BOJ Clarifies 2009 Cash Advances to Gov’t

In response to concerns regarding the Bank of Jamaica’s (BOJ) net financing of $20.6 billion to Government in the October-December, 2009 quarter, the Bank has reiterated its policy position that it will not be a source of deficit funding for the Government going forward.
BOJ Governor Brian Wynter, during the monetary policy report for the quarter on Wednesday (February 10), at the BOJ auditorium in Kingston, explained that the initial liquidity injections were temporary.
He said that they were triggered, at the time, by reduced investor appetite for Government of Jamaica debt, resulting from the heightened uncertainty in the domestic market surrounding the terms of the International Monetary Fund (IMF) agreement and the associated debt-management initiatives.
Of the temporary cash advances of $5.1 billion in November, $2.5 billion was repaid in December, while the $2.6 billion balance was converted to securities. The BOJ also purchased a total of $18 billion of securities on December 15, as well as $13 billion of the Ministry of Finance’s 60-day Treasury bond offer on January 13.
The Governor also alluded to a number of factors which would reduce the need for possible BOJ intervention.
These factors include the Government’s imminent recovery from current financial challenges, with the approval of a US$1.27 billion loan from the IMF; anticipated receipt of some US$1.1 billion in the first three months of the year from the IMF and other multilaterals; an anticipated return of private support for Government securities; and legal limits on the Central Bank’s capacity to make cash advances to the Government.
Temporary BOJ cash advances from November, 2009 to date reflect just under $36.5 billion.
Although the BOJ will curtail its support for deficit financing in the medium to long term, because of the possible inflationary effect, the Bank indicated that it would continue to provide liquidity support, through bond purchases, as a temporary measure.
“It is possible that the Bank will make further purchases in the March 2010 quarter, to ensure the smooth functioning of the Government until the bond market normalises,” the Quarterly Monetary Policy Report stated.
Governor Wynter reinforced this possibility, explaining that if the expected market support for Government bonds does not materialise, the bank will have to intervene, in order to ensure stability until the Jamaica Debt Exchange takes full effect.