Audley Shaw as finance minister is the real deal

News post March 6, 2016

ONE of the hottest debates within the Jamaica Labour Party (JLP) and the country is whether Audley Shaw should be the finance minister, as he was before, in the incoming Administration.

Prime Minister Andrew Holness should not waste precious time needlessly agonising over this question, or other suggestions that newcomer Fayval Williams should be considered. If it ain’t broke, why fix it? Audley Shaw did possibly what no other finance minister could do, in steering Jamaica through some of the most choppy economic seas during his stint at National Heroes Circle between 2007 and 2011. His record of performance and achievement speaks volumes. Dark events heralded his entry to office in 2007 when his first hurdle was to bring Jamaica back from the devastating effects of Hurricane Dean. By mid-term, in 2010, just as he thought that was behind him, he was again presented with the ravages caused by Tropical Storm Nicole which battered Gross Domestic Product (GDP) by over one per cent.

He steered Jamaica through the most devastating global recession in 80 years, and kept the economy stable in spite of the horrific world food price crisis and the world oil crisis at the time. Many will remember how Shaw broke the self-perpetuating cycle of outrageously high interest rates on domestic national debt, defying claims that it was not possible for Jamaica to access lower interest rates by moving away from the 10 and 11 per cent money the previous administration had borrowed on the international capital markets.

At the same time, he re-engaged the multilateral financial institutions such as the World Bank, Inter-American Development Bank (IDB), Caribbean Development Bank, and development partners the European Union (EU) — where loans ranging between one and two per cent for the most part were secured. To his credit, Shaw secured a loan from the World Bank at an unprecedented 0.63 per cent.

Other milestones on Shaw’s incredible journey included:

• The BOJ’s benchmark interest rate moved from 12 per cent to a 25-year low of 6.25 per cent. His strident advocacy and stellar campaign for lower interest rates removed the obstacles that had stifled investments, consumption, and business activity generally in the country for over 15 years.

• He kept the exchange rate stable at J$86 to US$1 for over two years during the turbulent global economic recession. By the time he demitted office in December 2011, the inflation rate was six per cent; over US$2.8 billion in gross reserves were left at the Bank of Jamaica; and the economy grew and was showing encouraging signs of recovery.

• Economic growth for calendar year 2011 was 1.7 per cent, a rate of growth that has not been achieved since then.

• Student loan rates were reduced from 16 per cent to nine per cent, easing a terrible burden on young people wanting to get higher education.

• Shaw used the 2010 Debt Exchange device to “brake” the trajectory of Jamaica’s debt growth, which had been spiralling out of control under the previous PNP Administration. That debt, which had been about J$23 billion at the end of 1989, had spiralled in 18 years to about J$950 billion by the time Shaw took office in 2007.

Much of the PNP Government’s borrowings were at rates above 20 per cent per annum, and by the end of 2009 over 75 per cent of that debt was due for repayment within five years, with some 25 per cent of the domestic debt due for repayment within one year. Shaw had to manage that and did.

By means of that debt exchange instruments, he reduced all domestic Government borrowing interest rates to a maximum of 12.5 per cent per year and lengthened the maturity of the debt, effectively making the annual cost of debt-servicing more manageable.

Partly as a result of those decisions, the debt which had galloped past 4,130 per cent between 1989 and 2007, increased by only about 60 per cent during his tenure. The effects of those decisions continue to the present and, along with additional measures put in place by Dr Peter Phillips, resulted in a further increase of the debt by approximately 30 per cent to $2.1 trillion by the end of 2015.

Had the interest rate structure and maturity of the debt Shaw inherited continued on its then existing trajectory, most likely we would now be looking at a debt in excess of J$6 trillion and an exchange rate of over J$400 to US$1.

In effect, a unique and unprecedented debt swap had happened on his watch, with almost 100 per cent voluntary participation, and without any fallout in capital flight or exchange rate depreciation. The financial system responded with patriotism and in a manner that demonstrated belief in the direction of economic policy.

• Shaw’s tenure saw reduced stamp duties and transfer taxes, and the virtual abolishing of estate taxes (death taxes) by reducing them from seven per cent to one per cent.


• He managed to bring about mortgage portability in the Jamaican market. This resulted in increased competition among financial institutions, which facilitated an almost 50 per cent reduction in mortgage interest rates, moving from 18 per cent to 9.5 per cent.

• People who formerly had to borrow money at 25 per cent interest and above to buy a car or purchase furniture now found it was possible to do so for under 12 per cent. Combined with the lowering of mortgage rates, these drastically reduced interest rates allowed people with frozen salaries and limited income to survive in a very stressful economic environment.

• A further big initiative under Shaw’s regime was the establishment of the Junior Market programme which gave five-year profits tax holidays, and reduced profits tax for the following five years to participating companies.

This allowed for the capitalisation and significant expansion of companies such as Lasco Distributors, Lasco Manufacturing, Lasco Finance, AMG Packaging, Access Financial Services, Blue Power, Knutsford Express, Kremi, Dolphin Cove, Jamaica Teas, and so on. That innovation rekindled the entrepreneurial spirit among many who had found government paper more attractive than equity investments, and provided a major fillip to the growth of Jamaican business.

• Shaw brought fiscal responsibility legislation to Parliament and got the fiscal responsibility framework enshrined into law.

• He presided over the divestment of critical loss-making public entities such as the Sugar Company of Jamaica and Air Jamaica which was costing the taxpayers of this country some J$10 billion per year (which would have amounted to J$14 billion at today’s exchange rate).

• During his tenure, the Government made significant strides towards tax, pension and public sector reforms, and by the time he left office, the Public Sector Transformation Unit had presented a comprehensive document setting out its findings and recommendations, and a Green Paper on Tax Reform was submitted to Parliament.


• With the economic fortunes of public sector workers being a key priority of the then Administration, it was Shaw as finance minister who granted, on average, a 62 per cent wage increase to teachers (bringing them to within 80 per cent of market); 42 per cent to police officers; and 30 per cent to nurses and other public sector groups.

Shaw is the person most suitable, qualified and experienced to take up the mantle and assume the vital position of minister of finance in the new Holness-led Administration.

As with his first appointment in 2007, which was greeted by derision from the Opposition, doubt by the financial sector, concern by his party colleagues, and belittling scepticism from some media commentators, so it is now. But just as he silenced the critics with his outstanding performance, so will it be again.

With the support of his prime minister, Bruce Golding, Shaw courageously changed the course of Jamaica’s economic policy by finally abandoning attempts to postpone fiscal adjustment and trying to finance fictitious growth by borrowing.

Through all of this stress and strain, he maintained his sense of humour, his sartorial comportment, and his calm earnestness.

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