Oct 2008 Financial News

Bank of Jamaica (BOJ) to the rescue - Announces lending plan to cushion local institutions

Oct 16, 2008

The Bank of Jamaica (BOJ) has joined several other central banks around the world in providing liquidity support to local financial institutions following the global economic meltdown.

In the past week, central banks in the United States, Britain, Canada, Mexico, Brazil, Iceland and other countries have offered temporary liquidity support to financial institutions to prevent even more fallout.

In a move which received an immediate thumbs up from the Opposition People's National Party (PNP), the BOJ yesterday announced that it had decided to offer a temporary lending facility to domestic financial institutions.

The central bank did not say how much money it was prepared to lend but made it clear that the move was in response to international developments.

"The facility is strictly intended to provide liquidity to these institutions for overseas margins and repo payments on Government of Jamaica global bonds during this period of dysfunctional money markets



," the BOJ said.

According to the bank, the temporary lending facility was designed to alleviate any short-term liquidity needs of domestic financial institutions and ensure the stability of Government of Jamaica global bond prices.

In addition, the BOJ said the loan facility would minimise pressures in the domestic and foreign-exchange markets.

There was no indication from the central bank as to the interest rate to be attached to the loans, but market sources said the rate was expected to be in line with the United States three- and six-month instruments, plus a small mark-up.

"The bank will continue to closely monitor the financial system and take appropriate action," the BOJ said.

Mirrors Federal Reserve

That was good news for former finance minister Dr Omar Davies, who applauded the bank for its proactive approach and its decision to widen its net to prop up institutions outside of the formal banking system.

"This is a path-breaking initiative and mirrors the actions of the Fed (Federal Reserve) in the United States in providing financial support for institutions which do not fall under its regulatory control," Davies said.

Claudette Crooks, president of Money Masters Limited, also applauded the BOJ for its initiative, which she said should ease the pressure on the Jamaican dollar, which has depreciated by approximately three per cent since the start of the meltdown.

"The main areas of concern, the availability of US dollars and the pressure on bond prices, have been addressed," Crooks said.

The announcement from the BOJ came hours after the finance ministry named the members of the commission established to enquire into the Financial Sector Adjustment Company (FINSAC), the vehicle used by Davies to carry out the multibillion-dollar bailout of the banking sector in the late 1990s.

Davies welcomed the Govern-ment's decision to push ahead with the commission of enquiry into FINSAC, which, he said, would "vindicate" the former administration.

"I expect that I will be called to appear before the commission and I am willing to appear," Davies said.

Emphatic Nelson

Yesterday, Minister without Portfolio in the Finance Ministry, Dwight Nelson, was emphatic as he rejected claims of a conflict of interest involving Finance Minister, Audley Shaw who, reportedly, had his debt taken over by FINSAC.

Nelson also brushed aside claims that the FINSAC enquiry was part of a witch-hunt by the Government.

arthur.hall@gleanerjm.com

BOJ temporary lending facility objectives:

1) Alleviate any short-term US dollar liquidity needs of domestic financial institutions.

2) Ensure the stability of Government of Jamaica global bond prices.

3) Minimise pressures in the domestic foreign-exchange market.

FINSAC Commission

Chair - Former Supreme Court Justice Boyd Creary

Members - Dale Blair, accountant; Charles Ross, investment manager

· The terms of reference of the commission are to be announced after Governor General Professor Sir Kenneth Hall appoints the commissioners.

· The enquiry will seek to determine if borrowers were fairly treated.


Source:
Arthur Hall, Senior Staff Reporter
Jamaica Gleaner
Thursday October 16, 2008

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