Davies defends FINSAC debt
minister, Dr Omar Davies, said Tuesday that the total price tag to date
for the rehabilitation of the financial sector was $95 billion, but that
the final bill to taxpayers would likely be less than half that amount.
in his first public utterance on the accounts of FINSAC since his April
budget presentation, said just about $41 billion of the debt owed by
FINSAC would eventually be borne by the budget, but gave no details on how
it would be written down.
estimate provided by Davies falls short of the over $100 billion that
private sector analysts have placed on the bailout bill, when the carrying
cost of the debt is accounted for.
date FINSAC, has issued $62.6 billion in bonds to wobbly banks, building
societies and insurance companies in exchange for their bad loan
portfolios, and to paper over capital deficiencies on their books. Of that
amount, the agency set up in 1997 at the height of the crisis in the
financial sector, expects to recover $22 billion from the sale of assets,
leaving the remaining $41 billion to be funded from general revenues.
is the cost to taxpayers. The question is, how can we pay that debt off
that was incurred on behalf of all Jamaica," Davies said at Monday
night's launch of Union Bank, the bank formed from the consolidation of
four banks acquired by government.
further $32.5 billion - $22.5 billion from the Bank of Jamaica and $10
billion from the Ministry of Finance - in cash advanced to the sector,
makes up the $95-billion bailout.
price tag as revealed on Monday was $15 billion more than the $80 billion
that Davies had put on the rescue operation a year ago when he first made
public the cost of government's intervention in the sector.
ballooning bill largely represents growing interest payments by the agency
on its outstanding pile of bonds as well as continuing support to some
financial institutions. FINSAC routinely issues more bonds to cover
interest accruing on its paper, to manage its limited cash flow from the
sale of assets and just under $8 billion Davies gave the agency in his
the finance minister again defended the government's decision to guarantee
deposits and take over failing banks.
would be the chaos with which we'd be dealing with if this had not taken
place? What would be the alternative', Davies asked rhetorically at the
function that also renamed the former Citizens Bank headquarters at 17
Dominica Drive, Union Bank Centre.
Bank was formed out of the merger of Workers, Citizens, Island Victoria
and Eagle, the major casualties of the financial sector fallout that began
with the collapse of Century National Bank in July 1996.
four indigenous commercial banks were acquired by government through
FINSAC, but after running all four as separate entities, the
administration decided to consolidate their operations hoping to chop
costs and create a larger and more efficient bank that would be more
attractive for private sector investors.
After laying off dozens of staff and reducing the branch network to 20, many of the bank's key indicators were headed in the right direction, according to Union Bank chairman, Dennis Morrison. Deposits were up 7.1 per cent between June and September; staff costs reduced 26 per cent and other administrative costs by 30 per cent. The bank also had an injection of $2.8 billion in new capital, which would be mainly FINSAC bonds.
Technical Problems, Comments, Questions? E-mail Webmaster