BOJ Governor

Last Friday, the Minister of Finance terminated the services of the Governor of the Bank of Jamaica. The Government found unacceptable, embarrassing and repugnant the interpretation and application of certain provisions of the Governor's contract of employment.

By way of background, the contract was approved and signed by the former Minister of Finance, Dr. Omar Davies, on May 8th 2007 with retroactive effect from August 1st 2006 to run for five years to July 31st 2011. It was a strange contract, the likes of which has not up to now been found anywhere else.

It provided for a basic salary at commencement of $11,226,271 to be increased annually by whatever percentage increase is granted to public sector employees. In addition, the Governor was entitled to further increases determined by incremental adjustments or as a result of the applicable performance appraisal process. As at October 30th 2009, the basic salary of the Governor as determined by these processes stood at $14,545,000.

In addition to his basic salary, the Governor was provided with a fully maintained motor car, reimbursement for "all fair and reasonable" entertainment expenses for official purposes, group medical and life insurance coverage, all benefits under the Bank's pension scheme and all other benefits, both present and future, that are enjoyed by permanent employees of the Bank. The Governor thus enjoyed the generous terms of a specific contract while retaining all the benefits and privileges of a non-contracted service worker.

But it was in relation to housing that the contract was most absurd.
The contract states that the Governor shall be provided with a fully furnished and fully maintained official residence inclusive of household and gardening staff and unlimited expenses for telephone, electricity and water. It further states that in the event that an official residence is not provided, the Governor shall be paid rent for the premises he occupies based on the average rental value as determined by two independent valuations. The contract requires that new valuations must be done every two years and the appropriate adjustments to be made. In addition, the Bank is required to pay the full cost of maintaining the residence. It sets no limits on the amount that can be paid for either rent or maintenance.

In 1998, the BoJ purchased a house at 15 Bracknell Avenue in upscale St. Andrew as an official residence for the Governor at a cost of $22 million. The Board had budgeted $35 million to cover the cost of acquiring, refurbishing and furnishing a suitable residence.

By December of that year, the Governor suggested that the house be sold. This was strange since the Governor himself had presided at the meeting of the Board on July 15th 1998 when the decision was made to purchase the property. At a Board meeting on December 16, 1998, a number of Board members expressed surprise at the Governor's position and insisted that he should be prepared to occupy the house when refurbished and furnished. The Governor advised the Board that moving into the residence generated no real benefit to him personally. No refurbishing works were started.

One year later at a meeting of the Board on December 2nd 1999, the Governor reiterated that he was not keen to occupy the house for various reasons, noting the likely cost of refurbishment.

At a Board meeting on March 29th 2000, the Board accepted a recommendation of the Human Resource Development Sub-Committee that since the house had remained dormant, it should be sold, leased or rented.

Refurbishing work commenced in December 2000 and was completed in April 2002 at a cost of $11.33 million. With furnishings amounting to $7.04 million, the total expenditure on the property came to $40.37 million.

At a caucus of Board members on February 6th 2003 from which the Governor recused himself, it was agreed that the property would be offered for sale to the Governor who had expressed an interest in purchasing it. The property was offered to him at a price of $42 million but he declined the offer and a decision was made to dispose of it on the open market. The property was subsequently sold in November 2003 for $40.48 million.

In the absence or non-occupation of an official residence, therefore, the Bank's contractual obligations reverted to paying the Governor rent and maintenance for the house that he occupied.

As at September 2008, the Governor owned and occupied a residence in one section of St. Andrew. The assessed rental value was $2,551,500 per annum and the annual maintenance cost was $5,900,000 - a combined total of $8,451,500 per annum.

Between 2006 and 2008, the Governor secured loans totalling $55.44 million at an interest rate of 5% to build a house in another section of St. Andrew. There are several troubling issues surrounding these loans. In her annual report for Financial Year 2007/2008, the Auditor-General states that no evidence was presented of the approval of the Board of Directors for these loans and that the management of the bank had indicated that under its current arrangements there is no specific requirement for Board or Ministerial approval.

The Auditor-General further states that "There was no evidence of the existence of a loan agreement between the Bank and the senior officer (the Governor). Management indicated that staff members, by accepting employment with the Bank, automatically accept the terms and conditions under which loans are granted and, as such, loan agreements were deemed unnecessary". Most distressingly, the Auditor-General states that "There was no evidence that the loans totalling $51 million were properly collateralized".

This matter commanded the attention of the Public Accounts Committee at its meeting on April 30th this year when the Auditor-General advised the Committee that she had still not seen any formal agreement for the loan or any evidence that it was properly secured. The General Counsel and Corporate Secretary to the Bank told the Committee that $30 million of the loan was fully secured against the Governor's other residence which, as at 2008, had a market value of $32 million.