primary objectives are to resolve the problems currently being
faced by the financial sector. These objectives may be summarized
Address issues concerning liquidity and solvency of banking
and insurance institutions.
Address the weakness in financial management that has been
partly responsible for the difficulties in the sector.
Over the long term, improve the efficiency of the sector in
mobilizing and allocating financial resources in the economy, and
enhance the viability and profitability by restructuring the
sector as well as conglomerates and firms within it.
Establish an incentive framework favouring better
management and increased vigilance by shareholders.
Create a desirable environment for investors to
re-capitalize the institutions while keeping to a minimum the
public sector's role in capitalizing to a minimum of short
Strengthen the supervision of the sector with specific
focus on conglomerates.
Avoid and minimize the extent to which the public sector
protection of depositors, policyholders and pension schemes is
seen as relieving managers of the need for prudence and depositors
of the responsibility for being selective in the placement of
FINSAC's Terms of
pursuit of these objectives, the Government of Jamaica has
established the Financial Sector Adjustment Company (FINSAC) with
the following terms of reference:
FINSAC serves as the vehicle through which realignment and
restructuring of the financial sector will take place.
FINSAC serves as the executive arm of the Ministry of
Finance and Planning in which Government strategy will be planned
and through which the interventions of various agencies
(specifically the Bank of Jamaica (BOJ) and the Superintendent of
Insurance) will be coordinated.
Through FINSAC, the Government will provide financial
assistance to the sector and therefore will have the
responsibility of the accountability for the spending of such
resources provided to it directly or guaranteed by the Government.
Through FINSAC, the Government will provide guidance and
technical assistance to the financial sector. It may mobilize and
deploy external technical and managerial support for the
restructuring of intervened institutions.
FINSAC will sponsor and/or undertake diagnostic studies of
the overall health of the financial sector with specific focus on
the institutions which require assistance.
FINSAC will assist institutions in developing work-out
plans, where necessary, to return them to viability. Such plans
will form the basis for the conditions which FINSAC will attach to
financial assistance. FINSAC will monitor the implementation of
such plans on a continuing basis and will evaluate their
effectiveness in achieving their specified objectives. It will
inform and coordinate the inputs of Government's members of boards
of intervened institutions on issues considered essential to the
viability of the financial sector.
Based on the experience gained in its work, FINSAC will
advise the Government on the prudential regulation of the sector
and on the renewal, suspension and revocation of operating
charters of individual institutions within the sector.
Financing of FINSAC
FINSAC is being financed by the Government through borrowing in
the domestic market. Funds are being raised through the sale of
long-term Registered Stock, with coupon rate tied to the rate on
Treasury Bills. The stocks are being placed in small amounts as
FINSAC requirements are not at all up-front and the total cannot
be known with certainty at the outset. This approach has the merit
of avoiding the shock of a large placement on the market at one
time. So far, J$1.5 billion has been raised and transferred to the
account of FINSAC in the Bank of Jamaica.
this is the approach to the long-term financing, it is necessary
for FINSAC to have substantial interim financing, specifically for
the purpose of reversing the overdraft positions of certain banks
in the Bank of Jamaica. This is being provided through a
Government guaranteed loan from BOJ to FINSAC out of certain
sterilized Government deposits in BOJ.
of FINSAC's housekeeping budget so far has been by advances
provided by the Agricultural Credit Bank (ACB). Of the $56 million
provided by the Ministry of Finance so far, the ACB has reimbursed
$36 million (covering advances for about four months before FINSAC
until the end of March 1997); approximately $20 million remains
unspent. In the future, FINSAC's budget will be financed out of
the margin between its borrowing and lending.
Strategy for FINSAC
is expected to have a life of about seven (7) years. Support is
provided to solvent companies on the basis of rehabilitation plans
to be implemented in five years. FINSAC expects to be fully repaid
by the end of the fifth (5th) year, assuming successful work-outs
of the existing problems. Interventions leading to the temporary
acquisition of institutions will be short-lived. All the necessary
interventions are likely to take place within the first year of
FINSAC's existence. Components which can be restored to viability
will be rehabilitated and returned to private ownership within a
year, while other components will be liquidated or sold for merger
with other institutions as soon as possible.
the experience of other countries, liquidations and the sale of
assets as well as the collection of debts can often be a lengthy
process. The usual approach has been to set up facilities for
handling these aspects outside of the vehicle for rehabilitation.
For example, real estate investment trusts have been used as a
holding arrangement for the management and disposal of real
estate; paper assets have been put in unit trusts and the units
marketed; and non-performing loans have been sold to a central
debt-collection agency. FINSAC will evaluate the option of setting
up a real estate investment trust and other asset disposal
approaches. This can be with the assistance of the Urban
Development Corporation (UDC). These liquidation arrangements are
likely to outlive FINSAC.
the initial period of interventions and assistance activities, the
role of FINSAC will be narrowed to primarily supervision and
monitoring of work-out plans of institutions that have been
financially assisted by FINSAC and the management of the
investment' portfolio arising out of assistance activities.
Supervision and monitoring should end in six (6) years as the
work-out plans are completed. Interventions are unlikely to give
rise to such a portfolio since intervened institutions will be
rehabilitated and resold and the proceeds used to retire portions
of FINSAC's debt to Government. By year seven (7), FINSAC's only
responsibility is expected to be the collection of repayments from
from the Budget Presentation by
Minister of Finance and Planning