Jamaica’s Financial Crisis: A Cautionary Tale

The Devastating Crisis of the Late 1990s

In the late 1990s, Jamaica’s financial sector was left reeling after a devastating crisis that would come to be known as one of the worst in the country’s history. The collapse of the banking and insurance industries had far-reaching consequences, leaving millions of dollars in debt and wreaking havoc on the economy.

Causes of the Crisis

According to Edward Seaga, a former prime minister of Jamaica and distinguished fellow at The University of the West Indies, the crisis was triggered by a combination of factors, including:

• Insufficient foreign exchange
• Poor management practices
• Banks struggling to access liquidity due to bad loans

Banks resorted to borrowing from the Bank of Jamaica (BOJ) at punitive rates, further weakening their financial position.

Exacerbating Factors

The crisis was exacerbated by the country’s failure to mobilize sufficient foreign exchange, a problem that dated back to the 1970s under the Manley government. The lack of foreign exchange led to:

• A rapid depreciation of the Jamaican dollar
• Difficulty for businesses to operate
• Widespread job losses

Government Response

In an effort to address the crisis, Seaga’s government established the Financial Sector Adjustment Company Ltd (FINSAC) in 1997 to take over failed financial institutions and refinance them. FINSAC intervened in:

• Over 200 companies
• Making it the largest conglomerate in Jamaican history

Cost of the Crisis

The cost of the crisis was staggering, with an estimated:

• $140 billion in losses absorbed by the government
• A “cosmic black hole” in the economy, sucking away nearly half of the country’s production and wealth

Lessons Learned

Seaga warns that the crisis serves as a cautionary tale for future generations, emphasizing the need for:

• Strong governance
• Responsible economic management practices
• To prevent such disasters from occurring again.