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Minister of Finance and the Public Service, Audley Shaw, is contending that the fall out currently facing the United States is not the same as that which Jamaica experienced in the late 1990s.
“We’ve had of course, our own shocks which started with the financial sector meltdown in the 1990s and while I do not want to trigger a debate, I see where one journalist has written, talking about what we had done and what the previous government had done in relation to the financial sector melt down, as if to suggest that what is happening in the United States is exactly what happened in Jamaica. Well, I beg to differ, it is not what exactly happened in Jamaica,” Minister Shaw stated.
He was seeking to make the distinction at a Pension Seminar held yesterday (September 30) at the Jamaica Pegasus Hotel in Kingston.
According to the Finance Minister, “what happened in the United States was largely a situation in which it was primarily related to sub-prime mortgages, people coming in at low interest rates to get mortgages and then over time, the interest rate would rise, presumably in accordance with the rise in their income”.
“But that did not happen,” he said, suggesting that “apparently the regulatory environment was not in place to stop the thing that was developing and we now have what we have.”
“To suggest that this is precisely what happened in Jamaica,” Minister Shaw stated, “is somewhat disingenuous. It’s not so at all,” pointing out that “in the first case we had interest rates that exploded in the economy. We had money that literally took off like a rocket and we had businesses that borrowed money at 15 to 20 per cent, which was already too high.”
Continuing, he said businesses were then faced with interest rates of 60 per cent, 70 per cent, 80 per cent, and 90 per cent, with the rate on overdrafts rising as high as 120 per cent. “So what happened is that businesses failed, manufacturers failed, all kinds of businesses failed. If the customers of the banks and financial institutions fail so will the banks,” he argued, while estimating that over 40 financial institutions failed, because their customers failed.
Minister Shaw pointed out that “at that time it was a situation where the total macro economic environment was hostile to doing business in Jamaica, so everybody suffered, including the pension industry.”
“With the bail out that was to come, some sought to suggest that the primary problem why we had the financial sector meltdown was because of the inadequacy of the regulatory environment and here again, I beg to differ,” he stressed, stating that “it was not the primary problem, but to the extent that the overall virus-like nature of the hostile macroeconomic environment existed then, it also revealed the underlying weakness of the regulatory framework,”
The pension seminar was hosted by Prime Asset Management Limited in association with the Private Sector Organization of Jamaica, under the theme ‘Pensions – The Road Ahead for all Stakeholders’.