ANNUAL REPORT 2004 Report and Statement of Accounts for the Year Ended 31 December 2004 Mission Statement The mission of the Bank of Jamaica is to formulate and implement monetary and regulatory policies to safeguard the value of the domestic currency and to ensure the soundness and development of the financial system by being a strong and efficient organisation with highly motivated and professional employees working for the benefit of the people of Jamaica. BANK OF JAMAICA NETHERSOLE PLACE KINGSTON 31 March 2005 Dr. The Hon. Omar Davies Minister of Finance & Planning National Heroes Circle Kingston 4 Dear Minister: In accordance with Section 44 (1) of the Bank of Jamaica Act, 1960, I have the honour of transmitting herewith the Bank’s Report for the year 2004 and a copy of the Statement of the Bank’s Accounts as at 31 December 2004 duly certified by the Auditors. Yours sincerely, Derick Latibeaudiere Governor PRINCIPAL OFFICERS GOVERNOR Mr. Derick Latibeaudiere DEPUTY GOVERNORS 1. Mrs. Audrey Anderson - Financial Institutions Supervisory Division 2. Mr. Colin Bullock - Research & Economic Programming Division Banking & Market Operations Division 3. Mr. Rudolph Muir - General Counsel & Bank Secretary, Corporate Secretary’s Division GENERAL MANAGER Mr. Kenloy Peart DIVISION CHIEFS 1. Mrs. Myrtle Halsall - Research & Economic Programming Division 2. Mrs. Gayon Hosin - Financial Institutions Supervisory Division 3. Mr. Herbert Hylton - Finance & Technology 4. Mrs. Faith Stewart - Financial Services Sub-Division Banking & Market Operations Division SENIOR DIRECTORS 1. Mr. Randolph Dandy - Senior Legal Counsel Legal Department 2. Mrs. Natalie Haynes - Senior Director Financial Markets Sub-Division Banking & Market Operations Division 3. Mrs. Evadnie Sterling - Chief Internal Auditor Internal Audit Department BOARD OF DIRECTORS THE HON. DERICK LATIBEAUDIERE, O.J. Governor & Chairman COLIN BULLOCK CHRISTOPHER BICKNELL THE HON. CARLTON DAVIS, O.J., C.D. KENNETH HALL ROSALEA HAMILTON JEFFREY PYNE THE HON. SHIRLEY TYNDALL, O.J., C.D. CONTENTS 1. Overview 1 2. The Financial System 5 2.1. Monetary Policy Management 6 2.2. Monetary Survey 9 2.3. Commercial Banks 12 2.4. Other Financial Intermediaries 23 2.4.1. Financial Institutions Act Licensees 23 2.4.2. Building Societies 26 2.5. Development Banks 29 2.5.1. Development Bank of Jamaica 29 2.5.2. National Export Import Bank of Jamaica 31 3 Financial Market Operations 34 4 Supervision of Deposit-Taking Financial Institutions 40 5 The Stock Market 60 6 External Sector Developments 65 6.1. International Economic Developments 65 6.2. Balance of Payments 73 6.3. Foreign Exchange Management 83 6.3.1. Bank of Jamaica International Reserves 83 6.3.2. Reserve Management 86 6.3.3. The Foreign Exchange Market 89 6.3.4. Cambio licencing and Monitoring 91 6.3.5. Remittance Licencing and Monitoring 92 7. Production and Prices 94 7.1. Production 94 7.2. Prices 99 8. Banking and Currency Operations 107 8.1. Banking Services 107 8.2. Payment System Developments 107 8.3. Currency Operations 109 9. Financial Legislation 112 10. Administration 117 11. Compensation of Executive Management 119 12. Calendar of Monetary Policy Developments 120 Final Accounts for the Year Ended 31 December 2004 1. Overview he generally stable macroeconomic VKRFNWRKHDGOLQHLQÀDWLRQLQWKHODWWHUKDOIRIWKH\HDU,Q environment that prevailed during 2004 WKLVUHJDUGFRUHLQÀDWLRQVORZHGWRSHUFHQWLQ Tallowed the Bank of Jamaica to relax its FRPSDUHGWRSHUFHQWLQ7KHXSWXUQLQKHDGOLQH monetary policy stance while maintaining its focus LQÀDWLRQZDVDGLUHFWUHVXOWRIWKHHIIHFWRIDQLQFUHDVH RQSUHVHUYLQJORZLQÀDWLRQ7KHHDVLQJRISROLF\ZDV LQZRUOGRLOSULFHVDVZHOODVDWURSLFDOVWRUPLQ$XJXVW effected through a series of reductions in the Bank’s DQG KXUULFDQH LQ 6HSWHPEHU ZKLFK VHYHUHO\ UHGXFHG LQWHUHVWUDWHVWUXFWXUH7KHPRUHVWDEOHHQYLURQPHQWLQ DJULFXOWXUDOVXSSO\DQGLQFUHDVHGUHODWHGSULFHV)RUWKH 2004 followed a period of economic challenges faced -DQXDU\WR6HSWHPEHUSHULRGWKHFRQVXPHUSULFHLQGH[ by the Bank during 2003 that had required a resolute LQFUHDVHG E\ SHU FHQW DYHUDJLQJ SHU FHQW SHU WLJKWHQLQJ RI PRQHWDU\ SROLF\ %\ FRQWUDVW PDUNHW TXDUWHU+RZHYHULQWKH2FWREHUWR'HFHPEHUTXDUWHU FRQGLWLRQV WKURXJKRXW UHÀHFWHG WKH UHVWRUDWLRQ WKHVSLNHLQIRRGSULFHVFRQWULEXWHGWRLQÀDWLRQRI RI VWURQJ IRUHLJQ DQG ORFDO LQYHVWRU FRQ¿GHQFH ZLWK SHUFHQWZKLFKZDVPXFKKLJKHUWKDQWKHSHUFHQW RSWLPLVPIXHOOHGE\IRUHLJQH[FKDQJHPDUNHWVWDELOLW\ DYHUDJHLQFUHDVHH[SHULHQFHGLQWKH'HFHPEHUTXDUWHU the accumulation of foreign reserves and the expansion RYHUWKHSDVW¿YH\HDUV1RQHWKHOHVVLQÀDWLRQIRU RI HFRQRPLF RXWSXW7KHVH WUHQGV ZHUH UHLQIRUFHG E\ ZDVSHUFHQWH[KLELWLQJDPRGHVWGRZQWXUQZKHQ the Government’s stated commitment to attaining the FRPSDUHGWRWKHUDWHRISHUFHQWLQ ¿VFDOWDUJHWV $QDGHTXDWHVXSSO\RIIRUHLJQH[FKDQJHIURPWRXULVW (DUO\LQWKH\HDUWKH*RYHUQPHQWDQGWKH,QWHUQDWLRQDO H[SHQGLWXUH SULYDWH UHPLWWDQFHV DQG RI¿FLDO LQÀRZV Monetary Fund agreed to enter into a non-borrowing facilitated stability in the foreign exchange market and UHODWLRQVKLS WR EH WHUPHG DQ ,QWHQVL¿HG 6XUYHLOODQFH DEXLOGXSLQWKH1,57KLVVWDELOLW\ZDVUHÀHFWHGLQD 3URJUDPPH ,63 $QQXDODQGVHPLDQQXDOSHUIRUPDQFH PHUHSHUFHQWGHSUHFLDWLRQLQWKHIRUHLJQH[FKDQJH WDUJHWVLQWKHUHDOH[WHUQDOPRQHWDU\DQG¿VFDOVHFWRUV UDWH WKH ORZHVW VLQFH ZKHQ WKH -DPDLFD 'ROODU were set as the macroeconomic indicators that would UHFRUGHGGHSUHFLDWLRQRISHUFHQW7KHVHIDFWRUV EHPRQLWRUHGFORVHO\E\WKH)XQG7KHVHWDUJHWVZHUH FRXSOHGZLWKLPSURYHG¿VFDOSHUIRUPDQFHWKURXJKRXW consistent with the Government’s economic objectives WKH\HDUKHOSHGWREXR\LQYHVWRUFRQ¿GHQFH RIDUHGXFWLRQLQWKHGHEWEXUGHQLQÀDWLRQPRGHUDWLRQ DQGJURZWK,QWKLV,63WKH%DQNGHYHORSHGDPRQHWDU\ 6XSSRUWHGE\WKHUHVWRUDWLRQRIPDUNHWFRQ¿GHQFHDQGD programme incorporating quarterly benchmarks for GRZQZDUGWUHQGLQLQÀDWLRQWKH%DQNZDVDEOHWRORZHU monetary expansion and the quantum of credit that the interest rates on its open-market instruments on nine would be consistent with the main target of monetary RFFDVLRQVLQWKH-DQXDU\WR-XQHSHULRGZKLOHPDQDJLQJ SROLF\WKHLQÀDWLRQUDWH EDVHPRQH\ WKHPDLQRSHUDWLQJWDUJHWRISROLF\ ZLWKLQ &RUH RU XQGHUO\LQJ LQÀDWLRQ FRQWLQXHG WR WUHQG SURJUDPPHGOHYHOV5DWHVRQWKHGD\DQGGD\ downwards in line with the policy objective despite a 1 Bank of Jamaica LQVWUXPHQWVZHUHUHGXFHGE\SHUFHQWDJHSRLQWVDQG SHUFHQWLQUHSUHVHQWLQJWKHVL[WKFRQVHFXWLYH SHUFHQWDJHSRLQWVUHVSHFWLYHO\7KHLPSURYHPHQW \HDURISRVLWLYHJURZWK7KHJURZWKLPSHWXVHPDQDWHG LQPDUNHWFRQ¿GHQFHZDVHYLGHQWLQDSUHIHUHQFHIRUWKH IURP VHUYLFHV ZKLFK DFFRXQWHG IRU SHU FHQW RI -DPDLFD'ROODUZKLFKZDVUHÀHFWHGLQWKHFRQYHUVLRQRI WKH LQFUHDVH LQ UHDO *URVV 'RPHVWLF 3URGXFW *'3 86GROODUVIRULQYHVWPHQWLQORFDOFXUUHQF\LQVWUXPHQWV Distributive trade and miscellaneous services were ,QWHUHVWLQ-DPDLFD'ROODUEDQNGHSRVLWVDQGHTXLWLHVZDV WKHPDLQDUHDVRIJURZWKLQVHUYLFHV7KHUHZDVPXFK further heightened by the Government’s net redemption activity in the distribution of food and relief supplies RIGRPHVWLFGHEWLQVWUXPHQWV$IWHUGHFOLQLQJE\ LQ WKH DIWHUPDWK RI WKH 6HSWHPEHU +XUULFDQH ZKLFK SHUFHQWLQGRPHVWLFFXUUHQF\GHSRVLWVLQFUHDVHG LQÀXHQFHGDSHUFHQWJURZWKLQdistributive trade. E\SHUFHQWLQZKLOHIRUHLJQFXUUHQF\GHSRVLW *LYHQLWVZHLJKWLQ-DPDLFD¶V*'3WKHVHFWRUZDVWKH JURZWKVORZHGWRSHUFHQWFRPSDUHGWRSHU fourth largest contributor to economic expansion in FHQWLQ 7KH SHUIRUPDQFH LQ WKH WRXULVW LQGXVWU\ ZDV D VWURQJLQÀXHQFHRQWKHHVWLPDWHGSHUFHQWH[SDQVLRQ Monetary policy management in the latter half of the year in the value added in miscellaneous services. Tourism IDFHGFKDOOHQJHVRFFDVLRQHGE\WKHLQÀDWLRQDU\HIIHFWV H[SDQGHGGHVSLWHWKHGDPDJHRIWKH+XUULFDQHWRWRXULVW of rising oil prices and reduced supplies of agricultural infrastructure and visitor expenditure is estimated to FRPPRGLWLHV,QDGGLWLRQSRVWKXUULFDQHH[SHQGLWXUH KDYHLQFUHDVHGE\SHUFHQWLQ compounded the seasonal increase in liquidity in the 'HFHPEHUTXDUWHU$FFRUGLQJO\WKH%DQNUHGXFHGWKH The improved performance of Jamaica’s economy magnitude and frequency of interest rate reductions LQZDVVHWDJDLQVWWKHEDFNJURXQGRIVLJQL¿FDQW to protect the stability gained in the foreign exchange DGYDQFHVLQJOREDOHFRQRPLFDFWLYLW\7KHVWURQJJURZWK PDUNHW HDUOLHU LQ WKH \HDU DQG WR OLPLW LQÀDWLRQDU\ recorded for the industrialized and developing countries LPSXOVHV 'HVSLWH WKH FKDOOHQJHV WKH %DQN ZDV DEOH LQÀXHQFHG WKH VWUHQJWKHQLQJ RI -DPDLFD¶V EDODQFH to manage liquidity through open market operations at RI SD\PHQWV SRVLWLRQ GHVSLWH WKH HIIHFW RI H[WUHPH SURJUHVVLYHO\ORZHULQWHUHVWUDWHV weather conditions on the major foreign exchange HDUQLQJ VHFWRUV *URZWK LQ WKH ZRUOG HFRQRP\ KDG D 7KHSDFHRIHFRQRPLFDFWLYLW\DFFHOHUDWHGLQWKH¿UVW SRVLWLYHLPSDFWRQDOXPLQDH[SRUWVWRXULVPDQGSULYDWH KDOIRIWKH\HDU,QWKHPDLQexport agriculture grew WUDQVIHUV ,Q WKLV FRQWH[W WKH FXUUHQW DFFRXQW GH¿FLW E\ SHU FHQW manufacturing E\ SHU FHQW DQG LPSURYHGE\86PLOOLRQWR86PLOOLRQ electricity and waterSHUFHQW +RZHYHUKXUULFDQH SHUFHQWRI*'31HWLQYHVWPHQWLQÀRZVIURPSULYDWH GDPDJH LQ 6HSWHPEHU KDG DQ DGYHUVH LPSDFW RQ DQGRI¿FLDOVRXUFHVDGGHGWRDFDSLWDODFFRXQWVXUSOXV SURGXFWLRQ ODWHU LQ WKH \HDU Export agriculture and ZHUHPRUHWKDQVXI¿FLHQWWR¿QDQFHWKHGH¿FLWRQWKH electricity and water are estimated to have declined FXUUHQWDFFRXQW E\SHUFHQWDQGSHUFHQWUHVSHFWLYHO\ZKLOH growth in manufacturingVORZHGWRSHUFHQWLQWKH 7KH RI¿FLDO QHW LQWHUQDWLRQDO UHVHUYHV VWRRG DW 86 ODWWHU KDOI RI 1RWZLWKVWDQGLQJ WKHVH UHYHUVDOV PLOOLRQDVDW'HFHPEHUDQLQFUHDVHRI the Jamaican economy is estimated to have grown by 86PLOOLRQIRUWKH\HDU$VFXVWRGLDQRI-DPDLFD¶V Overview 2 Annual Report 2004 IRUHLJQUHVHUYHVWKH%DQNFRQWLQXHGWRLQYHVWIRUHLJQ steadily improve well within the prudential tolerance assets consistent with