Mr. Speaker you will recall that I advised this Honourable House towards the end of the last financial year that:

(i) elements of the financial sector sought the Government's assistance to restore them to financial viability as they were experiencing financial difficulties consequent on a mis-match of assets and liabilities;

(ii) the Government decided to establish the Financial Sector Adjustment Company (FINSAC), to work with those institutions in the financial sector that were experiencing financial problems. This was with a view to restoring such institutions to financial viability;

(iii) Government's action in this regard was to protect the thousands of depositors, policyholders and pensioners who placed their life savings in these institutions.

Mr. Speaker, in the ten (10) months of FINSAC's operations, FINSAC has intervened in three life insurance companies, and the Eagle Financial Enterprises consisting of a life insurance company, a commercial bank, a merchant bank and other financial institutions.

FINSAC's participation in Life of Jamaica, one of the three life insurance companies, led to its acquisition for cash of approximately J$870M, Life of Jamaica's shareholdings in Citizens Bank and CIBC.

Jamaica Mutual Life Assurance Company, the largest of the life insurance companies, is close to concluding negotiations with FINSAC. This Company has approximately 360 000 policyholders and manages $4.5B in Pension Funds. It is also the largest shareholder in NCB Limited, the largest commercial bank, covering about 40% of total depositors in the banking system. FINSAC has been negotiating with Jamaica Mutual since May 1997. The principle around which they have been conducting the negotiations is that Jamaica Mutual should disengage from its ownership of a banking institution (NCB) and should return to its core business, that of insurance. Broad points of agreement have been agreed between FINSAC and Jamaica Mutual, and these are as follows:

(i) FINSAC will inject into Jamaica Mutual at least J$10B. Of this total $9B will be in a subordinated loan which will be paid in two tranches. The subordinated loan will bear an interest rate of 4.5% per annum.

(ii) The first tranche will be approximately $7B and this will be paid immediately to creditors on signing of the agreement. The second tranche of $2B will be made in about a month thereafter.

(iii) The first tranche will allow Jamaica Mutual to retire the overdraft of approximately $7B outstanding on the books of the National Commercial Bank.

(iv) The second tranche will allow for the provision of needed working capital to the Society.

FINSAC has been discussing with the Society the structure that will offer the best protection to the 360 000 policyholders. The Society has to be recapitalized. A mutual society such as Jamaica Mutual has certain peculiarities which make it difficult to:

(i) ensure that the agreed strategic plan to restore the Society to viability is implemented;

(ii) ensure that the capital injected by FINSAC is protected.

Consequently, the option being actively considered is that of demutualization. Once FINSAC and the Society finally agree on the appropriate structure, an employee stock option plan will be adopted as a critical component.

The Society's Board will be reconstituted to comprise 15 directors, one of whom will be an Executive Chairman acceptable to FINSAC and the Society.

The NCB Group's shares held by the Society will be sold to FINSAC at the price prevailing on the Jamaica Stock Exchange on the date of the transfer. This is estimated to cost approximately J$1B. FINSAC will be given immediate power of attorney over the shares.

An individual acceptable to FINSAC will be appointed to fill a new post of Director, Finance and Investment, reporting to the Executive Chairman.

A review of remuneration will be undertaken, and in so doing pay packages for management will be split into a basic pay and incentive pay component.

FINSAC's acquisition of Mutual Life's shareholdings in NCB will put FINSAC in the position of controlling shareholder in NCB. At this point, Mr. Speaker, I wish to state that the Government has no desire whatever to assume control of the Financial Sector. We have acquired financial interest in the sector because we were asked to intervene and we realised that depositors and policyholders in the sector had to be protected. This is not peculiar to Jamaica and has occurred in several other countries. Mr. Speaker, the Government is still committed to providing the framework within which the Private Sector will maintain and strengthen its lead role in the economy.

Mr. Speaker, FINSAC's objective is to ensure that those institutions in which it has intervened will emerge from this period stronger and more vibrant.

Consequently, FINSAC will be working closely with the other significant shareholder in NCB, Jamaica National Building Society, in the management of the Bank until FINSAC divests itself of these shares.

FINSAC is:

a. currently negotiating with Jamaica National Building Society, the main elements of a plan which will strengthen NCB and enable it to maintain its position as one of the premier financial institutions in the region;

b. currently engaged in recruiting additional short term consultants who will have special responsibility for NCB matters;

c. currently reviewing the components of a draft strategic plan prepared by the management of the NCB Group.

FINSAC and Jamaica National have agreed that there should be one Board for both the NCB Group and the Bank and that a new Board has to be urgently identified for NCB. Mr. Oliver Clarke, the current Chairman of Jamaica National, will immediately assume the chairmanship of NCB.

Mr. Speaker, problems in the financial sector are not unique to Jamaica. Several developed and developing countries have all experienced such problems. Countries such as the USA, with its savings and loans crises, Japan, Mexico, Argentina, Chile and some of the Asian tigers have also had significant financial sector difficulties in recent times. The Government in all cases have had to intervene to protect the financial system and domestic savers.

Mr. Speaker, we have consulted with some of these countries to learn from their experiences and they have confirmed that our approach to the resolution of the problem is consistent with the approach they have adopted in trying to resolve the situation in their own countries. Mr. Speaker, we remain committed to the orderly resolution of the financial sector problems.