Speech

I wish to address the House on the matter of the dismissal of the Governor of the Bank of Jamaica, the resignation of the Commissioner of Police and issues related thereto.
BOJ Governor
Last Friday, the Minister of Finance terminated the services of the Governor of the Bank of Jamaica. The Government found unacceptable, embarrassing and repugnant the interpretation and application of certain provisions of the Governor’s contract of employment.
By way of background, the contract was approved and signed by the former Minister of Finance, Dr. Omar Davies, on May 8th 2007 with retroactive effect from August 1st 2006 to run for five years to July 31st 2011. It was a strange contract, the likes of which has not up to now been found anywhere else.
It provided for a basic salary at commencement of $11,226,271 to be increased annually by whatever percentage increase is granted to public sector employees. In addition, the Governor was entitled to further increases determined by incremental adjustments or as a result of the applicable performance appraisal process. As at October 30th 2009, the basic salary of the Governor as determined by these processes stood at $14,545,000.
In addition to his basic salary, the Governor was provided with a fully maintained motor car, reimbursement for “all fair and reasonable” entertainment expenses for official purposes, group medical and life insurance coverage, all benefits under the Bank’s pension scheme and all other benefits, both present and future, that are enjoyed by permanent employees of the Bank. The Governor thus enjoyed the generous terms of a specific contract while retaining all the benefits and privileges of a non-contracted service worker.
But it was in relation to housing that the contract was most absurd.The contract states that the Governor shall be provided with a fully furnished and fully maintained official residence inclusive of household and gardening staff and unlimited expenses for telephone, electricity and water. It further states that in the event that an official residence is not provided, the Governor shall be paid rent for the premises he occupies based on the average rental value as determined by two independent valuations. The contract requires that new valuations must be done every two years and the appropriate adjustments to be made. In addition, the Bank is required to pay the full cost of maintaining the residence. It sets no limits on the amount that can be paid for either rent or maintenance.
In 1998, the BoJ purchased a house at 15 Bracknell Avenue in upscale St. Andrew as an official residence for the Governor at a cost of $22 million. The Board had budgeted $35 million to cover the cost of acquiring, refurbishing and furnishing a suitable residence.
By December of that year, the Governor suggested that the house be sold. This was strange since the Governor himself had presided at the meeting of the Board on July 15th 1998 when the decision was made to purchase the property. At a Board meeting on December 16, 1998, a number of Board members expressed surprise at the Governor’s position and insisted that he should be prepared to occupy the house when refurbished and furnished. The Governor advised the Board that moving into the residence generated no real benefit to him personally. No refurbishing works were started.
One year later at a meeting of the Board on December 2nd 1999, the Governor reiterated that he was not keen to occupy the house for various reasons, noting the likely cost of refurbishment.
At a Board meeting on March 29th 2000, the Board accepted a recommendation of the Human Resource Development Sub-Committee that since the house had remained dormant, it should be sold, leased or rented.
Refurbishing work commenced in December 2000 and was completed in April 2002 at a cost of $11.33 million. With furnishings amounting to $7.04 million, the total expenditure on the property came to $40.37 million.
At a caucus of Board members on February 6th 2003 from which the Governor recused himself, it was agreed that the property would be offered for sale to the Governor who had expressed an interest in purchasing it. The property was offered to him at a price of $42 million but he declined the offer and a decision was made to dispose of it on the open market. The property was subsequently sold in November 2003 for $40.48 million.
In the absence or non-occupation of an official residence, therefore, the Bank’s contractual obligations reverted to paying the Governor rent and maintenance for the house that he occupied.
As at September 2008, the Governor owned and occupied a residence in one section of St. Andrew. The assessed rental value was $2,551,500 per annum and the annual maintenance cost was $5,900,000 – a combined total of $8,451,500 per annum.
Between 2006 and 2008, the Governor secured loans totalling $55.44 million at an interest rate of 5% to build a house in another section of St. Andrew. There are several troubling issues surrounding these loans. In her annual report for Financial Year 2007/2008, the Auditor-General states that no evidence was presented of the approval of the Board of Directors for these loans and that the management of the bank had indicated that under its current arrangements there is no specific requirement for Board or Ministerial approval.
The Auditor-General further states that “There was no evidence of the existence of a loan agreement between the Bank and the senior officer (the Governor). Management indicated that staff members, by accepting employment with the Bank, automatically accept the terms and conditions under which loans are granted and, as such, loan agreements were deemed unnecessary”. Most distressingly, the Auditor-General states that “There was no evidence that the loans totalling $51 million were properly collateralized”.
This matter commanded the attention of the Public Accounts Committee at its meeting on April 30th this year when the Auditor-General advised the Committee that she had still not seen any formal agreement for the loan or any evidence that it was properly secured. The General Counsel and Corporate Secretary to the Bank told the Committee that $30 million of the loan was fully secured against the Governor’s other residence which, as at 2008, had a market value of $32 million.
With regard to the balance of the loan, the Auditor-General told the PAC that she had been advised by the Bank’s management that this would be secured by the Governor’s pension entitlement. She had consulted the Solicitor-General who advised that it would be illegal to use pension benefits to secure a mortgage.
Notwithstanding these perplexing arrangements, the loans were disbursed and the construction of the house by the Governor was completed. The Governor began occupying his new residence in September 2008 but continued to be paid rent and maintenance in the then existing amounts of $8,451,500.
The Minister of Finance had some time ago indicated verbally to the Governor his desire to renegotiate the housing provisions of the contract in order to arrive at a package that was more reasonable and one that the public of Jamaica would find less offensive. Some effort was made to modify the application of the contract with regard to housing benefits.
The Human Resources Development Sub-Committee of the Board, with the necessary concurrence of the Governor, developed a set of generic criteria to determine the standards of what would be considered an acceptable residence for the Governor. These were then referred for valuation by two property valuators. The average of the valuations tendered provided for an annual rental payment of $11,552,940. The Governor agreed to accept a reduced rent of $10,818,360 for the first two years commencing September 2008. The payment for maintenance was set at $7,200,000 as from September 2008 and $13,000,000 as from September 2009 – a combined total of $23,818,360 for rent and maintenance alone as of September 2009.
The compensation package for the Governor would now amount to $38,363,360 plus a fully maintained car, entertainment expenses, medical and life insurance, guaranteed pension and all other benefits to which non-contracted service employees of the Bank are entitled. Research shows that this exceeds the compensation package for the Chairman of the Federal Reserve Board of the United States.
Demand for payment was the subject of intense discussions by the Board of Directors at a meeting on Wednesday October 28th and led to the resignation of one of the Directors, Dr. Jeffrey Pyne, who contended that such payments ought not to be made without the prior approval of the Minister.
The Government considers these arrangements to be unconscionable, especially at a time when the country is undergoing such severe financial stress, when public sector workers have had to be denied their planned 7% wage increase, when the Government has not been able to meet the demand of nurses for reclassification.
Apart from the modest concession on the payment for rent, the Governor has remained adamant that the Bank’s contractual obligations to him must be met. In a letter to the Minister dated Friday October 30th prior to his dismissal he stated in bold type “If the pacta sunt servanta principle which governs the sanctity of contracts is to have any meaning, the contract which I have signed with the Minister in accordance with statute should be observed”. The letter goes on to say “If the contract is not to be observed then I would think that the law should take its course”.
I have sought to set an example by taking a 15% cut in my salary. The members on this side as well as you, Mr. Speaker, have taken a 10% cut in theirs. We are not alone. The Governor of the Central Bank of England, Mr. Mervyn King, last year refused to accept an increase in his emoluments to which he was contractually entitled, saying that he did not feel it was appropriate in the current economic crisis.
As a matter of principle, the Government could not continue these arrangements. We have not abrogated the Governor’s contract of employment. We have terminated the contract in accordance with Clause 9(b) of the contract. The Governor is entitled to a settlement in the terms provided by the contract which include payment of salary which would have been earned for the balance of the contract, any vacation leave due and, amazingly because it is a most unusual provision in a fixed term contract, redundancy payments calculated on the same basis as would apply to a non-contracted service employee of the Bank inclusive of his successive contract periods.
Despite the action that the Minister of Finance has found it necessary to take, I wish to record the Government’s appreciation for the many years of service that the former Governor has given to the Bank and to Jamaica. There may have been policy differences between himself and governments past and present but his strong leadership and valuable service cannot be denied and should not go unrecognized.
The former Governor is not to be blamed for the absurdly generous and open-ended contractual terms that he enjoyed. He was the beneficiary. That blame must be laid squarely at the feet of the former Government and the former Minister of Finance, in particular, who authorized and signed the contract.
It is a matter of much significance that there is no record in the Cabinet Office to suggest that this or any preceding contract with the former Governor was ever approved by or even brought to the attention of the Cabinet.
A completely new contract of employment with more appropriate terms will be designed for the engagement of the new Governor of the Bank. The Minister of Finance will be issuing a policy directive to the Board that an appropriate official residence must be acquired for the use of the Governor to eliminate the need for any payment in lieu thereof.
Finally, in relation to the BoJ, it is timely for the Government to re-examine the governance structure of the Bank. We are committed to the independence of the Central Bank and the clear separation of responsibility for monetary policy from fiscal policy. But it is also important that the Governor of the Bank be held accountable and that the Bank, itself, be held accountable. Much consideration has been given to this in the past and the report of the Daisy Coke Committee of 1994 which was presented to this House is still relevant. This re-examination will be pursued as a matter of priority and the Minister will engage the House in determining what changes are to be instituted.
Yesterday’s decision by Standard and Poors to further downgrade Jamaica’s sovereign bonds can be seen as a knee-jerk reaction to the dismissal of the Governor. The impact of the global recession on Jamaica cannot be denied. The fall in revenues has resulted in an increase in the fiscal deficit. The additional borrowings that we have had to undertake not only to fill that gap but also to replace the foreign exchange earnings we have lost especially in the bauxite/alumina sector have increased our debt stock and the cost of servicing that debt.
The S&P rating cannot be ignored because it can influence the price of our bonds but it must be borne in mind that rating agencies have proven to be misinformed and, in turn, misinform. It is widely acknowledged that their misguided ratings are, in part, to be blamed for the financial collapse in the US and both the US administration and Congress are contemplating legislation to regulate their activities and hold them accountable for the information and advice they offer.
The departure of the former Governor of the BoJ will not disturb our current negotiations toward a stand-by agreement with the IMF. With the appointment of Mr. Brian Wynter as the new Governor, the leadership of the Bank of Jamaica is in safe and capable hands.
A technical team from the IMF is currently in Jamaica working with us on the fiscal, monetary and medium-term economic programme we have presented. The Financial Secretary, Dr. Wesley Hughes, is leading the negotiations on behalf of Jamaica. His competence and considerable experience in such matters cannot be questioned.
There are issues that are still being finalized. These involve primarily the pace of reduction in our fiscal deficit projections and issues related to debt management. Our projections, of course, are tempered by the persisting uncertainty as to when the current recession will end and recovery can begin. Every suggested adjustment to our programme has to be carefully worked through to determine as accurately as possible the impact it will have and identify the policy measures required to support it. We have every confidence that we are close to resolving these issues to enable our application to be presented to the IMF Board.
Commissioner of Police
I turn now to the issue of the resignation of the Commissioner of Police.
Rear Admiral Hardley Lewin was appointed Commissioner in December 2007 with the full endorsement of the Government.
We have sought, within the limits of the resources available, to provide every possible support to him and the Force especially in their efforts to combat the high level of crime and violence that is plaguing the country.
We have commenced the Transformation Programme prescribed by the report of the Strategic Review Team and the Implementation Unit has been placed within the Commissioner’s Office and under his direction. Professor Gordon Shirley chairs the Oversight Committee.
We had hoped that by now we would have secured passage of the six anti-crime Bills which were formulated on the recommendation of the Police and through bi-partisan discussions between the Government and the Opposition in the first half of 2008. They were considered by a Joint Select Committee during six meetings held in the latter part of 2008. Submissions from several organizations and individuals were considered.
Two of the Bills are governed by section 50 of the Constitution requiring passage by a two-thirds majority in each House of Parliament and could therefore not succeed without the support of the Opposition. In the course of the deliberations of the Committee, it became apparent that they would not enjoy the support of the Opposition. Some members strenuously objected to critical provisions in three of the other four Bills and the Committee reported that it was not able to reach agreement. I regret that these measures were not enacted.
Despite the severe budgetary constraints, we have provided significant resources to meet the requests of the Police in terms of vehicles, telecommunications and forensic equipment and improvements to police stations at a cost of $3.6 billion over the last two fiscal years. Admittedly, it does not, by any measure, adequately address the needs of the Force. For example, shortly after assuming office, I was informed by the Commissioner himself that of 1,416 police service vehicles, 586 were over 7years old and could no longer be considered reliable. We have provided, so far, 365 vehicles to address this problem.
Since we came to office, the Police Force has received wage increases which, along with special payments for the extra hours they are required to work amount to a 42% increase in their pay costs.
The National Security Council which meets monthly has consistently reviewed crime reports and the strategies being employed by the Force to combat the high level of crime. Crime, however, has continued to escalate.
On October 12th, I met with the Chairman of the Police Service Commission, Professor Shirley, and advised him that the Cabinet was deeply concerned about the escalating level of crime, did not feel that the strategies being pursued were effectively addressing the problem and that it had lost confidence in the ability of the Commissioner to deliver the results that the country required.
In discussions with the Chairman, it was agreed that I would meet with the entire Commission to express my concerns. This meeting was held on October 14th and I conveyed the same concerns and sentiments to the members who undertook to deliberate on the issues.
At the monthly meeting of the National Security Council on October 21st, I requested that the Police submit to Cabinet through the Minister of National Security a strategic action plan to address the current crime wave and that the Commissioner should make himself available to discuss the matter with the Cabinet.
On Friday October 23rd, I received a request from the Commissioner to meet with me. I promptly arranged the meeting which took place that same afternoon. In addition to discussions at the monthly meetings of the National Security Council which of which the Commissioner is a member, I have never failed to meet promptly with him whenever he so requested.
At the meeting with the Commissioner on Friday October 23rd, I reiterated my concerns and expressed the view that the Police needed to be more assertive and proactive in its operations in order to reduce of the level of crime and restore a sense of calm to the country. We discussed the challenges posed by the itinerant nature of many of the crimes, especially murder, that were being committed and he assured me that within the next few days I would see an intensification of crime fighting activities. He expressed the desire for himself and myself to have more frequent discussions and said that he had to accept the blame for not seeking to meet with me outside of the formal National Security Council meetings more often. I assured him that whenever he so required I would be available.
As previously requested, the Police submitted a strategic operational plan to the Cabinet and the Commissioner met with the Cabinet on Monday October 26th to discuss the matter. The Cabinet expressed its deep anxiety to see greater effort at tackling the problem and improved results in reducing crime.
2005 was the year that Jamaica recorded the highest number of murders ever, 1,674, an average of 4.6 per day. Up to October 30th, we had recorded 1,361 murders, an average of 4.5 per day.
The strategies developed to deal with the problem of crime represent the professional competence and experience of the Commissioner and his senior personnel. I don’t question the validity of these strategies. It is in the execution of these strategies that much more needs to be done and much greater effort must be made.
On Sunday last, I was advised by the Chairman of the Police Service Commission that the Commissioner had tendered his resignation which the Commission had accepted.
I have since received a copy of the Commissioner’s letter of resignation which is dated Tuesday October 20th 2009, three days before he met with me in my office on October 23rd. The Commissioner had tendered his resignation in June of last year but had subsequently withdrawn it.
It is the responsibility of the Commission to select a new Commissioner. The Commission has advised me that the post will be advertised and applicants will be interviewed and investigated before a recommendation is made to the Governor General. The Commission will recommend someone to act as Commissioner until an appointment is made.
No Commissioner of Police can be blamed for the crime that is plaguing us but it is the job of the Commissioner to mobilize the Police Force and all the resources at his command to bring the level of crime within tolerable limits. He cannot do it alone. He needs the support of the Government and the entire society but, ultimately, the responsibility to lead and organize the Police Force is his and he, like the Minister, me and everyone who leads, must be held accountable.
Under the 1994 amendment to the Constabulary Force Act, the Minister can no longer give operational directions to the Commissioner. To attempt to do so would not only constitute political interference but would be illegal.
Commissioner Lewin has taken significant steps to stamp out corruption within the Force. He must be commended. Much more is left to be done and whoever succeeds him must continue that process vigorously and relentlessly. The organizational changes that he initiated must also be continued.
Preliminary discussions have been held between the Government and the Opposition regarding more far-reaching measures to transform the Police Force. These discussions have not progressed as speedily as we had hoped and it is we, not the Opposition, that must take responsibility for this. It is important that these discussions be advanced quickly, especially in view of emerging views as to the direction in which the transformation of policing in Jamaica needs to go.