 million, or 15.7 per cent, to US$48.6million, while total imports expanded by US$35.2million, or 9.6 per cent, to US$401.6 million.Consequently, Jamaica’s trade deficit with theregion widened by US$28.6 million to US$353million in 2000.

Trinidad and Tobago continued to be Jamaica’smajor regional trading partner in 2000. Duringthe year, the Twin Island Republic consumed 44.2per cent of Jamaica’s total exports to the region,7.3 percentage points more than in 1999, andsupplied 80.4 per cent of its total imports fromthe region, up from the 78.9 per cent recorded in1999. As a consequence, Jamaica’s trade deficitwith Trinidad and Tobago increased by US$28million to US$301.4 million. Imports expandedby US$34 million to US$322.9 million, whileexports grew by US$6 million to US$21.5 million.The expansion in imports was largely attributableto an increase of US$33.9 million, or 18 per cent,in the fuel bill, associated with the increases ininternational oil prices.

Guyana remained Jamaica’s second largesttrading partner in CARICOM in 2000, absorbingUS$3 million or 6.1 per cent of Jamaica’s totalexports to the region, while supplying US$33.2million or 8.3 per cent of its import demand.Exports to that country declined by US$0.1 million

relative to 1999, but imports, which consistedmainly of shrimps and rice, increased by US$4million. As a consequence, Jamaica’s trade deficitwith Guyana increased by US$4.1 million toUS$30.2 million.

Although ranking third in terms of Jamaica’s totalregional trade, Barbados remained the secondlargest market for Jamaican exports in 2000.During the year, exports to Barbados, whichdeclined by US$0.4 million to US$7.8 million,accounted for 16.0 per cent of total exports tothe region. Imports from that country registereda larger decline of US$0.7 million to US$16.5million, and were responsible for 4.1 per cent ofJamaica’s total imports from the region.Consequently, Jamaica’s trade deficit withBarbados narrowed by US$0.3 million to US$8.7million in 2000.

Jamaica’s trade deficit with Belize, Suriname, St.Vincent and Dominica also narrowed, while highertrade surpluses were recorded with Grenada,Montserrat and Antigua. The surpluses with St.Lucia and St. Kitts contracted in 2000. The majorimports from these countries consisted ofmanufactured household products such as soaps,edible oils, as well as fish and shrimp, while themain export commodities to these markets includemanufactured foods, drinks and household items.

Services

During 2000, net earnings from services ofUS$538.6 million was US$1.9 million below thefigure recorded in the previous year. The marginal


A N N U A L R E P O R T 2 0 0 0

deterioration in net earnings from services wasinfluenced by respective expansions of US$55.7million and US$17 million in net payments for otherservices and transportation, which was almostoffset by a US$71.5 million increase in net recieptsfrom travel.

Transportation

The transportation sub-account recorded a netoutflow of US$247.2 million in 2000 relative toUS$229.5 million in 1999. An expansion ofUS$28.4 million to US$328.7 million in grossearnings from transportation services was morethan offset by a US$46.1 million growth, toUS$575.9 million, in gross transportationpayments. The increase in gross transportationinflows stemmed from higher passenger farereceipts by the domestic carrier, while the higherpayments resulted from an increase in freight andother transportation payments, with the formerreflecting the increased volume of imports intothe island over the year.

Travel

Net earnings from the travel sector amounted toUS$1.12 billion in 2000 compared with US$1.05billion in 1999. The gross spending of US$1.3billion by visitors to Jamaica was US$53.0 millionhigher than the expenditures recorded in 1999,while gross payments as a result of Jamaicanstravelling overseas, including expenditure byseasonal workers abroad (e.g., farm workers),fell by US$18.5 million to US$208.7 million in 2000.

The increase in gross earnings from tourismactivities in 2000, relative to 1999, reflected a 10.7per cent expansion in total visitor arrivals. Thiswas, however, counteracted by a marginaldecline in the average length of stay of visitors inthe stop-over category. For 2000, approximately2.2 million people visited the island, 216 495more than the number that visited in 1999. Thecruise passenger category, which grew by 18.5per cent to 909 075, accounted for 40.7 per centof total arrivals, while stop-over arrivals increasedby 6 per cent to approximately 1.3 million, andaccounted for 59.3 per cent of total arrivals.

During 2000, the cruise-shipping sector benefitedfrom increased efforts at containing the negativeeffects of visitor harassment in the major ports ofcall. In addition, six cruise ships with 15.5 thousandpassengers made unexpected calls to the portof Ocho Rios in August, due to the threat of ahurricane in the Eastern Caribbean. Within thestop-over group, the number of foreign nationalsincreased by 6.3 per cent to 1.22 million, withthe number of long-stay visitors increasing by 6.2per cent to 1.15 million, and the number of short-stay visitors growing by 8.1 per cent to 67 629.Non-resident Jamaican stop-overs increased by2.1 per cent to 103 379 in 2000. Table 31 providesa breakdown of visitor arrivals and expendituresfor 2000 compared with 1999.

For 2000, the total number of stop-over visitorsfrom the US increased by 9.3 per cent. This marketcontinued to be the largest source of tourists toJamaica, accounting for approximately 71 per



cent of total stop-over visitors in 2000. Stop-overarrivals from the UK, Jamaica’s second largesttourist market, increased by 7.1 per cent andaccounted for 10.6 per cent of total stop-overvisitors, relative to its 10.5 percentage market

TABLE 31

VISITOR ARRIVAL STATISTICS

Total Stop-oversForeign National Stop-overs

Long-stayShort-stay

Non-resident Jamaican stop-overs

Cruise Passengers

Total Tourists

Armed Forces

Total Visitors

Gross Estimated Expenditure (US$M)

1 248 3971 147 1351 084 553

62 582

101 262

764 341

2 012 738

2 532

2 015 270

1 279.6

1999

1 322 6901 219 3111 551 682

67 629

103 379

909 075

2 230 301

0

2 231 765

1 332.6

2000

6.06.36.28.1

2.1

18.5

10.8

-100.0

10.7

4.1

%Change

1/ 2/

1/ Revised2/ ProvisionalSource: Jamaica Tourist Baord

share in the previous year. Canada, which isJamaica’s third largest visitor source, alsoregistered growth of 7.5 per cent in stop-overarrivals in 2000 and had a market share of 8 percent relative to 7.9 per cent in 1999. However,visitor arrivals from Germany and other Europeancountries, comprising Italy, France and Spain, fellby 49.7 per cent in 2000, causing the share ofthe market accounted for by these sources toshrink to 5.2 per cent from 7.3 per cent in 1999.Arrivals from Japan showed a decline of 7.7 per

cent, albeit a much slower rate when comparedwith the 28.5 per cent fall-off recorded in 1999.

The tourism sector continued to be affected byvariable perceptions of the Jamaican product in2000. Additionally, concerns about the potentialeffect of the Y2K problem and the consequentlimitations placed on vacations had a laggedeffect on international travel in the first quarter ofthe year. Jamaica, however, benefited from thecombined aggressive marketing efforts of theprivate and public sectors to promote the tourismproduct and new accommodation facilities thatcame on stream during the year. In addition, newgateways and additional flights by the nationalcarrier, a successful Spring Break season, holdingof the JAPEX trade show in Kingston, and thecontinued economic growth in the main sourcemarkets boosted arrivals to the country.

Other Services

The other services sub-account recorded a deficitof US$338.1 million in 2000, which was US$55.7million higher than the deficit in 1999. Althoughthere was an expansion of US$19.4 million toUS$288.2 million in gross inflows, this wasnegated by an increase of US$75.1 million ingross payments to US$626.3 million.

The main improvement in inflows came from thegovernment sector, which saw an expansion ofUS$8.4 million in earnings to US$37.6 million.Marginal improvements were also recorded inearnings for all other services, the primary onesbeing financial services and personal, cultural, and


A N N U A L R E P O R T 2 0 0 0

recreational services. Earnings from thecommunication sector continued to account for thelargest source of inflows in the other services sub-account, representing 51.5 per cent of totalearnings in the year, relative to 50.8 per cent in1999. On the payments side, while increaseswere recorded for all the components exceptinsurance and government services, moresignificant expansions were recorded in paymentsfor financial services, and other business services,which include travel commissions. The US$14million increase in payments for financial serviceswas partly attributable to financial charges onGOJ Eurobond issues.

Income

During 2000, the income account recorded adeficit of US$336.0 million, compared with a deficitof US$332.5 million in 1999. Net inflows forcompensation to employees fell by US$2.9 millionto US$67.4 million, while a slight increase ofUS$0.6 million to US$403.4 million in netinvestment income payments was recorded.

Inflows representing compensation to Jamaicansfor work performed on behalf of foreigners whileabroad declined by US$5.8 million to US$88.2million. Payments to non-residents for workperformed while staying in Jamaica also declinedby US$2.9 million to US$20.8 million for the period.

The slight deterioration in the investment incomesub-account was attributable to an expansion ofUS$33.3 million in gross payments to US$507.9million, which exceeded the improvement of

US$32.7 million in gross inflows. The improvementin gross income inflows partly reflected growth ininterest earnings on foreign assets held by theBOJ and private sector, which occurred in thecontext of a substantial increase in these foreignassets in 2000. On the payment side, the higherlevel of spending was due to an improvement ofUS$47.6 million in the imputed profit position ofthe foreign owned companies, particularly thosein the mining sector. As noted earlier, priceincreases during the year improved theprofitability of the mining sector. Partly counteringthe effect of this increase in investment incomeoutflows was a US$13.5 million contraction inother payments, reflecting a reduction of US$16.6million in central government’s interest paymenton its foreign debt.

Current Transfers

Net inflows of current transfers increased toUS$813.0 million in 2000, from US$652.7 millionin the previous year. This was due to respectiveexpansions of US$102.1 million and US$58.7million in net inflows to the public and privatesectors. Table 32 shows a breakdown of thecurrent transfers inflows and outflows by sectorfor 2000 compared with 1999.

Gross inflows to the private sector increased byUS$97.2 million to US$806.5 million, partly offsetby an increase of US$38.5 million to US$141.4million in gross private sector outflows. Theremittance companies continued to account forthe largest share of inflows in 2000, acting as aconduit for 55.4 per cent of inward bound



remittances, compared with financial institutions’share of 41.5 per cent and 3.1 per cent for othersources. For the previous year, approximately50.1 per cent of total inflows were channelledthrough the remittance companies, while 46.4 percent and 3.5 per cent were channelled throughthe financial system and other sources,respectively. Inflows through the remittancecompanies during 2000 amounted to US$446million, representing a growth of US$87.5 million.In comparison, the financial system facilitatedinflows of US$334.5 million, which reflectedgrowth of US$8.3 million for the year.

The level of inflows to the government sector grewby US$101.6 million to US$155.1 million in 2000,while outflows of US$7.2 million, were US$0.5

TABLE 32

CURRENT TRANSFERS(US$M)

Total ReceiptsGeneral Government

Private SectorPostal SystemFinancial SystemRemittance CompaniesOther

Total PaymentsGeneral Government

Private SectorFinancial SystemOther

Net Current Transfers

762.853.5

709.31.2

326.2358.523.4

110.67.7

102.995.87.1

652.2

1999

961.6155.1

806.51.2

334.5446.024.8

148.67.2

141.4131.210.2

813.0

2000

198.8101.6

97.20.08.3

87.51.4

38.0-0.5

38.535.43.1

160.8

Change1/ 2/

1/ Revised

2/ ProvisionalSource: Jamaica Tourist Baord

million below the 1999 figure. The largeexpansion in inflows reflected the receipt ofpayments for two licences to operate mobiletelephone services in Jamaica.

Capital and Financial

The capital and financial accounts recordedrespective surpluses of US$2.2 million andUS$335.7 million in 2000. The balance on thecapital account represented an increase ofUS$13.1 million when compared with the 1999out-turn, and was ascribable to higher capitalgrant inflows for the government. Theperformance on the financial account representedan increase of US$51.3 million when comparedwith the previous year, influenced by a substantialincrease in the net inflows on official investmenttransactions.

Within the financial account, other officialinvestments recorded net inflows of US$395.8million relative to net outflows of US$331.4 millionin the previous year. Gross investment inflows tothe sector grew by US$631.7 million in 2000 toUS$679.8 million, while gross official paymentsof US$284 million were US$95.5 million lower thanin 1999. The higher level of gross inflows in 2000relative to 1999 reflected the government’sreceipt of US$162.5 million in loans frommultilateral lending agencies, and US$425 millionfrom Euro-bond placements. Loans from themultilateral agencies represented the first trancheof assistance aimed at resuscitating the financialsector, and was comprised of US$75 million fromthe World Bank, US$75 million from the Inter-


A N N U A L R E P O R T 2 0 0 0

American Development Bank (IDB), and US$12.5million from the CDB. Project loans during 2000were US$13.7 million more than in 1999. Table33 gives a breakdown of other official investmentsfor 2000 compared with 1999.

The level of net private financial investments fellby US$19.3 million to US$462.9 million in 2000.The private sector surplus, taken in conjunctionwith the other surpluses recorded in the capitaland financial accounts, was more than sufficientto cover the current account deficit. Consequently,the NIR of the country grew by US$523.0 millionto US$974.0 million at the end of 2000.

Table 34 provides information on the country’sforeign reserves at the end of 2000 comparedwith the end of 1999.

The increase in the NIR reflected an expansion ofUS$500 million in BOJ’s gross foreign holdings. In

TABLE 33

OTHER OFFICIAL INVESTMENT FLOWSUS$M

Gross Official InflowsDonor CountriesMultilateral InstitutionsOther AssistanceProject Loan

Gross Official OutflowsGovernment DirectBank of Jamaica

Net Official Investments

48.10.00.00.0

48.1

379.5370.4

9.1

-331.4

1999

679.80.0

162.5455.561.8

284.0280.5

3.5

395.8

2000

631.70.0

162.5455.513.7

-95.5-89.9-5.6

727.2

Change1/ 2/

1/ Revised

2/ Provisional

addition, the increase was facilitated by areduction of US$23.1 million to US$82.8 million inthe country’s gross foreign liabilities. At the endof December 2000, the level of gross reservesstood at US$1 056.8 million, representingapproximately 19.0 weeks of goods imports, or12.7 weeks of imports of goods and services.

TABLE 34

FOREIGN EXCHANGE RESERVESUS$M

Gross foreign AssetsBank of JamaicaCentral GovernmentOther official Institutions

Gross Foreign Liabilities

Net International Reserves

556.9552.2

1.53.2

105.9

451.0

1999

1 038.71 034.8

0.83.1

82.8

955.9

2000

481.8482.6

-0.7-0.1

-23.1

504.9

Change1/ 2/

1/ Revised2/ Provisional


Foreign Exchange ManagementForeign Exchange Receipts and Payments

For 2000, total foreign exchange inflows to theBOJ were US$1 828.8 million, an increase ofUS$848.8 million over the 1999 inflows. Table 35provides a breakdown by source.

BOJ’s purchase of the GOJ loan proceedsrepresented the single largest item of inflowduring 2000. This amounted to US$793.6 million,an increase of US$749.0 million over 1999 andreflects the strong presence of the Governmentin both the local and international capital markets


TABLE 35

SOURCES OF FOREIGN EXCHANGEUS$M

Exports & ServicesBauxite ReceiptsDirect Purchases

- authorised dealers- exchange bureaux- other

Prudential ReservesPurchase of GOJ Loan Proceeds

- bond- other loans

DivestmentBauxite PrepaymentSale of Cellular licencesOther Receipts

Total Cash Inflow

628.6263.5365.191.485.1

188.6

41.944.641.6

3.148.599.7

0.0116.8

980.1

1999

778.4245.4533.0118.1228.4186.5

29.4793.6596.2197.419.3

092.6

115.6

1 828.8

2000

149.8-18.1168.026.7

143.3-2.1

-12.5749.0554.6194.3-29.3-99.792.6-1.2

848.8

Change1/


1/ Revised

during the year. The GOJ had not accessed theinternational capital market since mid-1998.

The bond proceeds of US$596.2 million in thereview year reflected the GOJ’s successful issueof five bonds; two internationally and threelocally. In February 2000, Jamaica became thefirst Caribbean nation to sell bonds denominatedin Europe’s single currency, the euro. The GOJissued a three-year 200 million euro bond with a10 per cent coupon rate.

In August 2000, taking advantage of a lull inforeign currency issues by emerging marketborrowers, the GOJ returned to the internationalbond market and issued a US$225 million seven-year bond with a coupon of 12.75 per cent.Additionally, the GOJ also tapped the domesticbond market where three US dollar-denominated

bonds were placed through Citibank N.A. The firsttwo, in March 2000, raised US$105 million andthe proceeds from the third, in July grossedUS$77.9 million. Among the loans received by theGovernment during the year were US$12.5 millionfrom the CDB and US$75 million each from theIDB and the World Bank. These loans were forthe purpose of repaying FINSAC debt.

The Central Bank purchased US$168 million morefrom the market in 2000 than in 1999. A total ofUS$228.4 million was purchased from cambios,US$143.3 million more than the previous year.The increase in Cambio purchases not onlyreflected the buoyancy of the foreign exchangemarket, but also the fact that in November 1999the upper limit for sales by this group to BOJ wasremoved. Purchases from authorised dealers in2000 totalled US$118.1 million, US$26.7 millionmore than in 1999.

Inflows to the BOJ from the bauxite sector in theform of production levy, royalties and funds tocover local costs declined by US$18.1 million or6.9 per cent over 1999. The US dollar requirementto run the operations of the bauxite companies,declined in the context of a 9 per cent depreciationin the Jamaica dollar vis-à-vis the US dollar overthe review year.

Inflows in respect of prudential reservesrequirement were lower by US$12.5 million in2000 as a result of the gradual reduction of thecash reserve ratio from 16 per cent at end-1999to 13 per cent by September 2000.

A N N U A L R E P O R T 2 0 0 0

Table 36 provides a breakdown of the use ofBOJ’s foreign exchange during 1999 and 2000.Total cash outflows amounted to US$1 331.8million, US$196.9 million or 17.4 per cent morethan in 1999. The major part of this increase inoutflows was due to higher sales to the marketby the BOJ of US$472.3 million. This amountrepresented an increase of US$198.4 million over1999 and was reflective of the increased demandpressures throughout the review year.

Bank of Jamaica International Reserves

The BOJ’s NIR increased significantly by US$519.3million to US$969.5 million in 2000. The overallchange in the NIR resulted from the combinationof a large increase in gross foreign assets ofUS$497 million and a reduction in foreign liabilitiesof US$22.3 million.

The NIR increased by US$253.3 million, US$53.0million, US$179.0 million and US$34.0 million inQ1 to Q4, respectively. The significant increasesin Q1 and Q3 reflect the Bank’s purchase of the

Government’s global bond proceeds from itsdebt issues in February and August.

Gross foreign assets (GFA) for the year weremaintained at an average level of US$870 million,and at the end of August 2000, exceeded US$1billion for the first time. GFA declined over theensuing months but, with inflows from the GOJbond proceeds and significant purchases fromthe foreign exchange market in December, foreignassets once again surpassed the US$1 billionmark, reaching US$1 048.8 million at the end ofthe review year.

The reduction in foreign liabilities in 2000 was duelargely to scheduled quarterly repayments ofobligations to the IMF and to a lesser extent, arevaluation of these obligations to reflectmovements in Special Drawing Rights (SDR) rates.SDR rates moved from SDR1.00=US$1.37609 atthe end of 1999 to SDR1.00=US$1.30291 atend-December 2000.

Reserve ManagementForeign Assets

The BOJ’s total foreign assets amounted toUS$1 048.8 million at the end of 2000 as against

TABLE 36

USES OF FOREIGN EXCHANGEUS$M

Public DebtDirect SalesOther Payments

Total Cash Outflow

Change in Gross Foreign Assets

675.2273.9185.8

1 134.9

-154.8

1999

689.0472.3170.5

1 331.8

497.0

2000

13.8198.4-15.3

196.9

Change1/

1/ Revised

TABLE 37

NET INTERNATIONAL RESERVES (NIR)US$M

NIRForeign AssetsForeign Liabilities

450.2551.8101.6

1999Dec

703.5801.397.8

2000M a r

756.5848.491.9

June

935.51 022.1

86.7

Sept

969.51 048.8

79.3

Dec

519.3497.0-22.3

AnnualChange



TABLE 38

BANK OF JAMAICACOMPOSITION OF FOREIGN ASSETS

AT 31 DECEMBER

US$EuroBritish PoundCanadian $YenOtherTotal Foreign Assets

522.1210.854.863.44

208.41-

1999

951.2893.472.273.75

161.98-

2000

522.1210.937.822.392.046.50

551.80

1999

951.2887.753.392.501.422.45

1 048.79

2000

94.621.981.420.430.371.18

100.00

1999

90.708.370.320.240.140.23

100.00

2000

AMOUNT US$EQUIV % SHARE

Investment Activities

The BOJ’s reserve management strategy isformulated against its stated objectives ofadequate levels of liquidity, capital preservation,maintenance of high asset quality and returns.Investments were concentrated in US dollardenominated instruments which reflected thestrength of the US dollar throughout the year.Investment instruments such as US Agency Bondsand Eurodollar deposits were predominantlyutilised.

During 2000 investments were structured tomaximise on interest rate movements and theconsequent effect on the level and shape of theUS Treasury yield curve. An inverted yield curvethroughout most of the year dictated adisproportionately high short-term position inorder to reap the benefits of the higher short-term interest rates. Thus, the decision taken inthe previous year to shorten the portfolio’sduration, was maintained throughout 2000.

The one-month Euro LIBID rate increased byapproximately 85 basis points during the reviewperiod closing at 6.51 per cent per annumcompared to the three-month LIBID which closedat 6.28 per cent per annum, rising only 37 basispoints.

Table 39 provides a comparison of the distributionby asset class of the country’s total foreign assetsat 31 December 1999 and 2000.


US$551.8 million at the end of 1999, an increaseof US$497.0 million (90.1 per cent).

During the first and third quarters the level of GFAwas augmented with inflows of funds from boththe GOJ’s Eurobond issues and other loan flows.This set the pace for a steady build up of assetswhich continued to the fourth quarter,notwithstanding intervention sales of US$472.3million in the foreign exchange market by the BOJover the period.

Asset Composition

During 2000 the sustained strength of the USeconomy influenced the maintenance of asubstantial position in United States dollarinvestments. With the issue of GOJ eurodenominated bonds in February and positivegrowth outlook for the Eurozone, the BOJdiversified its currency holdings by increasing thelevel of euros held in reserve. Table 38 providesa comparison of the distribution of total foreignassets by currency, at 31 December 1999 and2000.

A N N U A L R E P O R T 2 0 0 0

TABLE 39

TOTAL FOREIGN ASSETSBY ASSET CLASSAT 31 DECEMBER

HoldingsEurodollar DepositsUS Agency BondMulti-Currency FundCash (Federal Reserve Bank)Other Balances Held AbroadTotal

181.2193.735.3

102.738.9

551.8

1999US$M %

32.835.16.4

18.67.1

100.0

538.7187.936.2

254.931.1

1 048.8

51.4017.93.4

24.33.0

100.0

2000US$M %

Foreign Investment Income

BOJ’s foreign investment income detailedaccording to earnings by asset class is providedin Table 40. Federal Funds interest rates in 2000of approximately 100 basis points abovecomparable 1999 levels, combined with a 90.1per cent point-to-point increase in total foreignassets resulted in a 21.9 per cent increase inincome.

Income earned in 2000 amounted to US$47.8million, an increase of US$14.7 million comparedto income of US$ 33.1 million earned in 1999.

TABLE 40

FOREIGN INVESTMENT INCOMEAS AT 31 DECEMBER

HoldingsEurodollar DepositsUS Government Agency BondsMortgage Backed SecuritiesMulti-Currency FundOtherTotal

16.510.30.32.33.7

33.1

1999US$M %

49.831.1

0.96.9

11.3100.0

25.911.3

-2.28.4

47.8

54.223.6

-4.6

17.6100.0

2000US$M %

The Foreign Exchange Market

The BOJ remained committed to maintainingstable conditions in the foreign exchange marketthroughout 2000. Despite the buoyant flows asevidenced by the significantly higher volumestraded during each quarter, foreign exchangemarket pressures were sustained in the lastquarter of the year, necessitating sales by theBank. At 31 December 2000, the weightedaverage selling rate of US$1.00 = J$45.53represented a point-to-point depreciation of9.03 per cent when compared to US$1.00 =J$41.42 as at 31 December 1999. For 1999, theweighted average selling rate had depreciatedby 10.3 per cent.

Foreign exchange purchases and sales reportedby authorised foreign exchange dealers in 2000were significantly higher than in 1999, withpurchases reflecting an increase of 27.1 per centand sales an increase of 26.6 per cent. Increasedsales by the BOJ contributed to the highervolumes reported in the review year. However,volumes traded, exclusive of BOJ’s interventionarysales, showed increases of 20.5 per cent and20.1 per cent for purchases and salesrespectively, reflective of the increased marketactivity during the period.

The major factors contributing to market pressureswere:

l The public’s misperception that the IMFStaff Monitored Programme (SMP)constrained the Bank from intervening in



the foreign exchange market and that asharp depreciation of the local currency

was imminent.

l The strong and sustained demand for USdollars in order to access the GOJ’sseveral issues of hard currencyinstruments, in particular the GOJEurobond offer which closed on 31August. Local investor demand for theEurobond fuelled aggressive secondarymarket trading and because the bondwas so attractively priced it allowedmultiple levels of profit-taking while stillgiving the final investor a competitiveyield.

Strong investor demand for the Eurobondinfluenced a 5.2 per cent depreciation during thethird quarter from US$1.00 = J$42.51 to US$1.00= J$44.83 and contributed to a further 1.5 percent depreciation in the exchange rate in thefourth quarter.

Purchases and sales for 2000 and comparativedata for 1999 are presented in Table 41.

TABLE 41

Quarter Q 1 2 3 4* Total

1999493.1509.0580.5588.1

2 170.7

Purchases2000662.7645.0737.0990.8

3 035.5

1999490.5535.3593.9587.6

2 207.3

2000676.8645.8738.3

1 006.23 067.1

Sales

1/ Includes BOJ Intervention

* Fourth quarter volumes for 2000 include cambio transactions.

The BOJ implemented its new electronic front-endsystem, e-Gate, for the reporting of foreigncurrency information on 27 November 2000. Thetransactions of both cambios and authoriseddealers are now reported daily, whereaspreviously the published data reflected thetransactions of authorised dealers only. Purchasesand sales for the fourth quarter, if restated toexclude cambio trades, were US$713.2 millionand US$732.5 million, respectively.

Cambios

In the year 2000, the single most importantdevelopment affecting cambio operations wasthe implementation of e-Gate. Previously,cambios reported transactions to the Central Bankon a weekly basis through the submission ofwritten summary reports. The official foreignexchange trading data which the BOJ publishesnow reflect the transactions of both cambios andauthorised dealers, on a daily basis.

Throughout the year, the Central Bank continuedto supervise cambios through its semi-annual on-site inspections and in-house monitoring systemin order to ensure compliance with the Bank’soperating guidelines. In the wake of significantamendments to the Money Laundering Act in1999, the Central Bank in its regulatory capacityissued Guidance Notes on Money Laundering toall its licensees inclusive of cambios, in July 2000.The Guidance Notes served to formally advisethe Bank’s licensees on the minimum standardsand requirements necessary to give effect to theprovision of the Money Laundering legislation.


PURCHASES AND SALES OF FOREIGN EXCHANGE1/

A N N U A L R E P O R T 2 0 0 0

During the year, processing of applicants underthe enhanced fit and proper criteria continued. A‘Fit and Proper Assessment’ is conducted fordirectors, shareholders with a holding of 10 percent or more and managers of the respectivecambios. This is an on-going process that isconducted when new cambios are approved orwhen there is a change in the relevant personnelor status of an existing licensee. The Bank’sinternal committee assessed a total of 60persons during 2000.

Status of Cambio Licences

The number of cambios increased from 128 at31 December 1999 to 138 at 31 December 2000.However, the number of entities moved from 74at the end of 1999 to 73 at the end of 2000.During the year, 15 new cambios were approved,2 ceased operations temporarily and 5 wereclosed permanently. The basis on whichapprovals are granted to new cambios wasamended during the year. Two cambios wereclosed temporarily due to relocation exercises inone instance and upgrading of facilities in theother. Of the five cambios closed during the year,three were voluntary closures, while the licencesof the other two were revoked due to failure tocomply with the Bank’s operating guidelines.

TABLE 42

STATUS OF CAMBIO LICENCESAS AT 31 DECEMBER

Applications ReceivedApplications ApprovedApplications PendingCambios ClosedCambios not in operationCambios resuming operationCambios in operationTotal Cambios LicensedNumber of Entities

1999

2148607

128128

74

2000

45158520

13613873

Table 42 provides comparative data on the statusof Cambio licenses.



Production

Production and Prices

The Jamaican economy grew by 0.8 per cent in2000. Sectorally, growth is estimated in themanufacturing and construction sectors while themining and quarrying and agriculture sectorsdeclined over the review period. Although theestimated growth in manufacturing was strongerthan previously expected, the overall output of

the goods producing sector is estimated to havedeclined. This was influenced primarily by asignificant decline in agriculture and a modestcontraction in the mining and quarrying sector.Within the services sector, basic services which iscomprised of the electricity, water andtransportation sub-sectors, grew by 6.7 percentin 2000. In addition, the tourism sector isestimated to have grown, given significantmovements in its indicators relative to 1999. Thefinancial services sector continued to perform wellover the period as the sector benefited fromcontinued restructuring and consolidation.

The agricultural sector contracted by 11.2 percentin 2000. This was due to the effects of adverseweather conditions experienced in the island overthe last two years. Flooding in some parishes inlate 1999 followed by severe drought conditionsin the first half of 2000 year constrained theoutput of the sector. This contributed to a lowerrate of replanting, which was aggravated by theincreased costs of planting materials.

The Planning Institute of Jamaica’s (PIOJ)Agricultural Production Index (API) decreased by11.8 per cent during the year compared with anincrease of 2.9 per cent in 1999. The indexsuggests declines in the sector for the first threequarters of the year with the largest decline of24.9 per cent recorded in the second quarter. Theindex grew marginally in the fourth quarter to 0.1per cent, reflecting noticeable amelioration of theadverse weather conditions.

72 Production & Prices

TABLE 43

SECTORAL CONTRIBUTION TO GROWTHCALENDAR YEAR 2000

1. GOODSAgriculture Forestry & FishingMining & QuarryingManufacturingConstruction & Installation

2. SERVICESBasic Services

Electricity & WaterTransport Storage & Communication

Other ServicesDistributive Trade (Wholesale & Retail)Financing & Insurance ServicesReal Estate & Business ServicesProducers of Government ServicesMiscellaneous ServicesHouseholds & Private Non-Profit Instit.

3. IMPUTED SERVICE CHARGES

TOTAL GDP

EstimatedImpact onGrowth

negativenegativenegativepositivepositive

positivepositivepositivepositive

positivepositivepositivepositive

negativepositive

negative

positive

positive

A N N U A L R E P O R T 2 0 0 0

In terms of the components of the API, domesticagriculture, the largest sub-sector, recorded asignificant contraction of 16.5 per cent for the yearwith the most significant contraction registered inthe second quarter. Subsequent quartersshowed a deceleration in the rate of decline.

An analysis of the main food groups withindomestic agriculture all revealed a decline inproduction relative to the previous year. TheMinistry of Agriculture’s comparative estimates ofdomestic crop production showed that there weredeclines in yams, legumes, other tubers andvegetables of 24.5 per cent, 23.5 per cent, 23.8per cent and 12.9 per cent, respectively. Otherfood groups such as fruits, condiments andcereals had respective reductions of 11.8 per cent,11.1 per cent and 17.7 per cent.

The export agriculture sub-sector also showedan overall decline for the year. Within the API, theexport agriculture index fell by 4.2 per cent, largelyreflected in reductions of 37.6 per cent and 24.7per cent in the second and third quarters,respectively. The major contributors to theestimated decline for the year were respectivecontractions of 5.0 per cent, 19.2 per cent and12.4 per cent in the export volumes of sugar,banana and citrus. Partly offsetting these declineswas a significant increase of 26.5 per cent in thevolume of coffee exported relative to the previousyear.

For sugar, total exports in 2000 amounted to 169thousand tonnes, a 4.9 per cent decreasecompared to the 177.7 thousand tonnes

exported in 1999. This was due mainly to thefact that less sugar was exported to the UnitedStates. Sugar production of 210.4 thousandtonnes in 2000 was almost in line with the 211thousand tonnes produced in 1999. Thisproduction level was achieved despite a declinein the volume of sugarcane reaped as the amountof cane used to produce one tonne of sugar haddeclined. The improvement in production resultedfrom improved efficiency at the factories and therelatively dry conditions which providedfavourable harvesting conditions which enhancedthe sucrose content of the cane.

The volume of bananas exported fell by 8.5thousand tonnes to 43 thousand tonnes in 2000.The contraction in the volume of bananasexported reflected in part adverse weatherconditions from the combined effect of severewind damage in the first quarter of the year anddrought conditions. Total output was alsoaffected by the closure of two large farms as theindustry continued to adjust to the changingexternal environment.

The mining sector is estimated to have declinedin 2000 by 1.6 per cent. Despite record productionof alumina, bauxite production continued to bedepressed. During the year alumina productionincreased to 3.60 million tonnes, an increase of0.9 per cent when compared with the 3.57 milliontonnes recorded in 1999. Export volumes alsoincreased marginally by 1.3 per cent to 3.64million tonnes in 2000. The record level ofproduction of alumina occurred as the industrycontinued to raise productivity through increased

Production & Prices 73


efficiency, stability at the workplace and increasesin capacity.

Total bauxite production declined by 4.9 per centwhile export volumes decreased by 26.2 per cent.The sector continued to suffer from a loss ofprocessing capacity for Jamaican bauxite, dueto a major accident at the Gramercy refinery inthe United States in 1999. This refinery usuallytakes approximately 60 per cent of the country’sbauxite exports. However, with the partialreopening of the refinery and the resumption ofshipment to the facility in October 2000, bauxiteexports for the fourth quarter of the yearincreased by 40.9 per cent.

Following on five consecutive years of decline,some of the leading indicators of themanufacturing sector suggest some recoveryperformance in 2000. Manufacturing exportsexpanded by an estimated 22 per cent relativeto 1999. Another indicator, non-fuel raw materialimports, expanded by 4 per cent. An examinationof some of the major categories of manufacturingas captured by the PIOJ’s preliminary productionsurvey for 2000, indicated growth in PetroleumProducts (66.1 per cent), Food Processing (0.8per cent) and Beverages and Tobacco (4.4 percent). Partly offsetting these increases werereductions in Chemical and Chemical Products (4.7per cent) and Non-Mineral Materials (0.4 percent).

The significant increase in petroleum products wasinfluenced by the strong growth in the first quarterreflecting a full resumption of production as the

refinery had instituted a cutback in production inthe corresponding period of 1999 to facilitateplant maintenance and inventory management.Production in the second and third quarters alsoregistered strong growth over the correspondingperiod of 1999 while marginal growth wasestimated in the fourth quarter.

The food processing sector is estimated to havegrown by 2.2 per cent in the first half of the yearbut this was almost offset by a 1.7 per centdecline in the second half of the year. Among theitems that increased were sugar, poultry meatand animal feeds, while items such as edible fats,condensed milk and molasses reflected a declinerelative to the previous year.

The growth in the beverage and tobacco sub-sector was influenced by a significant increase inthe production of non-alcoholic beverages. Thisincrease followed extensive retooling and re-engineering by the major non-alcoholic beverageproducers. In particular, the on-going renovationat the Desnoes & Geddes plant in terms ofupgrading production and packaging lines,contributed significantly to the estimated growthin the non-alcoholic beverages category. Theproduction of alcoholic beverages was alsoestimated to have increased in 2000 relative to1999. Partly offsetting these expansions weredeclines in rum and alcohol and cigarette andcigars.

The non-metallic sub-sector was assessed tohave recorded a positive out-turn in 2000, basedprimarily on the gain in the production of cement,


A N N U A L R E P O R T 2 0 0 0

which expanded by 3.5 per cent relative to 1999.This occurred despite a decline of 18.2 per centin the second quarter. This was due to scheduledmaintenance at the plant followed by anunplanned stoppage due to mechanical failureof a kiln.

The construction sector grew by a marginal 0.2per cent in 2000. This occurred in the context ofmixed signals in the movements of key indicatorsof the construction sector in 2000. Whereascement sales increased by 7.8 per cent,importation of construction materials is estimatedto have declined by 4.4 per cent relative to 1999.Despite the fall in other construction imports, theimportation of cement, a major item in the sector,registered an increase. In addition, asphaltproduction is estimated to have improvedconsiderably, while sales declined relative to1999. Significant investments by the public sectorwithin the construction and installation sectorshould also have contributed to growth in thesector in 2000. Several Government infrastructuralprojects as well as various installations by thepublic utilities were undertaken in 2000 andtherefore provided a growth impetus for thesector.

The services sector which grew by 4.4 per centcontributed to the positive out-turn in 2000. In thearea of basic services, estimates suggest thatthere was a continuation of the buoyancy thathas been exhibited in the sector over recent years.The electricity and water sub-sector grew by 3.3per cent in 2000, a slower rate of growth thanrecorded in the past four years. This was due to

growth of 6.7 per cent in the electricity, light andpower sub-sector being partly offset by a declineof 9.8 per cent in the production of water. Thedecline in water services occurred in the contextof the drought experienced in the year. Thetransport storage and communication sub-sectoris also estimated to have grown, given expansionin some of the main indicators. Within thecommunication sub-sector, Cable & WirelessJamaica Limited embarked on an extensiverenovation programme to upgrade and increasethe volume of services and range of productsoffered to compete effectively with new entrantsexpected in 2001. For the distribution sector, anestimated increase of 7.6 per cent in merchandiseimports indicated an expansion in the sector.

As indicated by the performance of the tourismsub-sector, the miscellaneous services sector isestimated to have grown by 5.3 per cent in 2000.Visitor arrivals and expenditure increased by 10.8per cent and 6.3 per cent, respectively, whencompared to 1999. An increase in averagespending per person accounted for the higherlevel of expenditure in 2000, as there was adecrease in the average length of stay of visitors.The growth in visitors arrivals was spread acrossall categories with a noticeable increase in cruisepassengers. Cruise passenger arrivals expandedin light of larger and additional vessels makingcalls at Jamaican ports. The country alsobenefited from an unanticipated diversion of shipsfrom the Eastern Caribbean to Jamaica due topoor weather conditions in that region.



In the area of financial services, the sectorexpanded by over 10 per cent in 2000 relative to1999. This occurred in the context of the continuedrestructuring of the intervened financial institutions,coupled with improvements in the indicators ofasset quality, capital adequacy and profitabilityof the commercial bank sub-sector. The insurancesub-sector is estimated to have grown given theinjection of new capital and the internalrestructuring of a number of companies.Countering this positive outlook for the financialsector however, was a decline in the contributionof merchant banks and building societies. The out-turn for the merchant banks and building societieswas against the background of declining incomefrom investments coupled with slow growth inloan demand and the closure of some merchantbanks.

Outlook

The maintenance of macroeconomic stability thatengenders low inflation and a stable currency,supported by continued fiscal restraints augurswell for sustained reduction in interest rates. Thisenvironment should enhance growth in 2001. Inaddition, the improvement in the country’s outlookby Standard and Poor’s should enable thegovernment to borrow on the international capitalmarket at attractive rates, thereby reducingreliance on the domestic market. This would helpto attain a lowering in the cost of credit to theprivate sector thereby enhancing the feasibilityof more investment projects.

On a sectoral assessment, positive performancesare expected in basic services, agriculture, mining,distribution and the financial sectors in 2001. Thebasic services sector should continue to reflectgrowth particularly with the recent privatisationof the electricity industry. It is expected that newinvestments and greater efficiencies will be madein the area of power generation and distribution.The output of the communication sub-sectorshould also be boosted with the two newtelecommunication companies becoming fullyoperational. In addition, the Government haspledged its commitment to create theenvironment necessary to facilitate newinvestments in information technology whichwould provide a range of new services.

In the goods producing sector, though notreturning to the level that existed two years ago,the agricultural sector is expected to grow in 2001.Evidence of a resurgence in the sector wasapparent in the fourth quarter of 2000, whenimprovements in domestic agriculture resulted ina decline in the prices of some agriculturalproducts.

The mining sector should also be returning to aposition of growth in 2001. This is predicated onthe bauxite sub-sector returning to full productionwith the normalisation of operations at theGramercy plant in the United States. The aluminasub-sector is also projected to record anotheryear of increased output despite the imminentsale of the Alcan refinery. In addition, the Alpartrefinery is expected to begin an expansionprogramme in 2001 which should result in


A N N U A L R E P O R T 2 0 0 0

increased production over the next three to fiveyears. The outlook for the world aluminiumindustry remains strongly positive as it continuedto grow even in the face of a slowdown in the USeconomy towards the end of 2000. This growthhas been spurred by strong recovery in the Asianeconomies and greater momentum in Europeaneconomies.

Within the other services sectors developmentsin tourism and financial services are expected tobe positive. The tourism industry will be givenadditional attention through proposedgovernmental and private sector investmentsunder the tourism master plan which is gearedprimarily to enhance the sustainability of theindustry. The tourism sub-sector should alsobenefit from additional rooms and from effortsaimed at countering harassment, as well asincreased stridency in marketing the destinationin relatively new areas such as culture and eco-tourism. Furthermore, planned development inport facilities in Port Antonio should help to bolsterthe cruise shipping industry and other marinebased tourism.

The out-turn of the banking and financial sectorwill depend largely on the injection of new capitalto continue the ongoing restructuring process. Thesuccessful acquisition of external financing to assistin the write-down of some FINSAC liabilities andguarantee interest payments should contributeto the strengthening of the sector. Specifically, theproposed sale of Union Bank and the paymentof cash on FINSAC instruments should help theindustry. In addition, the positive outlook for newinvestments in the economy created by the

relatively stable environment should lead to anincrease in loan demand. This expected buoyancyin economic activity should also augur well for thedistribution sector.

Overall developments within the Jamaicaneconomy point to the prospect of achievingenhanced growth in 2001. More broadly, thecontinuance of macroeconomic stability as wellas sustained reductions in interest rates shouldprovide incentives to growth in the ensuing year.

Prices

The 12-month point-to-point headline inflationrate at December 2000 was 6.1 per cent,compared with 6.8 per cent at December 1999.This out-turn reflected a continuation of the ten-

CHART 3

year declining trend in annual inflation beingrecorded since 1991 (Chart 3). It also marks thefirst time in the last three decades that Jamaicahas attained four consecutive years of single digitinflation.

The favourable out-turn in inflation occurreddespite significant external and internal shocks


0102030405060708090

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Calendar Years

%

Pt to Pt

Ann. Avg

JAMAICA’S HEADLINE INFLATION RATE


that threatened to derail the inflation target. Themajor shocks to inflation were the increases in oilprice, exchange rate depreciation and increasesin domestic food prices in the first half of the year.Overall, for the WTI measure of crude, prices were56 per cent higher in 2000 compared to 1999.Prices rose steadily in 1999, but displayed morevolatility in 2000, peaking at US$37.20 inSeptember. The average price for WTI crude forthe quarter ending December 1999 wasUS$24.57 compared with US$31.75 for thecorresponding quarter in 2000. The average pricefor the September 2000 quarter was US$31.60compared to US$28.93 and US$28.86 for theJune and March quarters, respectively. Thesequarterly price changes are significant whenviewed against average prices of US$21.73,US$17.66 and US$13.15 per barrel for thecorresponding periods in 1999.

Over the course of the year the Jamaica dollarprice of the US dollar , measured by the sellingrate, increased by 9.9 per cent compared to 11.5per cent in 1999. The largest increase of 5.4 percent occurred in the September quarter. Neitherthe high rates of increase in September norOctober appeared to have had a significantimpact on the inflation out-turn for the Decemberquarter.

Notwithstanding the oil price increases andexchange rate depreciations, several impulseswere conducive to curtailing inflation. Althoughagricultural prices increased for the first half ofthe year, a late resurgence in agricultural supplyconsequent on the break in the lingering drought

conditions, helped to moderate domestic foodcrop prices. Secondly, the absence of an increasein the administered price of public transportationnegated an avenue through which rising fuel costswould have had an impact on the CPI. Thirdly,tight base money management was maintainedby the Central Bank throughout the year. In thisregard, base money declined by 5.4 per cent in2000, in contrast to an increase of 8.8 per cent in1999, and contributed to the overall containmentof inflationary pressures.

The monthly inflation rates for 1999 and 2000 asillustrated in Chart 4, show that monthly inflationrates from January to April were on averagehigher than for the comparable months of 1999.Between May and December, with the exceptionof September, monthly inflation was lower thanthe corresponding period of 1999. For the firsthalf of year there was an overall increase in pricesof 3.5 per cent relative to 1.7 per cent for thesimilar period of 1999. In contrast, between Julyand December 2000 the level of inflation was2.4 per cent comparing favourably with the 5.0per cent that was registered in the correspondingperiod of 1999.

The expansion in prices during the first half of theyear coincided with the persistence of the droughtconditions from the previous year, as well asinternational oil price shocks. Slower growth inthe price level during the second half of 2000resulted primarily from the moderation andreversal of the prices of items in the Food andDrink category. This was the result of the returnof more favourable weather conditions, which led


A N N U A L R E P O R T 2 0 0 0

to an increase in the supply of short-termagricultural products. The slow down wasparticularly evident in the inflation rates of 0.1per cent in both October and November andnegative 0.7 per cent in December.

CHART 4

CHART 5

TABLE 44

JAMAICA: COMPONENT CONTRIBUTION TO INFLATION IN 2000

fOOD & DRINK- Meals Away From Home- Meat Poultry & Fish- Dairy Products Oils & Fats- Baked Products Cereals & Breakfast Drinks- Starchy Foods- Vegetables & Fruits- Other Food & Beverages

FUELS & OTHER HOUSEHOLD SUPPLIES- Household Supplies- Fuels

HOUSING & OTHER HOUSING EXPENSES- Rental- Furnishings

HOUSEHOLD FURNISHINGS & FURNITURE- Furniture- Furnishings

HEALTHCARE & PERSONAL EXPENSESPERSONAL CLOTHING FOOTWEAR & ACC.

- Clothing Materials- Readymade Clothing & Accessories- Footwear- Making & Repairs

TRANSPORTATIONMISCELLANEOUS EXPENSESALL GROUPS

GroupWeights

0.55630.07410.16130.06680.08640.05250.06500.05020.07350.04820.02530.07860.02090.05770.02830.00680.02150.06970.05070.00550.02420.01590.00510.06440.07851.0000

Price Inflation(%)

Contribution to Inflation(%)

1999

3.93.41.82.01.27.38.69.62.92.03.9

24.49.1

28.53.56.82.27.65.65.83.65.7

15.54.3

16.26.8

2000

4.45.62.74.25.98.9

-0.14.67.62.6

12.817.518.517.38.96.0

10.16.74.50.63.27.15.53.96.36.1

1999

33.03.84.32.01.55.88.47.22.91.41.5

27.42.8

24.51.40.70.77.94.30.51.31.41.24.2

18.9100.0

2000

39.77.17.44.88.78.0

-0.13.97.72.25.5

23.66.6

17.04.40.73.77.93.80.11.31.90.54.38.5

100.0

0

5

10

15

20

25

30

35

40

45

Food

& Drink

Fuels &

OHHS

Housing

&OHE

Househo

ld F & F

Healthca

re & PE

Person

al C F&

A

Transp

ortation

Miscellan

eous

Groups

Per

cen

t

2 0 0 0

1 9 9 9

COMPONENT CONTRIBUTION TO INFLATION 1999 & 2000

MONTHLY INFLATION: 1999 & 2000


-1.5

-1

-0.5

0

0.5

1

1.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Month

Per

cen

t

2000

1999

The inflation out-turn in 2000 was largely due toincreases in the Food & Drink, Housing & OtherHousing Expenses and Miscellaneous Expensesgroup. These three sub-indices expanded by 4.4,


to excess demand for the available rental housingstock.

Components of the Miscellaneous Expensesgroup increased by 8.5 per cent in 2000 relativeto 18.9 per cent in 1999. The chief contributorsto the rate of inflation in this group were verydemand inelastic and included cigarettes,preparatory school fees, CXC examination feesand school books.

Regional Inflation 2000

At the regional level, inflation was higher in theKingston Metropolitan Area (KMA) comparedwith the Other Towns and Rural Areas. Over theyear, the index for the KMA increased by 7.5 percent, while the indices for the Other Towns andthe Rural Areas increased by 5.4 per cent and4.6 per cent, respectively. Compared with 1999,inflation was slightly lower in the Other Townsand Rural Areas in 2000, while price increases inthe KMA were roughly the same for the twoperiods.

Regional differences in inflation were mostpronounced in the Fuels & Other HouseholdSupplies, Household Furnishings & Furniture andPersonal Clothing Footwear & Accessories groups.In particular, inflation in the Fuel sub-group was21.5, 10.8 and 3.4 per cent for the KMA, OtherTowns and Rural Areas, respectively. In general,prices of kerosene, liquid petroleum gas (LPG)and charcoal increased by a larger percentagein KMA relative to Other Towns and Rural Areas.

The other wide variations were found in theFurniture, Furnishings and the Footwear sub-


17.5, and 6.3 per cent, respectively, andcontributed 39.7, 23.6, and 8.5 per cent to thetotal inflation out turn. This was similar to thepattern observed in 1999 as shown in Chart 5.The relative magnitude of their contribution toinflation has however varied.

Food & Drink is the most heavily weighted groupin the CPI and exhibits a high degree of sensitivityto weather conditions, primarily because of itsStarchy Foods and Vegetable & Fruits sub-groups.This group is also heavily influenced by importedinflation, which affects Baked Products, Cereals& Breakfast Drinks and Meat, Poultry and Fish.Both of these factors were important to theinflation out-turn in 2000. Prices of Meat, Poultryand Fish contributed 7.4 per cent to overallinflation and was dominated by an increase inthe price of chicken which in turn influenced the7.1 per cent contribution of Meals Away FromHome to the inflation out-turn.

The main contributors to inflation in the StarchyFoods sub-group were yam, sweet potatoes anddasheen, as these prices varied with weatherconditions. The fall in the prices of these fooditems in the last quarter of the year wassufficiently sharp to have a negative impact onthe level of price increases.

The Housing & Other Housing Expenses group,was mainly influenced by the escalation in utilitycharges. Over the course of the year electricity,water and telephone charges increased byapproximately 34, 20 and 17 per cent,respectively. In addition, the Rental sub-grouprose by 18.5 per cent. In general, the continuedincreases recorded in this sub-group might be due

A N N U A L R E P O R T 2 0 0 0

groups. There were substantial disparitiesbetween KMA and the other two areas withregards to increases recorded for dinette sets,double beds, refrigerators, stoves, and sheets.

In the Rural Areas the prices of dinette sets,double beds and refrigerators were initially higherthan in the KMA. However, during the course ofthe year, prices in the KMA had caught up withand eventually exceeded those in the Rural Areas.In the case of footwear, price increases werehigher in KMA for working men’s boots and schoolshoes, relative to the other two areas.

Core Inflation

At December 2000, the twelve-month increasein the Trimmed Mean index, representative of

TABLE 45

REGIONAL INFLATION 2000

fOOD & DRINK- Meals Away From Home- Meat Poultry & Fish- Dairy Products Oils & Fats- Baked Products Cereals & Breakfast Drinks- Starchy Foods- Vegetables & Fruits- Other Food & Beverages

FUELS & OTHER HOUSEHOLD SUPPLIES- Household Supplies- Fuels

HOUSING & OTHER HOUSING EXPENSES- Rental- Other Housing Expenses

HOUSEHOLD FURNISHINGS & FURNITURE- Furniture- Furnishings

HEALTHCARE & PERSONAL EXPENSESPERSONAL CLOTHING FOOTWEAR & ACC.

- Clothing Materials- Readymade Clothing & Accessories- Footwear- Making & Repairs

TRANSPORTATIONMISCELLANEOUS EXPENSESALL GROUPS

Weight inCPI

0.55630.07410.16130.06680.08640.05250.06500.05020.07350.04820.02530.07860.02090.05770.02830.00680.02150.06970.05070.00550.02420.01590.00510.06440.07851.0000

KMA(%)

5.16.63.34.96.68.23.03.5

11.83.4

21.518.219.118.020.415.922.37.37.50.26.2

11.38.24.87.17.5

Other Town(%)

4.04.62.34.15.7

10.9-3.95.66.92.1

10.817.016.817.13.41.84.04.81.21.31.5

-0.14.44.75.65.4

Rural(%)

4.04.32.13.55.28.6

-1.65.42.71.93.4

16.016.815.92.70.73.56.63.50.81.87.43.02.25.44.6

core, was 4 per cent, or 0.8 percentage pointsabove the rate achieved for the previous year.Core and headline inflation displayed similarpatterns throughout the year. Core inflation wasrelatively low in the context of significant exchangerate depreciation and shocks from internationaloil prices that were experienced over the period.

CHART6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Per c

ent

2000

1999

TRIMMED MEAN MEASURE OF CORE INFLATION 1999 - 2000



Banking

The BOJ provides a wide range of banking services to the Government and other

customers, mainly commercial banks, primarydealers and other central banks. As fiscal agentthe Bank provides advice to the Government inrelation to debt issues and administers newborrowings in the domestic Treasury Bill and bondmarkets.

The Bank provides cheque clearing andsettlement facilities for the local banking systemand plays a supervisory and policy framing rolein this regard. The BOJ’s oversight role isfacilitated through the Bank of Jamaica Act, theBanking Act, the Financial Institutions Act and theCurrency Issue and Redemption Statutes. Inaddition, the Clearing House Rules codify thearrangements between member banks (includingthe BOJ) with respect to the local clearing of bothJamaica and US dollar instruments.

Other activities in relation to the payment systeminclude the settlement of regional paymentsthrough the CARICOM bilateral arrangements andthe exchange of CARICOM currencies.

Banking and Currency Operations

New DevelopmentsThe Clearing Process

Over the last three years, the Jamaican bankingindustry has taken steps towards modernisingthe domestic payment system through theestablishment of an automated clearing housefacility. The project is being undertaken throughthe collaborative efforts of the commercialbanking sector and the BOJ. Investments havebeen made in technology and equipment andfor most banks, certain components of theclearing process (pre-and post-clearing phases)have already been automated. However, theclearing process itself remains manual.

The Funds Transfer System

The BOJ also operates a network system,Customer Information Funds Transfer System(CIFTS). CIFTS is a Deferred Gross Settlement(DGS) System (on-line, not real time) that allowsthe electronic transfer of funds between theaccounts of primary dealers, commercial banks,the Jamaica Central Securities Depository (JCSD)and its broker members. Since June 2000commercial banks have expanded the use ofCIFTS to provide inter-bank wire transfer servicesto their commercial clients.

82

A N N U A L R E P O R T 2 0 0 0

New Treasury System

In order to enhance the efficiency of its operationsthe Bank installed and commissioned its newcomputerised treasury management system,Thomson Vision, during the year. The new system,which integrates with the Bank’s main accountingsystem, the International Comprehensive BankingSystem (ICBS), has allowed the Bank tostreamline its foreign exchange, money marketand securities trading operations and moreeffectively manage the risks associated with itsfinancial market activities.

The Bank continues to provide vaulting servicesto the JCSD. A wholly owned subsidiary of theJamaica Stock Exchange Limited, the JCSD’s mainfunctions are to provide safekeeping of sharesand certificates and to facilitate more efficientequities trading with a shorter turnaround timefor settlement and delivery of certificates.

Currency

The BOJ is charged with the responsibility tofurnish notes that are well-protected fromcounterfeiting and to manage the supply ofbanknotes and coins to the public as economicallyas possible. During the year 2000 the Bank tookthe following steps to enhance its currencystructure and achieve these objectives:

l a new high security $1000 banknote wasintroduced;

l the $20 banknote, which at the time wasthe nation’s lowest value banknote, was

withdrawn from circulation and replacedwith a $20 coin; and

l the security features of the $50 and $100banknotes were upgraded.

$1000 Banknote

The $1000 banknote, issued on 26 April 2000was well received by the public. The note featuresthe portrait of the late former Prime Minister, theHonourable Michael Manley on the front and onthe reverse a view of Jamaica House, where theoffices of Jamaican Prime Ministers are located.

The introduction of this note became necessaryas the $500 note, which until then was the highestdenomination, was overworked. The $500 noteaccounted for 86.57 per cent of the total value ofnotes in circulation at the start of the year, a levelfar exceeding the international benchmark of 60per cent. By year-end the new note was wellestablished with 9.8 million pieces in circulationwith a value of $9.85 billion.

The $1000 note represented approximately halfof the value of banknotes in circulation at year-end. The introduction of this high-valuedenomination caused a sharp decline in thedemand for $500 banknotes and reduced itsshare of the value of total circulation from 86.57per cent to 38.34 per cent by year-end.

$20 Coin

As with most low value denominations, the usefullife of the $20 denomination declined over time

Banking & Currency Operations 83


to an average of only 8.6 months by the end of1999. This short, useful life and high replacementrate translated into high issue expenses for theBank and rendered the note uneconomical. As aresult, a $20 coin was issued and the $20banknote withdrawn from circulation in July 2000.The new coin has an expected useful life of morethan 20 years.

By year-end approximately 75.85 million pieceshad been issued to the public while 31.92 millionpieces were redeemed, a clear indication of thecoin’s acceptance.

The $20 banknote remains legal tender. Morethan 27.8 million pieces or 82 per cent of the $20notes in circulation were redeemed by year-end,effectively removing the note from activecirculation.

Upgraded $50 and $100 Banknotes

During the year the Bank issued upgradedversions of the $50 and $100 banknotes. Whilethe overall design of these banknotes did notchange, as the portraits of National Hero, SamSharpe and the late former Prime Minister, SirDonald Sangster were retained the following newsecurity features were incorporated into thedesigns:

l a wide-windowed security thread whichglows under ultra-violet light and on whichis printed “BOJ $50 and BOJ $100” forthe respective notes.

l a new design watermark of theswallowtail humming bird (doctor bird)with a flower highlight which replaced thepineapple watermark.

The old design $50 and $100 banknotes remainlegal tender and continue to circulate alongsidethe new notes.

Clean Note Policy

The Bank maintained its clean note policy as amajor plank in its anti-counterfeit strategy.Currency authorities throughout the world agreethat dirty circulation stock facilitates theintroduction of counterfeits and the bestguarantee of banknote security is a public thatreadily recognises the security features ofbanknotes.

Of the 117.6 million pieces of notes issued to thepublic during the year 2000, 86.45 million piecesor 74 per cent were new, with the remainderbeing notes of ATM quality. The Bank sorted139.3 million pieces of used notes valued at$32.975 billion during the year. Of this amount108.5 million pieces (valued at $18.5 billion) weredestroyed. The remainder was re-issued to thepublic.

Throughout the year the Bank continued itseducational programme, amking presentationsto large-volume cash handlers in the retail andfinancial services sectors to improve theirknowledge and awareness of the securityfeatures of the banknotes.

84 Banking & Currency Operations

A N N U A L R E P O R T 2 0 0 0

For the year 2000, no item of Financial Legislation impacting on the Bank was

passed in Parliament.

However, during the year, the following items oflegislation were drafted by the Office ofParliamentary Counsel in accordance with draftinginstructions received from the Ministry of Finance:

1. The Financial Services Commission Act,2000

2. The Unit Trusts (Amendment) Act, 2000

Financial Legislation

3. The Securities (Amendment) Act, 2000

4. The Bank of Jamaica (Amendment) Act,2000

The above-mentioned items of draft legislationare intended to bring about reforms in theregulation of non-deposit-taking financial entities,viz: insurance companies, pension funds, securitiesdealers and unit trusts. One of the major areasof reform involves the provision for the sharing ofinformation among the various regulators, whichis to be facilitated by a Memorandum ofUnderstanding entered into among the

regulators, including the Bank of Jamaica.

85


During 2000, the Bank continued to redefine its work processes aimed at ensuring

efficient and effective management. Accordingly,the Bank’s technology infrastructure was furtherenhanced through the upgrading of its mainframe and the introduction of an improved datacommunication system that facilitated greaterexternal data interchange and telecommuting.The internal communication system was alsoenhanced with the introduction of the Bank’sCorporate Intranet.

As at 31 December 2000, the staff complementwas four hundred and nineteen (419), comprisingfour hundred and eight (408) permanentemployees and eleven (11) contract staff. Inkeeping with the Bank’s mandate to recruit andretain a cadre of highly trained staff with relevantqualification, skills and competencies, nineteen(19) persons were recruited at the professionallevel, of which fifteen (15) persons hadpostgraduate qualifications. In addition, eleven(11) persons were recruited into the clerical andtechnical support level. As in prior years, the levelof staff turnover remained at a relatively stablerate of 7.6 per cent.

Importantly, the year 2000 marked theestablishment of the Bank of Jamaica Training

Administration

Institute. The principal objective of the Institute isthe provision of training in the technical andmanagerial aspects of Central Banking. Trainingis available to the Bank staff as well as tomembers of the local and regional financialcommunity. In this regard two programmes ofmajor importance were conducted during the yearwith participants from the local public and privatesectors and the Caribbean Region. The first wasa seminar on the Basel Core Principles for EffectiveBanking Supervision, with presenters from theFinancial Stability Institute (FSI) and the Bank forInternational Settlement (BIS). The second wasa five-day course on Treasury Control withinBanks, conducted by Crown Agents FinancialServices Limited, London. For the period underreview, 41 members of staff participated in 38overseas training programmes while 271 staffmembers attended 57 training programmeslocally.

With respect to health and safety issues, theTraining Institute in collaboration with the Bank’sStaff Clinic, continued a series of educationprogrammes aimed at raising the health andsafety awareness of employees. These includedvarious health-related screenings, seminars andquarterly bulletins on preventative medicine, andother relevant topics, as well as, techniques oncoping in the event of natural disasters.

During 2000, the industrial relations climate in theorganisation remained calm as management andstaff continued to build a productive partnership

86

A N N U A L R E P O R T 2 0 0 0

to facilitate high performance and job fulfilment.Accordingly, the Performance ManagementSystem was further revised with the aim ofincreasing accountability. In addition, leaveentitlement was rationalised consistent withdevelopments in the labour market. As at January2001, the maximum leave entitlement of theBank’s staff is 40 days, comprising 30 daysvacation and 10 days sick. The two-year Labour/Management Salary and Benefits Agreementexpired on 31 March 2000. At year-end,discussions continued between the Bank’sManagement and the Bustamante IndustrialTrade Union (BITU) which represents the unionisedstaff, with respect to the 2000/2002 Salary andBenefits Contract.

Throughout the year, the Bank continued itsrefurbishing programme aimed at ensuring thepreservation of the institution’s infrastructure, andthe maintenance of a work environment that issafe and conducive to productive activity.Accordingly, the Technical and Office ServicesDepartment which is charged with theresponsibility of providing a safe, aesthetic andergonomic work environment undertookmaintenance and upgrading projects includingthe Bank’s domestic water supply, offices andwork areas and the telecommunicationinfrastructure.

The Bank Celebrates 40 Years

In October 2000, the Bank of Jamaica celebratedits fortieth anniversary. Established as the

country’s central bank on 1 October 1960, bythe Bank of Jamaica Law 1960, the Bankcommenced full operations in May 1961. In thisrelatively short period of time, the Bank ofJamaica has come to be accepted as the mostimportant institution in the financial and monetarystructure of the country. The editorial in The DailyGleaner of 2 May 1961, the day after the Bankwas officially opened, stated, “… The country isexpecting much from the BOJ which, by virtue ofits responsibility must play a major part in directingthe local economy”. The Bank has indeed livedup to expectations as it has provided economicand financial leadership and guidance to thecountry and a greater understanding of themysteries of central banking.

Under the theme, “The Bank of Jamaica – 40Years of Service – A Journey Towards Excellence”,the Bank’s fortieth anniversary was celebratedwith a number of events. These commenced inOctober 2000 and are expected to continue toMay 2001. The activities included a Service ofThanksgiving and Praise held in the auditoriumon 1 November 2000 and a gala dinner on 3November 2000 at which the Prime Minister, theRt. Hon. P. J. Patterson, was the guest speaker.The Bank’s hosting of the XXXII Annual MonetaryStudies Conference, (30 October – 02 November2000), in association with the Caribbean Centrefor Monetary Studies (CCMS) was also arrangedto coincide with the celebrations. Essay andposter competitions for students at primary andsecondary schools were also sponsored by theBank, in the first half of 2001.

Administration 87


2000

Salary Range of Executive Management $3 625 234 - $6 629 258

Allowances of Executive Management

(a) Governor $1 281 985

(b) Range for Deputy Governors $654 988 - $1 119 332

Compensation of Executive Management

Notes

Executive Management includes the Governor and four (4) Deputy Governors. Inthe case of the Governor, a maintained residence and an official car are provided,as is customary for Governors of the Bank of Jamaica. For Deputy Governors afully maintained motor vehicle is provided. Each member of the ExecutiveManagement is eligible for benefits including a non-contributory pension plan, healthinsurance, life insurance, staff loans and assisted passage.

88

A N N U A L R E P O R T 2 0 0 0

January - December 2000

Commercial banks’ cash reserveratio for local and foreigncurrency liabilities reduced from16 per cent to 15 per cent.

Commercial banks’ liquid assetsratio for local and foreigncurrency liabilities reduced from34 per cent to 33 per cent.

Liquid assets ratio of FIAinstitutions in respect of local andforeign currency liabilitiesreduced from 34 per cent to 33per cent.

Cash reserve ratio of FIAinstitutions in respect of local andforeign currency liabilitiesreduced from 16 per cent to 15per cent.

Dual cash reserve ratios of 1 and15 per cent for building societies.

Dual foreign currency cashreserve ratios of 1 and 15 percent for building societies.

Dual liquid asset ratios of 5 and33 per cent for buildingsocieties.

Calendar of Monetary Developments

Dual liquid asset ratios of 5 and33 per cent in respect of foreigncurrency denominated liabilitiesof building societies.

The 30-day Reverse RepurchaseRate reduced from 18.35 percent to 17.5 per cent.

The 30-day Reverse RepurchaseRate reduced from 17.5 per centto 17.3 per cent.

One thousand dollar ($1000)note introduced.

The 30-day Reverse RepurchaseRate reduced from 17.3 per centto 17 per cent.



Liquid assets ratio of FIAinstitutions in respect of local andforeign currency liabilitiesreduced from 33 per cent toto 32 per cent.

89

2000 03 01

2000 03 10

2000 03 28

2000 04 26

2000 04 27

2000 06 01



Dual cash reserve ratios of 1 and14 per cent for buildingsocieties.

Dual foreign currency cashreserve ratios of 1 and 14 percent for building societies.

Dual liquid asset ratios of 5 and32 per cent for building societies.

Dual liquid asset ratios of 5 and32 per cent in respect of foreigncurrency denominated liabilitiesof building societies.

The 30-day Reverse RepurchaseRate reduced from 17 per centto 16.75 per cent.

The 30-day Reverse RepurchaseRate reduced from 16.75 percent to 16.45 per cent.



Liquid assets ratio of FIAinstitutions in respect of local andforeign currency liabilitiesreduced from 32 per cent to 31per cent.


Dual cash reserve ratios of 1 and13 per cent for building societiesin respect of local and foreigncurrency liabilities.

Dual liquid asset ratios of 5 and31 per cent for building societiesin respect of local and foreigncurrency liabilities.

New 270-day and 365-daytenor in BOJ Reverse Repurchaseinstruments introduced atpremium rates of 17.6 per centand 18 per cent, respectively.

90 Calendar of Monetary Developments

2000 07 28

2000 08 11

2000 09 01

2000 09 18

A N N U A L R E P O R T 2 0 0 0

The 270-day ReverseRepurchase Rate increased from17.6 per cent to 20 per cent.

The 365-day ReverseRepurchase Rate increased from18 per cent to 22 per cent.

The 270-day ReverseRepurchase Rate reduced from20 per cent to 17.6 per cent.

The 365-day ReverseRepurchase Rate reduced from22 per cent to 18 per cent.

The 270-day ReverseRepurchase Rate increased from17.6 per cent to 20 per cent.

The 365-day ReverseRepurchase Rate increased from18 per cent to 22 per cent.

The 365-day ReverseRepurchase Rate reduced from22 per cent to 21 per cent.

Calendar of Monetary Developments 91

2000 10 04

2000 10 23

2000 11 24

2000 12 28

A N N U A L R E P O R T 2 0 0 0

i

Auditors’ Report

TO BANK OF JAMAICA

Pursuant to Section 43(1) of the Bank of Jamaica Act, we have audited the financial statements set out on pages ii to xxi andhave obtained all the information and explanations which we required. The financial statements are the responsibility of thedirectors and management. In preparing the financial statements, the directors and management are required to select suitableaccounting policies and apply them consistently, make judgements and estimates that are reasonable and prudent, followapplicable accounting standards, and apply the going concern basis unless it is inappropriate to presume that the Bank willcontinue in operation for the foreseeable future. The directors and management are responsible for maintaining proper accountingrecords, for safeguarding the assets of the Bank, and for the prevention and detection of fraud and other irregularities. Ourresponsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with Standards on Auditing issued by the Institute of Chartered Accountants of Jamaica.Those standards require that we plan and perform the audit to obtain all the information and explanations which we considernecessary to provide us with reasonable assurance that the financial statements are free of material misstatements. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by the directors and management, and evaluating the overall financialstatements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, proper accounting records have been maintained and the financial statements, which are in agreement therewithand have been prepared in accordance with generally accepted accounting principles in Jamaica, give a true and fair view of thestate of affairs of the Bank as at 31 December 2000 and of the results of its operations and its cash flows for the year thenended and, except for the matters referred to in notes 2(j) and 9, comply with the provisions of the Bank of Jamaica Act.

Without qualifying our opinion, we draw attention to note 5(b), which discloses the following:

(a) Of the approximately J$29.2 billion (1999: J$27.1 billion) of non-marketable securities, J$26.96 billion (1999:J$24 billion)comprise notes issued to the Bank by Finsac Limited, of which $13.3 billion (1999: J$13.3 billion) is guaranteed by Governmentof Jamaica.

(b) The interest earned on the Finsac notes comprise 26% (1999: 19.6%) of the Bank’s interest revenue. However, all theinterest earned on the Finsac notes up to and since the balance sheet date has been settled by the issue of additionalnotes.

28 March 2001


BALANCE SHEET 31 December 2000

ASSETS

Foreign assets

Notes and coins

Cash resources

Interest in funds managed by agents

Foreign currency denominated securities

International Monetary Fund -

Holding of Special Drawing Rights

Local assets

Notes and coins

Securities purchased under resale agreements

Securities - marketable

- non-marketable

Advances to banks and other financial institutions

International Monetary Fund - Quota Subscription

Investments in financial institutions

Due from Government and Government Agencies

Fixed assets

Other

Notes

3

4

14

5(a)

5(b)

6

7

8

9

10

11

2000

J$’000

6 167

36 375 433

1 677 111

9 810 160

3 822

47 872 693

25 496

-

27 930 619

29 164 474

2 921 425

1 721 258

145 245

8 556 035

1 150 083

2 683 376

74 298 011

122 170 704

1999

J$’000

63 016

13 221 245

1 455 572

8 024 426

27 325

22 791 584

11 767

118 000

32 288 845

27 058 953

779 302

1 611 150

251 998

11 046 407

1 117 080

2 738 171

77 021 673

99 813 257

ii Final Accounts for the Year ended 31 December 2000

The accompanying notes form an integral part of the financial statements.

A N N U A L R E P O R T 2 0 0 0

BALANCE SHEET (Cont’d) 31 December 2000

LIABILITIES, CAPITAL AND RESERVES

Liabilities

Notes and coins in circulation

Deposits and other demand liabilities

Securities sold under repurchase agreements

International Monetary Fund -

Allocation of Special Drawing Rights

Foreign liabilities

Other

Capital and reserves

Capital

General Reserve Fund

Other Reserves

Notes

12

13

14

15

16

17

2000

J$’000

20 572 228

53 803 473

42 156 477

2 245 959

378 697

2 047 333

121 204 167

4 000

20 000

942 537

966 537

122 170 704

1999

J$’000

20 809 460

47 044 232

27 371 614

2 102 285

439 525

1 172 575

98 939 691

4 000

20 000

849 566

873 566

99 813 257


GovernorD.M. Latibeaudiere

Senior Director, Finance and TechnologyL.B. Morrison

Advisor, Finance and TechnologyH.A. Hylton

Final Accounts for the Year ended 31 December 2000 iii


STATEMENT OF INCOME AND EXPENSES Year ended 31 December 2000

Operating income

Interest

Foreign exchange gain, net

Other

Total

Operating expenses

Interest

Salaries, pension scheme contributions, and

staff and post retirement benefits

Currency expenses

Property expenses, including depreciation

Other operating expenses

Total

Net operating income

Other gains/(losses)

Bad debt recovery, net

Gain/(loss) on revaluation of securities

Gain on disposal of fixed assets

Loss on disposal of investment in financial institutions

Expenditure on behalf of Government

of Jamaica not reimbursed

Net income for year

Transferred to General Reserve Fund

Notes

18

19

9

2000

J$’000

11 698 207

1 714 599

56 021

13 468 827

9 110 152

688 890

176 465

210 832

308 739

10 495 078

2 973 749

( 24)

98 213

5 988

( 100 000)

( 248 164)

2 729 762

( 2 729 762)

1999

J$’000

12 129 514

1 340 158

99 860

13 569 532

8 758 522

770 305

253 132

149 397

123 650

10 055 006

3 514 526

-

( 305 460)

2 766

-

( 214 461)

2 997 371

( 2 997 371)

iv Final Accounts for the Year ended 31 December 2000


A N N U A L R E P O R T 2 0 0 0

STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2000

Balance at 31 December 1998

Total recognised gains and losses

Transfer from coins in circulation

Due to consolidated fund

(see note 2 below)


Total recognised gains and losses

Transfer from coins in circulation

Due to consolidated fund

(see note 2 below)


Final Accounts for the Year ended 31 December 2000 v


Share

Capital

J$’000

4 000

-

-

-

4 000

-

-

-

4 000

Securities

Revaluation

Reserve

J$’000

18 604

(18 604)

-

-

-

24 159

-

-

24 159

Special

Stabilization

Account

J$’000

121 338

-

60 600

-

181 938

-

71 802

-

253 740

Fixed Assets

Revaluation

Reserve

J$’000

-

667 628

-

-

667 628

( 2 990)

-

-

664 638

Total

J$’000

163 942

3 646 395

60 600

(2 997 371)

873 566

2 750 931

71 802

(2 729 762)

966 537

Note 1: Section 8 of the Act provides for the capital of the Bank to be $4 000 000, which has been paid by Government of

Jamaica.

Note 2: Section 9 of the Act provides that the Bank shall establish and maintain a General Reserve Fund:

(a) to which, at the end of each financial year, the net income for that year shall be transferred or the net losses

charged;

(b) from which shall be paid to the Consolidated Fund the amount by which, at the end of the financial year, the

balance thereon exceeds five times the Bank’s authorised share capital.

General

Reserve

Fund

J$’000

20 000

2 997 371

-

( 2 997 371)

20 000

2 729 762

-

(2 729 762)20 000


STATEMENT OF CASH FLOWS 31 December 2000

Cash provided by operating activities:Net income for yearAdjustments to reconcile net income for year to

net cash provided by operating activities:DepreciationGain on disposal of fixed assetsLoss on disposal of investments in financial institutionsUnrealised exchange gain/(loss) on overseas securitiesTransfer from coins in circulationUnrealised exchange gain on International

Monetary Fund - Quota subscriptionUnrealised exchange loss on International

Monetary Fund - Allocation of SDR’sNet cash provided by operating activities

Cash flows from investing activities:International Monetary Fund

- Holding of Special Drawing RightsInterest in funds managed by agentsForeign currency denominated securitiesSecurities purchased under resale agreementsSecurities - marketable

- non-marketableAdvances to banks and other financial institutionsDue from Government and Government AgenciesAdditions to fixed assetsRepayment of investment in promissory notesProceeds of disposal of fixed assetsOther assets

Net cash used by investing activitesCash flows from financing activities:

Notes and coins in circulationDeposits and other demand liabilitiesSecurities sold under repurchase agreementsForeign liabilitiesOther liabilities

Net cash provided by financing activitiesNet increase/(decrease) in cashCash at beginning of yearCash at end of year

Foreign notes and coinsForeign currency cash resourcesLocal notes and coins

2000 J$’000

2 729 762

109 402( 5 988)

100 00024 15971 802

( 110 108)

143 6743 062 703

23 503( 221 539)( 1 785 734)

118 0004 358 226

( 2 105 521)( 2 142 123)( 239 391)( 148 845)

6 7539 439

54 795( 2 072 437)

( 237 232)6 759 241

14 784 863( 60 828)

874 75822 120 80223 111 06813 296 02836 407 096

6 16736 375 433

25 49636 407 096

1999 J$’000

2 997 371

64 691( 2 766)

-( 18 604)

60 600

( 84 599)

110 3883 127 081

( 4 590)285 264

( 1 272 380)( 118 000)( 1 375 606)( 4 526 661)( 779 302)

77 399( 128 115)

-12 622

( 899 705)( 8 729 074)

5 574 730( 4 749 072)

711 626( 215 744)( 86 955)

1 234 585( 4 367 408)17 663 43613 296 028

63 01613 221 245

11 76713 296 028


vi Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

1. Identification

Bank of Jamaica (hereafter “the Bank”) was established under the Bank of Jamaica Act (hereafter “theAct”). The Act was most recently amended effective 31 December 1992.

The principal objects of the Bank, as set out in the Act, are to issue and redeem notes and coins; to keep andadminister the external reserves of Jamaica; to influence the volume and conditions of supply of credit so asto promote the fullest expansion in production, trade and employment, consistent with the maintenance ofmoney stability in Jamaica and the external value of the currency; to foster the development of money andcapital markets in Jamaica; and to act as banker to the Government of Jamaica.

These financial statements are presented in Jamaica dollar (J$).

2. Basis of preparation and significant accounting policies

The financial statements have been prepared in accordance with Jamaican generally accepted accountingprinciples (“GAAP”). The significant accounting policies used in the preparation of these financial statementsare summarised below and conform, in all material respects, to GAAP.

The preparation of the financial statements in conformity with GAAP requires management to make estimatesand assumptions that affect the reported amount of assets and liabilities at the balance sheet date and theincome and expense for the period then ended. Actual amounts could differ from these estimates.

The significant accounting policies are as follows:

(a) Accounting convention:

The financial statements are prepared under the historical cost convention, modified for the inclusion ofcertain fixed assets at valuation and marketable securities at market value.

(b) Foreign currencies:

The rate of exchange of the Jamaica dollar for the United States dollar is determined by the average ofthe weighted average rate at which the commercial banks trade in US dollars and the rate at which theBank itself buys US dollars. The rates of exchange for other currencies are derived from the US$ ratethus determined using rates published by the Federal Reserve Bank and the Financial Times.

Foreign currency balances at the balance sheet date are translated at the rates of exchange prevailingat that date.

Transactions in foreign currencies are converted at the rates of exchange ruling at the dates of thosetransactions.

Gains and losses arising from fluctuations in exchange rates are, respectively, credited and charged inarriving at the net result for the year.

Final Accounts for the Year ended 31 December 2000 vii

NOTES TO THE FINANCIAL STATEMENTS 31 December 2000


(c) Investment securities:

Marketable investment securities, both domestic and foreign, are carried at market value. This includesall domestic government securities, whether or not they have more than a year to maturity, since suchsecurities as are held are effectively available for sale, given that the Bank, by its nature, purchases andsells them in pursuit of its liquidity management objective. Where quoted market prices are availablethey are used to value securities. If not, market values are estimated using a generally acceptablealternative method.

Non-marketable securities [comprising certain local registered stock and Finsac Limited notes] are carriedat cost.

Unrealised changes in the market value of securities are included in reserves as a revaluation adjustment;however, where a decrease exceeds a previously recorded surplus, the excess is charged to income; asubsequent increase is credited to income to the extent that any decreases were previously charged toincome.

(d) Investments in financial institutions:

Investments in financial institutions are stated at cost less provision for losses. A provision for loss ismade where, in the opinion of the directors, there has been a permanent impairment in the value of aninvestment. Consolidated financial statements are not prepared because the directors are of the viewthat, at this time, the cost is out of proportion to the benefit to be derived having regard to, inter alia,the nature of the activities of the investees.

(e) Fixed assets:

With the exception of land, art works, statues and museum coins, on which no depreciation is provided,and leasehold property, which is amortised in equal instalments over the shorter of the lease term andthe property’s estimated useful life, fixed assets are depreciated on the straight line method at annualrates estimated to write off the assets over their estimated useful lives. The depreciation rates are asfollows:

Freehold property 5% and 10%Leasehold property Shorter of lease term and useful lifeFurniture, plant and equipment 10%Computer and software 20%Motor vehicles 20%

(f) Notes and coins in circulation:

The nominal value of numismatic coins sold is included in notes and coins in circulation. The net proceedsfrom such sales are included in the statement of income and expenses.

Notes and coins in circulation is stated after a deduction of 25% of the value of coins in circulation inaccordance with the Bank of Jamaica (Value of Coins in Circulation) Order 1973, as permitted underSection 22 of the Act. The deductions are credited to the special stabilisation account.

viii Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

(g) Repurchase and resale agreements:

In accordance with generally accepted accounting principles, repurchase and resale agreements, whichare described in more detail in note 14, are accounted for as short-term collateralized borrowing andlending, respectively.

(h) Taxation:

Section 46 of the Act exempts the Bank from income tax, stamp duties and transfer tax. The Bank’ssupplies are substantially exempt from general consumption tax (GCT); it incurs GCT at standard rateson taxable supplies acquired.

(i) Cost of retirement benefits:

The cost of retirement benefits is the cost to the Bank of its administration of, and contributions to, thepension scheme established to provide retirement benefits, and its payments to pensioners to supplementthe basic pensions to which pensioners are entitled under the rules of the scheme (see note 20). Thecontributions are a percentage of the members’ salaries; the percentage is determined by the scheme’sactuaries using the aggregate actuarial cost method. The contributions are charged to income as theyfall due; administration costs are charged when incurred; and supplemental payments are chargedwhen paid.

(j) Statutory transfer of profits and losses:

Section 9 of the Act provides for each financial year’s net income to be credited, or net loss charged, tothe General Reserve Fund, and for the balance on the General Reserve Fund in excess of five times theBank’s authorised share capital to be transferred to the Consolidated Fund. Likewise, any losses notcovered by reserves are required by the Act to be funded by Government out of the ConsolidatedFund.

In applying this section, the Bank’s directors, having regard to what is required to meet the Bank’sobjectives, including controlling inflation by, inter alia, controlling the supply of money and credit in theeconomy, have determined that the transfer of profits from the General Reserve Fund to the ConsolidatedFund will be made:

(i) only after losses of previous years have been funded by Government;

(ii) only after amounts due from Government have been recovered; and

(iii) only to the extent that profits have been realised.

3. Cash resources

Current accounts and money at call with foreign banksShort term deposits with foreign banksCurrent accounts with local banks

2000 J$’000

12 674 25023 483 212

217 97136 375 433

1999 J$’000

5 511 3687 474 526

235 35113 221 245

Final Accounts for the Year ended 31 December 2000 ix


4. Foreign currency denominated securities

Jamaica GovernmentUS$ debenture

US Government bondsBarbados Government bond

Cost J$’000

-9 760 181

22 6199 782 800

Market J$’000

-9 787 541

22 6199 810 160

Cost J$’000

30 9468 211 446

-8 242 392

Market J$’000

30 9467 993 480

-8 024 426

Remaining term to maturity from the balance sheet date:

Jamaica GovernmentUS$ debenture

US Government bondsBarbados Government bond

Within 3 months

J$’000

----

Three to 12 months

J$’000

-1 121 488

-

1 121 488

One to 5 yearsJ$’000

-7 012 828

-

7 012 828

Over 5 yearsJ$’000

-1 653 225

22 619

1 675 844

2000 J$’000

-9 787 541

22 619

9 810 160

1999 J$’000

30 9467 993 480

-

8 024 426

19992000

Carrying Values

5. Jamaica dollar denominated securities

(a) Marketable:Jamaica Government Securities:

Local registered stockTreasury billsInvestment debentures


Cost J$’000

27 605 3078 857

336 16127 950 325

Market J$’000

27 585 9988 828

335 79327 930 619

Cost J$’000

31 851 56457 905

377 778 32 287 247

Market J$’000

31 851 96359 104

377 77832 288 845

19992000

Jamaica Government Securities:

Local registered stockTreasury billsInvestment debenturesTotal

Within 3 months

J$’000

-547

40 41540 962

Three to 12 months

J$’000

2 763 8768 281

292 3783 064 535


15 613 328-3 000

15 616 328


9 208 794--

9 208 794

2000 J$’000

27 585 9988 828

335 79327 930 619

1999 J$’000

31 851 96359 104

377 77832 288 845

Carrying Values

x Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

(b) Non-marketable:Jamaica Government Securities:Local registered stock -

Interest bearing (i)Non-interest bearing (ii)

Other - Finsac bonds (iii)


2000 J$’000

-2 209 3462 209 346

26 955 12829 164 474

1999 J$’000

878 6352 209 3463 087 981

23 970 97227 058 953

Cost

Jamaica Government Securities: Local registered stock Interest bearing Non-interest bearing

Other - Finsac bonds Total

Within 3 months

J$’000

- -

-

--

Three to 12 months

J$’000

---

--


-245 950245 950

5 417 5315 663 481


-1 963 3961 963 396

21 537 59723 500 993

2000 J$’000

-2 209 3462 209 346

26 955 12829 164 474

1999 J$’000

878 6352 209 3463 087 981

23 970 97227 058 953

Carrying Values

(i) Some of these stocks bear interest at a rate of 11% and others at 111/2%.

(ii) These securities mature substantially in the years 2035 and 2036.

(iii) Of the $26 955 128 000 of Finsac bonds, Government of Jamaica has issued to the Bank a guaranteecovering principal and all interest accruing, amounting to $13 306 321 000 at 31 December 1998, andundertook to issue a guarantee for the balance, together with all interest accruing thereon, amountingto approximately $6 119 937 000. Neither a guarantee nor an undertaking to issue a guarantee hasbeen received in respect of the additional principal notes received or the interest thereon since 31December 1998.

Interest on these notes is being settled by the issue to the Bank of additional notes bearing interest atthe same rates as the respective principal notes.

Interest of J$3 043 845 087 (1999: J$2 385 282 609) being 26% (1999: 19.6%) of the Bank’s interestincome, represents interest on Finsac notes.

Final Accounts for the Year ended 31 December 2000 xi


Interest has been settled by issue of additional notes as follows:

Prior yearsCurrent yearAccumulated amount since principal notes were first issued

2000 J$’000

4 108 6812 983 9187 092 599

1999 J$’000

1 916 3902 192 2914 108 681

6. Advances to banks and other financial institutions

During the year, the Bank made certain advances for the purpose of facilitating stability in the financialsystem.

7. International Monetary Fund - Quota Subscription

This represents the portion of Jamaica’s fee for membership of the IMF, based on its quota, which was paidby the Bank (the other portion having been subscribed by the Government of Jamaica).

Quotas are reviewed every five years, when adjustments may be considered.

Amount subscribed (net of reserve tranche of J$Nil):At beginning of yearEffect of exchange rate fluctuationAt end of year

2000 J$’000

1 611 150110 108

1 721 258

1999 J$’000

1 526 55184 599

1 611 150

SDR’000

31 125 -

31 125

8. Investments in financial institutions

Subsidiary companies: Jamaica Export Credit Insurance Corporation Ltd. (in voluntary liquidation) National Export-Import Bank

of Jamaica Ltd. - Shares

- Advance for shares - Promissory notes

Associated company: Jamaica Export Trading Company Ltd.Other: Jamaica Development Bank

2000 (cost/wdv*)

J$’000

3 200

-

-141 885

150

10145 245

1999 (cost/wdv*)

J$’000

3 200

50 000

50 000148 638

150

10251 998

Equity holding

%

100.00

-(1999: 50.00)

50.00

17.35

Latestauditedfinancial

Statements

31.12.96

31.03.00

31.03.99

31.03.97

Retained earnings/ (deficit) J$’000

45 106

421 517

( 29 255)

(263 614)* *

xii Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

Final Accounts for the Year ended 31 December 2000 xiii

By virtue of Section 23(j) of the Act, the Bank is empowered to, with the approval of the Minister, subscribeto, hold and sell shares in any corporation which, with the approval, or under the authority, of the Government,is established for the purpose of promoting the development of a money market or securities market inJamaica or of improving the financial machinery for the financing of economic development.

During the year, the Bank sold all its shares in National Export-Import Bank of Jamaica Limited to the Governmentof Jamaica for one dollar.

9. Due from Government and Government Agencies

Expenditure on behalf of Government:Payment of interest on

certificates of depositPayment of exchange losses and

interest on foreign liabilities[see (b) below]

Other expenditure on behalf ofGovernment

Uncollected interest on Government securities and advancesAccrued interest on Government securitiesOverdrafts - Government and Government AgenciesNet profit payable to Consolidated Fund

[see (c) below]

31 Dec 1999

J$’000

1 686 875

4 937 184

187 335

5 230 937936 306

234 079

( 2 166 309)11 046 407

Advances/LossesJ$’000

-

248 164

-

730 283707 962

-

-1 686 409

Profit/ Settlements

J$’000

-

( 1 833)

( 60 769)

-( 936 306)

( 78 845)

( 2 729 762)( 3 807 515)

Chargedto expenses

J$’000

-

(248 164)

(121 102)

--

-

-( 369 266)

31 Dec2000

J$’000

1 686 875

4 935 351

5 464

5 961 220707 962

155 234

(4 896 071)8 556 035

Movement during the year

(a) By virtue of Section 36 of the Act, the Bank is empowered to make advances to the Government up tothirty per cent of the estimated revenue of Jamaica for that financial year of the Government, which areto be repaid within three months after the financial year. Where advances are not duly repaid, thepower of the Bank to grant further advances in any subsequent financial year is not exercisable until theoutstanding advances are repaid.

Advances made to the Government during the Bank’s financial year ended 31 December 2000 amountedto J$730 283 000 (1999: J$179 589 000) which was 0.7266% (1999: 0.2156%) of the estimatedrevenue of Jamaica for the year of J$100.5 billion (1999: J$83.3 billion).

(b) Exchange losses paid and interest on foreign liabilities comprise:

(i) advances to cover exchange losses realised on repayment of Government of Jamaica foreignliabilities, and

(ii) interest paid on Government of Jamaica foreign liabilities.


(c) Government is required by the Act to pay to the Bank, out of the consolidated Fund, the losses incurredby the Bank. Section 9(3) provides that if, in the opinion of the minister, a payment to the Bank to clearthe losses cannot be made from the Consolidated Fund, then such losses may be cleared by the issueto the Bank of securities charged to the Consolidated Fund. Losses of $13 190 797 000 accumulated forthe financial years 1989 through 1994 were partly covered by payment of $5 986 530 000 from theConsolidated Fund, leaving an unpaid balance of $7 204 267 000.

On the basis of the policy decision by the Bank’s board of directors set out in note 2(j), and for thereasons set out there, the statutorily required transfer of net profits to the Consolidated Fund (see “note2” on page v) has not been effected. The untransferred balance of profits of $4 896 071 000 representsthe portion remaining after set off of the unpaid balance of accumulated losses described in thepreceding paragraph.

At cost or valuation: 31 December 1999 Additions Transferred during

the year Disposals/write-offs 31 December 2000

At costAt valuation

Depreciation: 31 December 1999 Charge for the year Eliminated on

disposals/write-offs 31 December 2000

Net book values: 31 December 2000

31 December 1999

Freeholdland andbuildingsJ$’000

881 06629 778

9 617( 3 355)917 106

84 806832 300917 106

49 19449 541

-98 735

818 371

831 872

Leasehold property

J$’000

962187

- -1 149

1 149 -1 149

333109

-442

707

629

Furniture,plant andequipment

J$’000

467 60866 549

26 170( 36 832)523 495

523 495-

523 495

228 64950 964

( 36 070)243 543

279 952

238 959

MotorvehiclesJ$’000

22 92924 169

-( 9 915)37 183

37 183 -

37 183

13 0968 788

( 7 592)14 292

22 891

9 833

Work-in-progressJ$’000

35 78728 162

(35 787) -

28 162

28 162 -

28 162

- -

- -

28 162

35 787

Total J$’000

1 408 352148 845

-( 50 102)1 507 095

674 795832 300

1 507 095

291 272109 402

( 43 662)357 012

1 150 083

1 117 080

10. Fixed assets

Certain of the Bank’s land and buildings were revalued in 1999 by The C.D. Alexander Company RealtyLimited, Real Estate Brokers, Appraisers and Auctioneers on the open-market, existing-use basis. The surplusarising on revaluation, inclusive of depreciation no longer required, is included in fixed assets revaluationreserve.

xiv Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

11. Other assets

Final Accounts for the Year ended 31 December 2000 xv

Items in process of collectionOverdraftsStaff and ex-staff loansStock of unissued notes and coinsAccrued interest receivable other than on GOJ securities and staff and ex-staff loansOther

2000 J$’000

457 3409 977

657 625279 944

1 152 052126 438

2 683 376

1999 J$’000

572 04788 010

649 598302 635

1 026 33499 547

2 738 171

12. Notes and coins in circulation

NotesCoins

2000 J$’000

19 811 008761 220

20 572 228

1999 J$’000

20 263 645545 815

20 809 460

Section 21 of the Act requires the Bank to hold assets of an amount in value sufficient to cover the value of thetotal amount of notes and coins in circulation as defined in that section. The assets held shall include, interalia, (a) gold; (b) “hard currency” cash, bank balances or securities issued by a foreign government orinternational financial institution of which Jamaica is a member; or (c) Special Drawing Rights. Specifiedassets held by the Bank as at 31 December 2000 were 2.33 (1999: 1.10) times the value of notes and coinsin circulation at that date.

13. Deposits and other demand liabilities

Government and Government agenciesCommercial banks and specified financial institutionsInternational Monetary FundOthers

Jamaica dollar equivalent of foreign currency depositsJamaica dollar deposits

Paymenton demand

J$’000

85 274

217 807 -

4 892 1785 195 259

1 621 5113 573 7485 195 259

Payable after notice

J$’000

17 600 000

19 870 064--

37 470 064

6 080 53531 389 52937 470 064

Payable on a fixed date

J$’000

-

11 076 55958 8282 763

11 138 150

1 432 1599 705 991

11 138 150

2000 J$’000

17 685 274

31 164 43058 828

4 894 94153 803 473

9 134 20544 669 26853 803 473

1999 J$’000

17 732 768

25 754 23458 828

3 498 40247 044 232

8 952 38338 091 84947 044 232


Deposit liabilities of the Bank include cash reserves held in connection with the Bank’s supervision of theprudential requirements of commercial banks and specified financial institutions under the provisions of section28 of the Act, section 14 of the Banking Act and section 14 of the Financial Institutions Act.

In relation to its management of liquidity in the financial system, the Bank may, under section 28A of the Bankof Jamaica Act, require commercial banks and specified financial institutions to make special deposits with itin the form of cash or specified securities. Cash so deposited is also included in deposit liabilities of the Bank;securities so deposited are, however, excluded from the Bank’s liabilities, as title is not transferred and theBank merely holds them in safekeeping.

At the balance sheet date, the following obtained:

Amounts included in deposit liabilities of theBank, representing statutory reserves

14. Securities sold under repurchase agreements and securities purchased under resale agreements

As part of the process of controlling liquidity in the financial system, the Bank acquires funds from or makesfunds available to financial institutions and this is effected by entering into short term agreements with theinstitutions. The Bank, on taking delivery of the funds, delivers certificates evidencing transfer of interest insecurities and agrees to repurchase them on a specified date and at a specified price (‘repos’). When theBank makes funds available, it receives securities and agrees to resell them on a specified date at a specifiedprice (‘reverse repos’).

At the balance sheet date the following securities were received as reverse repos:

US$ certificate of deposits

At the balance sheet date certificates evidencing transfer of interest in the following securities were deliveredas repos:

2000 J$’000

21 302 675

1999 J$’000

23 648 546

2000 J$’000

-

1999 J$’000

118 000

2000 J$’000

26 921 868270 526

14 964 08342 156 477

1999 J$’000

27 083 962287 654-

27 371 616

Jamaica Government Securities: Local registered stock Investment debenturesFinsac bonds

xvi Final Accounts for the Year ended 31 December 2000

15. International Monetary Fund - Allocation of Special Drawing Rights

This represents the Bank’s obligation for SDRs allocated to it. This allocation does not change unless there arecancellations or further allocations. There have been no further allocations or cancellations during the year(1999: nil) and, accordingly, the changes arise from exchange rate fluctuations.

A N N U A L R E P O R T 2 0 0 0

At beginning of yearEffect of exchange rate fluctuationAt end of year

2000 J$’000

2 102 285143 674

2 245 959

1999 J$’000

1 991 898110 387

2 102 285

SDR’000

40 613 -

40 613

16. Foreign liabilities

Borrowings - Principal- Interest

Unsettled balances on bilateral accountsfor Caricom trade

17. Other liabilities

Interest payableStaff and staff-related expensesOther

18. Foreign exchange gain

Net unrealised gain on translation of foreign currencyassets and liabilities and realised gain on settlement of foreign assets and foreign liabilities

Exchange gain on over the counter purchases andsales of foreign currency

2000 J$’000

358 8189 025

10 854378 697

1999 J$’000

417 9229 353

12 250439 525

2000 J$’000

1 852 935121 05473 344

2 047 333

1999 J$’000

985 024103 58783 964

1 172 575

2000 J$’000

1 712 799

1 8001 714 599

1999 J$’000

1 338 568

1 5901 340 158

2000 J$’000

109 4023 8006 254

1999 J$’000

64 6913 800

12 114

19. Operating expenses

Operating expenses include the following charges:DepreciationAuditors’ remunerationPayment for redundancies

Final Accounts for the Year ended 31 December 2000 xvii

20. Employee retirement benefits

(a) Except as set out at (c) below, the Bank funds retirement benefits for employees by means of a non-contributory pension scheme for all its permanent eligible employees. Benefits under the scheme arecomputed by reference to final salary. The assets of the scheme, which are held separately from thoseof the Bank, are under the control of trustees, with day-to-day management by employees of theBank.


xviii Final Accounts for the Year ended 31 December 2000

(b) A preliminary report on the latest actuarial valuation of the scheme, carried out as of 31 December1998, disclosed that, after taking credit for the scheme’s net assets available for benefits at that dateand for the Bank’s normal annual contributions of 10% of members’ salary, there was a surplus at thevaluation date of J$400 200 000 in respect of past services. This surplus would allow the Bank toreduce its contribution by 9.2% to 5.4% per annum of the pensionable salaries of existing membersthroughout their expected future membership.

(c) In 1991, 1993, and 1994, the Bank granted increases to pensioners as a supplement to the pensionspaid by the scheme. The preliminary actuarial valuation referred to in paragraph 20(b) also disclosedthat for the scheme to take over these supplemental payments currently being paid by the Bank, aspecial contribution of J$19 464 000 would be required from the Bank as of the valuation date. Noprovision for this lump sum amount is included in the financial statements, and none was made in prioryears, as the Bank has decided not to fund the scheme for this purpose but to bear the cost ofsupplemental payments when made.

In addition, the bank granted a further supplement to pensioners in 1997, 1998, 1999 and 2000. Thesesuplemental pension payments amounted to J$24 720 292 for the year (1999: J$23 122 809), all ofwhich have been included in post-retirement benefits in the Statement of Income and Expenses.

Contributions by the Bank to the pension scheme for the year were J$44 907 304 (1999:J$59 682 008).

21. Number of employees

The number of employees at the end of the year was 421 (1999: 421).

22. Capital commitments

At the balance sheet date, the Bank had commitments for capital expenditure as under:

2000 J$’000

14 1308 030

22 160

1999 J$’000

28 26028 69056 950

Authorised and contractedAuthorised but not contracted

23. Contingent liabilities

At 31 December 2000, the Bank was a defendant in various relatively minor suits claiming damages. TheBankis of the view that the claims are generally without merit and will not result in any significant losses to theBank.

In addition, a number of lawsuits have been filed aginst the Bank claiming amounts totalling approximatelyJ$179 480 000. For the most part, the lawsuits arise out of the operations of certain of the Bank’s formerforeign currency agents over a period which ended in February 1993.

The relevant appearances and defences have been filed and the lawyers which are representing the Bankare confident that, based on their research in Jamaica and overseas, the Bank has sound defences to allthese actions.

A N N U A L R E P O R T 2 0 0 0

In one of the cases which went to trial, in which US$3 million was being claimed from the Bank, the JamaicaSupreme Court and Court of Appeal found against the plaintiff. However, the matter is now the subject of finalappeal before the Privy Council.

24. Financial instruments

A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financialliability or equity instrument of another enterprise.

Information relating to fair values and risks of financial instruments is summarised below.

(a) Fair value

Fair value is the amount for which an asset could be exchanged or a liability settled, betweenknowledgeable, willing parties, who are under no compulsion to act, in an arm’s-length transaction.

Determination of fair value:

Because of the short-term nature of some financial instruments, their fair value was determined toapproximate their carrying value. The instruments are: interest in funds managed by agents, securitiespurchased under resale agreements, advances to banks and other financial institutions, other assets,deposits and other demand liabilities, securities sold under repurchase agreements, InternationalMonetary Fund - Allocation of Special Drawing Rights, foreign liabilities and other liabilities.

The fair value of marketable securities is assumed to be equal to the estimated market values asprovided in note 5(a). These values are obtained on the basis outlined in note 2(c).

Because of their nature, including the absence of predictable future cash flows, non-marketable securities,due from Government and Government Agencies, and Finsac bonds, there is no practical means ofestimating their fair values.

(b) Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to the change inforeign exchange rates. At the balance sheet date, the Bank’s net exposure to foreign exchange ratefluctuations was as follows:

Final Accounts for the Year ended 31 December 2000 xix

2000 J$’000

47 938 316( 11 758 861)

36 179 455

1999 J$’000

22 791 584(11 494 193)11 297 391

Foreign currency assetsForeign currency liabilitiesNet foreign currency assets

(c) Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in marketinterest rates. The Bank manages this risk by monitoring interest rates daily and ensures that, eventhough there is no formally predetermined gap limits, to the extent practicable, the maturity profile of itsfinancial assets is matched by that of its financial liabilities.


The following table summarises the carrying amounts of balance sheet assets, liabilities and equity andoff-balance sheet financial instruments to arrive at the Bank’s interest rate gap based on the earlier ofcontractual repricing and maturity dates.

AssetsNotes and coinsCash resourcesInterest in managed fundsForeign currency denominated securitiesInternational Monetary Fund - Holding of Special Drawing RightsSecurities - marketableSecurities - non-marketableAdvances to banks and other financial institutionsInternational Monetary Fund - Quota SubscriptionInvestments in financial instituionsDue from Government and Government agenciesFixed assetsOther assetsTotal assets

LiabilitiesNotes and coins in circulationDeposits and other demand liabilities: Jamaica dollar equivalent of foreign currency deposits Jamaica dollar depositsSecurities sold under repurchase agreementsInternational Monetary Fund -Allocation of Special Drawing RightsForeign liabilitiesOther liabilitiesCapital and reservesTotal liabilities

On-balance sheet gapOff-balance sheet gap

Total interest rate sensitivity gap

Cumulative gap

12 months J$’000

- - -

1 121 488

-3 064 535 -

-

- -

- - -

4 186 023

-

165 4783 615 100

26 802 482

- - - -

30 583 060

(26 397 037) -

(26 397 037)

(26 236 753)

Three to 12 months

J$’000

- - -

8 688 672

-24 825 12226 955 128

-

- -

- - -60 468 922

-

- -

-

-358 818

- -

358 818

60 110 104 -

60 110 104

33 873 351

Payable after notice

J$’000

- -1 677 111

-

- - -

-

-141 885

- - -1 818 996

-

7 702 04616 128 067

-

- - - -23 830 113

(22 011 117) -

(22 011 117)

11 862 234

Non-rate sensitive J$’000

31 66312 892 221

-

-

3 822 -2 209 346

-

1 721 2583 360

8 556 0351 150 0832 683 376

29 251 164

20 572 228

-15 261 462

-

2 245 95919 879

2 047 333966 537

41 113 398

(11 862 234) -

(11 862 234)

-

Total J$’000

31 66336 375 4331 677 111

9 810 160

3 82227 930 61929 164 474

2 921 425

1 721 258145 245

8 556 0351 150 0832 683 376

122 170 704

20 572 228

9 134 20544 669 268

42 156 477

2 245 959378 697

2 047 333966 537

122 170 704

- -

-

-

Weightedaverage

Interest rate%

-6.545.25

6.22

-20.3811.79

47.95

-10.00

- - -

13.47

-

5.497.24

19.88

-8.31

- -

14.93

Within 3 months J$’000

-23 483 212 -

-

-40 962

-

2 921 425

- -

- - -26 445 599

-

1 266 6819 664 639

15 353 995

- - - -26 285 315

160 284 -

160 284

160 284

2000

xx Final Accounts for the Year ended 31 December 2000

A N N U A L R E P O R T 2 0 0 0

(d) Credit risk

Credit risk is the risk of loss arising from a counter-party to a financial contract failing to discharge itsobligations.

Credit risk in the foreign currency investment portfolio is managed by restricting the holdings of investmentssubstantially to US Government bonds, Jamaica Government US$ debentures and issues by highly-rated supranational institutions.

Credit risk for local securities is managed by investing in Jamaica government local registered stock,treasury bills and investment debentures, except that there is a significant investment in Finsac bondswhich are only partly Government-guaranteed [note 5 (b)]. Other credit exposures consist primarily ofstaff housing and motor vehicle loans.

Exposures to credit risk attaching to financial assets is monitored through credit rating and lending limits,which are regularly reviewed. In addition, Government of Jamaica guaranteed securities are obtainedfor advances to financial institutions, and mortgages are obtained for staff housing and car loans.

With regard to cash resources, there is no significant concentration; amounts are held in financial institutionswhich management regards as strong. The Bank’s significant concentrations of credit exposure bygeographical areas (based on the entity’s country of ownership) was as follows:

JamaicaUSA and other industrialised countriesBarbadosMultilateral InstitutionsOtherTotal financial assets

2000 J$’000

71 392 01045 897 034

22 6191 725 0801 952 215

120 988 958

1999 J$’000

74 329 22420 796 471

-1 638 4751 857 224

98 621 394

Current credit exposure is the amount of loss that the Bank would suffer if every counterparty to whichthe Bank was exposed were to default at once; this is represented substantially by the carrying amountof financial assets shown on the balance sheet.

Final Accounts for the Year ended 31 December 2000 xxi

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