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Charting Jamaica’s economic and social development
by: Andre’ Burnett
BUSINESS LOUNGE
Dennis Chung discusses his book and the Gov’t tax package When ancient Portuguese map-maker Pedro Reinel indicated north on the now famous 32-point compass with a “fleur-de-lis” on one of his maps, he made sure that navigators could accurately chart their journey from origin to destination using what they already knew as a basis for moving forward. Renowned Jamaican Chartered Accountant Dennis Chung has drawn his compass rose on the Jamaican economic landscape with his book titled “Charting Jamaica’s economic and social development.”
Charting Jamaica’s economic and social development
The book which is available on Amazon.com, Sangsters’ and the Book and Stationery Place in Jamaica is Chung’s “offering” to the development of his country of birth, socially and economically. “I have always wanted to write a book on the economy and development since 1960” says Chung, “and there has not been a real look at our development from a macroeconomic standpoint”. While stating that he is not an economist by trade, Mr. Chung points out that his book targets the public at large; tertiary and secondary students and just the general man who wants to know more about our development and the way forward. “The only real solution will come from debates that happen within the people of our country” says the accountant. “Charting..” is Dennis Chung’s first book and sales reports indicates that it is doing well especially when compared to other recent Jamaican releases. He plans to have a book launch in Florida on the 6th of June which he hopes will maximise the potential of the book. Chung plans to release another book later this year geared towards personal financing. Being an avid commentator on Jamaica’s economic issues over recent years, Your Money asked Mr. Chung to weigh in on the recent budget presentation and the tax package controversy.
How realistic is the government’s tax package?
“It is as realistic as you can get, there weren’t any options and the government couldn’t afford to borrow anymore. The gas tax is fair as it captures people who have been avoiding taxes and persons who consume more e.g. people who drive large SUVs etc. I am not in favour of taxing books and
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computers however, but I subscribe to the general philosophy of taxing consumption rather than income”
Do you think the budget will reduce our debt over the long term?
“The budget is Financial Analyst and merely an acChartered Accountant, counting tool, what is important Dennis Chung is the policy initiatives that are implemented regarding, literacy, crime and social issues and also the tracking of the objectives to ensure fulfilment and a report on the progress at next year’s presentation”
If you were the Minister of Finance what additional measures would you implement?
“I would change the overall format of the budget from an accounting exercise into a developmental strategy. This idea of presenting the expenditure first is an old idea, I would attempt to meet with members of the government and opposition to first set objectives, then try to align revenue streams and expenditure with objectives. This would ensure more of a consensus between both parties.
What do you think of the opposition’s suggestion to put a 33 1/3 tax on interest payments?
“I disagree with a surcharge on interest because this represents a permanent impairment on income. I suggest that instead of altering a contractual agreement with the people you implement a negotiation where government papers are issued which can be redeemed at a later date. This would ultimately lead to this measure being a temporary impairment rather than a permanent one.”
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Financial Advice for SMEs and Entrepreneurs
Mind your business
Business Check-List for Financial Stability The American Institute of Certified Public Accountants (AICPA) has been taking a proactive lead in business advisory strategies for CPAs and businesses seeking to weather the current economic storms. Recognizing that a sound business strategy is important no matter what the state of the economy, it is important for today’s business leaders and entrepreneurs to be keenly aware of the critical issues to be focused on to maintain financial viability. Through its vast knowledge database, the AICPA has developed a list of best practices of strategies to survive in this environment, which members are being asked to share with the local business community.
by: Duane Barrett, CPA
from key customers that rely on your business for their materials and supplies. In the short term, barter trading can be a way to keep cash balances positive. Lease financing offers excellent cash flow options against outright purchase of fixed assets. Investigate whether your business may qualify for grant funding. Keep an eye on accounts receivable and the amount of credit extended to customers. Watch for new patterns of slow payments and follow up immediately. Review the largest and riski-
In discussion, I will share what I regard as the 5 most important activities that Chief Financial Officers and business owners should be discussing on a weekly basis. Auditors can also use this article as they work with clients to determine the best methods of surviving a recessionary period. Take a fresh look at your budgetary and revenue needs. Are you meeting budgeted projections for income and expense? Accountants should be analyzing how much of a drop in revenue can the business withstand and for how long? What are your cashflow needs for the next 90 to 120 days? Extend that further to 120 to 180 days? Assess then if the business will have sufficient cash reserves for the next 30 to 60 days so that you can devise a liquidity strategy. Check with your lenders on the status of your credit lines. Are you in compliance with their terms? Will your bank renew their commitments at similar amounts, rates and terms? If your credit lines are frozen or at their limits, consider meeting with vendors to work out a payment schedule that will allow continued delivery of your critical materials and supplies. A well thought out budget of your impending procurement will help in this process.
est accounts to determine if credit constraint or an economic slowdown will affect their ability to pay your company. Controllers should keep receivables aging current. Closely manage accounts payable. Forfeiting early pay discounts may be more advantageous in preserving cash that may be needed for critical items. Keep payables aging current and establish that you are keeping within the terms from the critical suppliers from which you require trade credit.
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Duane Barrett, CPA is Jamaica’s most recognized CPA & CFA exam tutor and can be contacted at cpatutor@hotmail.com.
Look into alternative types of financing. Consider loans on life insurance policies and loans
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10 Smart Steps to: Manage Your Debit Cards Provided by: Financially S.M.A.R.T. Services
Question: I didn’t realize that I was paying 7.
Raise Your Financial IQ! -
Answer: Debit cards are more widely ac-
cepted than cheques, and they remove the hassle of carrying cash. However, although they provide easy access to money, you have to keep tabs on the cost of convenience. Here are some ways to use your debit card wisely:
Keep your PIN private. Don’t share your security number with anyone. If you write down the PIN, don’t keep it in your wallet or where others can easily find it.
8. Secure your card. If your card is stolen or lost, report it immediately. If there is any fraudulent activity after you’ve made your report, the responsibility for your loss lies with the bank.
9. Watch out for scammers. Don’t be tricked by
1. Ask your bank about the debit card fees.
Charges are usually applied for telephone bill payments, using point of sale machines when shopping, getting cash and making enquiries at the bank’s ABM, and using the ABM at another location.
2. Find out your free transactions limit. Banks
may allow a certain number of transactions without charge, so plan your card usage accordingly. So instead of withdrawing money every day, budget your cash needs and make fewer visits to the ABM.
3. Compare costs on different cards. If you have
several debit cards, find out the relevant charges at the different institutions. Only use the debit card with the lowest fees and best terms.
4. Check store policy on debit cards. Some
merchants have minimum purchase amounts for debit card payments. Keep some cash on you for small purchases, so that you don’t have to buy more than you planned just to meet the minimum amount.
5.
Control your spending. Remember that debit cards provide a direct line to your bank account. Use your budget to ensure that you only buy what you can afford, and don’t be tempted to spend extra on non-essentials.
6.
Create a strong password. A debit card uses a personal identification number (PIN), a secret code to access your account. Don’t use common numbers like your birth date or phone number when creating your PIN.
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emails or phone calls that request your account number and PIN. Your bank will never ask for personal information over the Internet or on the telephone.
10. Monitor your transactions. If possible, get
online access to track your account regularly. This way you can spot any discrepancies before your statement arrives.
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Financially S.M.A.R.T. Services is Jamaica’s number one source for practical, down-to-earth and independent answers for all questions relating to personal finance. Get more money smart advice at www.financiallysmartonline.com. Email advice@financiallysmartonline.com with comments or questions.
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MONEY $MART...
so much for transaction fees when I used my debit card. When I totaled up the charges from getting cash at the ABM and paying for goods, I was shocked! How can I use my debit card smarter?
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Inflation Management and its Consequences on Nation, Citizens and Businesses “Now abideth these three rates: interest, forex , and inflation; but the greatest of these is inflation.”
I
Apostle Common Sense, Acts of the Economy, Knowledge Testament, New International Wisdom Version, Burnsil Doctrine
In true Jamaican style, we have been generating much heat, reactions and focus on the consequences of poor inflation management (interest and forex rates) but with an equally deafening silence on the causes. The focus of the business community, the policymakers, the technocrats, the workers, the citizens and the media should be on INFLATION. All things being equal; bring inflation down to single digits and the other two rates will receded. (And note that recede implies gradualism). Maintain a double digit inflation environment and we will perpetuate a high interest regime and a galloping forex rate. Let us not blame the commercial banks. Lay full blame with the institutions, systems and processes responsible for managing and driving down inflation. They are clearly doing a dismally poor job. Forget the circular argument about which came first (inflation or forex or interest); inflation drives the other rates. Further, forget about the “small, open economy” argument; Jamaica has the worst inflation record of all the “small open economies” in the entire Caribbean. In the small OECS countries, inflation runs between 1 – 3% typically; in Cuba 3 – 6%.; Barbados 0 – 5%; Trinidad 4 – 8%. In Jamaica’s case the out-turn has been, 8.5% in 2006; 9.3% in 2007 and 20.2% in 2008 (data source – IMF 2008 World Economic Outlook). We should ask ourselves why is this so ? What are we doing in Jamaica to make our inflation rate so terribly high ? Even with the same common exogenous variables, Jamaica’s outcome is much worse.
clear and obvious anomalies in that context. By a perverse logic, the BoJ is correct on this one; their rates are in the correct range, given the actual prevailing inflation rates.. You cannot have a low interest rate regime in a high inflation environment. On the matter of forex rates, think about this, if the US annual inflation is 3% and Jamaica’s is 20.2%, what is the minimum that the forex rate will slip in a year… .17.2% at least. It is as simple as gravity. If the dollar started out at 71:1 at the start of 2008 and the USAJA inflation differential is 17.2% what is the expected value at end of 2008 ……83:1. Its not rocket science. That model is generally defined as the purchasing power parity of the currency. Lower adjustments than that serves to overvalue the dollar by dynamically, and artificially, revaluing it upwards. No amount of NIR, or moral suasion, or ministerial imploring can prevent the subsequent, inevitable, corrective devaluation. As an adult country of 47 years, we should all have learned this lesson by now. What can we, therefore, justifiably blame the BoJ for ? We can blame them for trying hard, as mandated by their own Act, to maintain artificially overvalued exchange rates. The Christmas 08 debacle is proof-positive of this. We can also blame them, and the authorities, for the present long list of mis-placed priorities in the BoJ Act’s five stated objectives; none of which includes price stability.
Think about it if, as a lender, we know that inflation is hovering at 20.2%, would any of us lend out money at less than 20.2% ? No we would not. An interest rate of 20.2% is just maintaining the nominal value of your funds. Add operation costs and profit and one is already at 25%; at least. However, consider this, with an inflation environment at 4%, would strident calls for interest rates to be in the 9% range be an issue. Clearly not. Interest rates in double digits would be
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