Davies wary of debt exchange effect on NIF

THE PARLIAMENTARY opposition is questioning the National Insurance Fund (NIF) board's participation in the Jamaica Debt Exchange (JDX).

Dr Omar Davies, the opposition spokesman on finance, said there was a "serious legal question as to whether the managers of the fund were acting in the interest of the contributors" when they decided to participate in the JDX.

The NIF is the institution that provides pension payments as well as national insurance health benefits for contributors who have retired.

Yesterday, acknowledging that the contribution from workers and employers to the NIF are insufficient to cover payments from the scheme, Davies stressed that the fund has been able to survive from interest yields on government bonds and other investments.

"This interest income was badly hit by the NIF's participation in the JDX and the forecast is that the investment income for fiscal year 2010-2011 will be reduced by $2.6 billion compared to that earned in 2009-2010," Davies said.

He said any future changes to the NIF should have the full involvement of Parliament as well as the full involvement of the workers and their representatives

Meanwhile, Davies yesterday argued that, with inflation for the fiscal year turning out at 13 per cent and interest rates being paid on government instruments ranging from 10-12 per cent, the real interest rates are in the range of seven to nine per cent.

Negative returns

He said investors were receiving negative returns on their money and hinted that persons would soon be reluctant to settle for negative returns from government paper.

"Is it reasonable to expect that investors, big, small and in-between, will continue being irrational by investing through the purchase of government paper, even where there are negative returns on these investments?" Davies asked.

He noted that there are other options open to those who have resources and exercising these options has "nothing to do with persons being disloyal or unpatriotic".

Government earlier this year announced the JDX, a programme through which it invited domestic creditors to accept reduced interest rates on bonds and extended maturity dates. The JDX attracted more than 99 per cent participation and, as Davies admitted, "provided the administration with some breathing room, both in terms of the amortisation payments on domestic debts as well as lower interests rates".