Although Jamaica’s financial sector avoided total collapse at the start of the millennium, the country’s fortunes were far from favoured as the nation faced the herculean task of repairing a depressed economy and a high debt load.

Through the intervention of the Financial Institution Services and the Financial Sector Adjustment Company (Finsac), the Government singlehandedly spent more than $140 billion to directly intervene in 200 companies. The objective of the intervention was to stabilise the financial sector, rehabilitate and divest the interests to private entities who would run them in a more suitable manner.

Between 1980 and 1997, the number of commercial banks, building societies, and financial institutions expanded from 36 to 57. By the end of 2001, that had shrunk to 21, with six commercial banks, 11 merchant banks/finance houses and four building societies. Today, there are only 11 left which comprise eight commercial banks, one merchant bank and two building societies. There were a number of mergers and acquisitions during that time span and some institutions just went under as depositors feared the worst.

While many would have seen an opportunity to acquire undervalued assets, very few businesses were in a position to acquire other firms and were hesitant due to the risk in the environment. Even titan conglomerates which had 32 subsidiaries were reduced to three in under a decade after the financial sector meltdown. The foreign-owned banks from Canada and the United States of America stuck to their core business and maintained a defensive stance after the witnessing hurricane Gilbert which had swept through the country in 1988 and left a sight of carnage and destruction. Numerous businesses which had set up Jamaican operations began divesting their interests to local distributors in what they saw as a safe way to exit the radioactive wasteland. Thus, Jamaica had to rely on its former West Indies Federation members and unlikely allies to restart the heartbeat of the country which had gone into cardiac arrest.

In an effort to make the assets FINSAC held attractive for foreign investors, several institutions were merged ahead of their sale. Thus, Union Bank of Jamaica was formed in September 1998 by the merger of four commercial banks and their three allied merchant banks. Citizens Bank, Eagle Commercial Bank (ECB), Workers Savings & Loan Bank and Island Victoria Bank (IVB) were the commercial banks while the commercial banks were all affiliated with listed entities except for IVB. IVB was acquired by ECB in July 1998 under an agreement managed by Finsac and IVB’s parent company Victoria Mutual Building Society. The Royal Bank of Trinidad and Tobago acquired it for $1.6 billion (US$35.6 million) in March 2001. This was against the backdrop of Union having 24 branches, US$720 million in assets and US$77 million ($3.46 billion) in capital to represent the desire to dispose of the asset.

This continued with Guardian Holdings Limited establishing Guardian Life Limited by acquiring the insurance assets of Dyoll Life, Crown Eagle and Jamaica Mutual in July 1999. Finsac’s 75 per cent stake in NCB Jamaica was purchased by AIC Limited for US$127 million in March 2002. Even the majority interest in non-Finsac’d assets such as Caribbean Cement Company Limited, Jamaica Grains & Cereal, Jamaica Public Service Company and Ashtrom Jamaica Limited were sold to Caribbean interests between 1996 to 2001 to make up for the deficit the government had in its budget which amounted to $13.1 billion in the 2003 fiscal year.

Barbados Mutual Assurance Society, Life of Barbados (LOB) and Colina Insurance Company of the Bahamas led a joint effort to purchase the 76 per cent stake in Life of Jamaica (LOJ) for $2.05 billion which was to be merged with Island Life Insurance Company.

In his memoir, entitled I Tried to Make a Difference, R Danny Williams recounted how he assisted founder Cecil De Caires to set up LOB after he founded LOJ. This long-lasting friendship with Cecil ensured LOJ would grow under greater oversight and assist in rebuilding Williams’ wealth which was erased to a mere 20 per cent of its original value before the financial meltdown.

After recognizing the deficiencies in the financial sector, the Ministry of Finance amended the Banking Act, Bank of Jamaica Act, Building Societies Act and other legislation to strengthen the powers of the BOJ as a supervisory authority and reduce the capacity for institutions to lend to related parties. However, the BOJ’s powers were only limited to the banking and deposit taking sector which left the other financial players without an effective supervisor. As a result, the Financial Services Commission was brought into existence in August 2001 to govern the insurance, securities and pension industries. All of these legislative changes also saw the introduction of “fit and proper” criteria for individuals working in the financial sector which was strengthened with new legislation.

The Jamaica Deposit Insurance Corporation was formed in August 1998 to provide deposit insurance of $200,000 to depositors at each institution. There was also a regulatory policy council formed to allow for coordination among regulators ahead of any potential problems. The Crisis Intervention Matrix and establishment of a financial crimes unit was also done to address the powers which can be taken by supervisors and detect any impropriety in the financial sector which was suspected during the financial meltdown.

Although all these measures were aimed at trying to prevent a second domestic financial crisis, the damage had already been done and the country felt it in its economic makeup in subsequent years. Jamaica’s debt to gross domestic product (GDP) stood at over 140 per cent in 2002 with internal debt to GDP standing at over 90 per cent in 2004. This meant that interest costs on debt was over 60 per cent of the government’s tax revenues and exceeded 18 per cent of GDP in 2004. The 2005 budget presented by Finance Minister Dr Omar Davies was $328.2 billion, but debt servicing alone was $228 billion split between recurrent expenditure of $188 billion and $96 billion for interest payments. Thus, only $100 billion was left to pay civil servants, fund government business and do some projects. Jamaica was one of the most indebted countries in the world.

The treasury bill yield on the BOJ’s 180-day treasury bill yield in January 2004 was 17.75 per cent with the Government of Jamaica’s variable rate bond issuance issued in August 2003 having an initial interest rate of 26.31 per cent. The loan to deposit ratio at the country’s two largest banks was 54 per cent and 38 per cent which meant there was less incentive to lend more of the bank’s deposits and instead invest in government debt. The Jamaica Stock Exchange became less attractive as persons lived off government debt rather than invest in going concerns.

The country had to engage in the Jamaica Debt Exchange in January 2010 where $700 billion of debt was exchanged for new benchmark securities with lower coupons and longer maturities. However, this was not enough, and Jamaica had to execute the National Debt Exchange (NDX) in February 2013 as a pre-condition to a four-year extended fund facility with the International Monetary Fund. The NDX saw the voluntarily rolling of GOJ securities by three to ten years with low coupon rates by 75 to 500 basis points. While this cut the profitability of many financial sector players in that year, it served as the foundation for Jamaica to dig itself out of the rut it was in. 97 per cent of bondholders accepted the initiative which saw Jamaica’s debt to GDP decline below 100 per cent for the first time in 2020 before the novel coronavirus pandemic. Notwithstanding the debt reduction, real economic growth remained relatively anaemic and low as investor interest remained mellow at the time. The country’s net international reserves was only enough to cover six weeks of imports. Jamaica managed to successfully complete its first IMF programme in 2019 after many international pundits expected the country to fail in 2013.

While the country is on a steady path of recovery, the financial meltdown and its consequences left it with less domestically owned assets, the crowding out of the private sector to fund debt obligations and an entire generation of entrepreneurs desiring nothing to do with Jamaica. If one tries to find information on finsac.com, nothing relating to Jamaica will be seen as the domain registration expired in 2021. Though many would like to forget, the past should serve as a lesson for the present.