EDITORIAL - Will CAP decision undermine IMF deal?

After Phillip Paulwell's intervention in the Budget Debate on Wednesday, this newspaper wouldn't be surprised if officials at the International Monetary Fund are suspicious about Jamaica's commitment to the economic programme it has agreed with the Fund, and to which the IMF's executive directors are to give their formal approval next week.

It is, therefore, urgent that Finance Minister Dr Peter Phillips clear up the confusion induced by Mr Paulwell and explain exactly what Mr Paulwell meant by his statement about Clarendon Alumina Production (CAP).

It is notoriously the case, often alluded to by Dr Phillips, that a key component of the US$950-million economic support agreement with the IMF is that the Government will accelerate the divestment of lossmaking state companies - especially those that are a heavy burden on our debt-laden public resources.

CAP, the vehicle that holds the Government's 45 per cent stake in the Jamalco alumina refinery, is one of those companies.

The company has, since the 2008 recession, been a victim of the collapse of the global market for alumina and fixed-priced forward sale/borrowing deals it entered in better times with the commodity trader, Glencore, the company that is also its most recent suitor.

In the current fiscal year, which began this month, the Government estimates that CAP will lose around J$2 billion, bringing its accumulated losses over the past three years to more than J$17 billion. Direct government transfer to the company over the same period will reach nearly $5.5 billion.

These are, on the face of it, unaffordable losses, given Jamaica's crisis of debt and the Government's target, over the medium term, to return a primary surplus of 7.5 per cent of GDP. But on Wednesday, Mr Paulwell, the science, technology, energy and mining minister, told Parliament that "the Government has decided not to divest those shares (CAP) at this time".

Mr Paulwell offered no clarity. But the decision, apparently, is based on negotiations with Glencore and CAP's partner in the refinery, Alcoa, on new arrangements under the forward sale/debt deal.

Greater danger

While this newspaper was not gung-ho about the sale of CAP to Glencore - it owns 10 per cent with UC Rusal, which already controls nearly 70 per cent of Jamaica's alumina-refining capacity - we appreciate that the greater danger is posed in maintaining Jamaica's long-running, and yawning, fiscal deficits and the unsustainable debt they spawned.

Further, we do not believe that it is the job of the State, except in very exceptional circumstances, to be in the business of running companies. Moreover, given the state of its finances, the Jamaican Government is unlikely to be in a position to respond to any capital call by its partner to expand and/or enhance the efficiency of the Jamalco refinery.

Against that background, Mr Phillips and/or Mrs Simpson Miller must declare the strategic thinking behind the Government's decision and what time frame is encompassed by Mr Paulwell's phrase of no sale "at this time". Additionally, there needs to be assurance that this decision will not negatively impact the IMF programme. We should also be told from what areas of Government money will be taken from to offset the cash used to keep CAP afloat.

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