Davies

The prime minister's statement to Parliament on Tuesday, November 3, concerning the dismissal of the governor of the Bank of Jamaica (BOJ) and the resignation of the commissioner of police, was one of the most significant events in our recent parliamentary history.

While the resignation of the commissioner deserves its own detailed analysis, in this piece, I will focus on the dismissal of the governor. Equally important, I will discuss some of the real challenges facing the country.

From a propaganda viewpoint, the administration has managed the firing of the governor with consummate expertise, whereby half-truths are revealed to the public in such a way that opinions are formed and hardened in the initial stages, before any other viewpoints are heard. By the time the full facts are revealed, the truth is in the position of playing 'catch up'. Given my central role in these developments, I am obliged to address the half-truths, which have been promulgated.

THE HALF-TRUTHS

Golding (left) and Latibeaudiere (right).

The first major half-truth is that the governor was fired because it had just been discovered that he was being paid a compensation package of $38 million per year. Very quickly, 'compensation package' was converted to 'salary', and so the headlines were that the governor was receiving an annual salary of $38 million. What is the truth? Even as the prime minister addressed Parliament, the governor never received such a package. Furthermore, I challenge anyone in the administration to deny that others had been offered the position of governor long before this 'crisis'.

The second half-truth was that the governor was receiving this package because of the contract which I had approved in May 2007. The truth is that when I demitted office in September of 2007, there was no such problem. Based on the contract which I had signed, the governor was being paid a salary of just over $11 million per annum, and a rental allowance of $2.5 million per annum (approximately $200,000 per month).

In fact, I am informed that these figures remained almost the same for at least another year. The controversy about rental only developed early this year, fully 18 months after my leaving office. In an amazing public admission of ministerial impotence, the administration claims that, faced with the new calculations for rental payments, they could reach no compromise with the governor and so he had to be dismissed.

The truth is that the minister was formally written to from as early as March of this year indicating that the new calculations for rental had been done based on the governor's new residence, and the governor had confirmed his willingness to negotiate a mutually acceptable figure. No follow-up action to this offer was taken. The obvious question to be posed is why?

In seeking to assign blame to me for the crisis, the prime minister referred to the contract which I had signed with the governor, asserting that it contained two "strange" clauses: one which dealt with the payment for rental of his house, and the other, which preserved the benefits which he had earned as a permanent employee of the BOJ, even after receiving a contract as governor. I can only assume that the prime minister's support staff failed to do basic homework. That basic homework would have shown that ever since the BOJ stopped owning and maintaining an official residence for the governor, a clause was inserted in the contracts of all governors, which covered compensating them for rental of the houses they inhabited.

Was the clause in the former governor's contract perfect? Even though it was drafted by one of the country's leading legal luminaries, no one would make such a claim. But the reality was that it created no crisis until the present. As I will demonstrate later in this piece, these are issues which the country has the right to expect an administration to resolve with dispatch and in a less destructive manner.

The second "strange" clause of the contract was that the former governor retained his benefits earned as a permanent employee of 24 years of the BOJ. Basic research would have shown that the late G. Arthur Brown, a career civil servant, moved from being financial secretary to being governor. In that move, he carried with him his years of service and when he retired from the position of governor, his pension was calculated on the basis of his total years of public-sector service.

The obvious question is: If this principle held for someone from 'outside' (albeit from the civil service), what would be the basis for denying the same benefit to an internal, permanent employee, who was being promoted?

INDEXING ANNUAL INCREASES

In answer to the question, "How should the administration have handled the matter?", there is a very simple answer. The minister should have summoned the governor to a one-on-one meeting and told him: "I have seen these new calculations for rental payments. They are unacceptable to me and the administration. Here is what I can live with." The resolution may have involved indexing annual increases to the CPI. If the governor refused to negotiate, then a dismissal would be in order.

The reality is that there will always be disagreements between employer and employees. However, unless there are other motives, the objective of both sides should be to reach a mutually acceptable compromise. There are several examples of how the past administration handled what could have been explosive disagreements with employees.

I give three examples, two of which come from the BOJ. The first relates to what was a long-standing entitlement of senior BOJ officials to an annual trip for two to Europe. Although it was not a popular move, the former administration abolished this entitlement but without seeking to publicly embarrass the former beneficiaries.

The second example was the decision to drastically reduce the very generous leave entitlements of BOJ senior staff members. Again, this was not a popular initiative, but it was carried out with no public embarrassment of staff members.

The third and most important example of adjusting established employee benefits, in light of changing circumstances, was the action taken to adjust the pension formula for senior civil servants who had joined the government service prior to Independence and who had migrated after retirement. Their pension formula was calculated on the basis of an exchange rate of two Jamaica dollars equal to a British pound. Consequent on the devaluations which had taken place, this formula produced some unaffordable results, with many pensioners living abroad benefiting from compensations which were multiples of that paid to their counterparts who chose to remain in Jamaica.

For example, (and this was an actual case), a pensioner due an annual pension of J$2 million would receive a pension of a £1 million annually! The former administration changed this formula, not only because it was not affordable, but also because it discriminated against those who chose to remain in Jamaica. The basic point being made is that there are no perfect agreements, which can anticipate all changing future circumstances. However, when these new circumstances appear, the last solution to be applied must be one with widespread negative consequences.

THE REAL ISSUES

The dismissal of the governor has already had negative consequences for the country. There has been very little discussion about the implications of the Standard & Poor's (S&P) downgrade. Furthermore, the rating agency has maintained a "negative outlook" on the country's economic prospects. The simple translation is that further economic decline or any ill-advised action could lead to complete banishment from the international capital markets. The prime minister had better learn that ranting against the actions of the rating agencies has no reward. The adage 'You can't fight City Hall' is most relevant.

But the real question is: What is the basis for disagreeing with S&P's assessment? The country is in the most challenging fiscal crisis for decades. Following the presentation of the most chaotic budget in our history, we were then presented, within five months, with a Supplementary Budget, which was equally lacking in credibility. Not only was the projected deficit increased, but the allocation for interest payments had jumped by over $16 billion within the space of five months. How could the calculations have gone so wrong? Was it that the administration simply 'stitched' together the original Budget numbers, or were they genuinely taken by surprise over the five-month period. Neither answer provides the country with any comfort.

However, our problems do not end there. The administration and their cheerleaders have proclaimed them as having a low-interest rate policy, as opposed to the previous administration's. None of the Government's apologists acknowledge that the interest rate on the signal Treasury Bill instrument was under 12 per cent in September 2007 but more than doubled in 2008. Few note that in two years, the national debt has increased by a third.

In the midst of these unfortunate developments, the Government faces difficulties in coming to an agreement with the International Monetary Fund. All of the administration's hopes are pinned on reaching this agreement, but there seems to be an ever-changing timetable for presentation of a letter of intent to the IMF. In the midst of this crisis, the prime minister fires the person he recently appointed as the head of his negotiating team.

See conclusion in tomorrow's Gleaner.

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