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Document Type

Case Study

Abstract

In the late 1980s and early 1990s, the Jamaican financial sector’s share of GDP more than doubled following an aggressive market liberalization undertaken without corresponding increases in regulation or supervision. When one of the largest financial-industrial conglomerates failed in 1995, the government created an asset management company with special powers to resolve the institution. In 1997, after another significant failure, the government established the Financial Sector Adjustment Company (FINSAC). FINSAC carried a broader mandate to both recapitalize and restructure troubled financial institutions and to take over and manage their nonperforming assets (NPAs). The organization possessed no special powers to compel the targets of its interventions. Instead, FINSAC negotiated with troubled institutions on a voluntary basis. Most agreements saw FINSAC purchase shares in financial institutions to provide capital and to obtain veto power over management decisions; some arrangements simply saw FINSAC purchase NPAs. Within FINSAC, two units managed a combined portfolio of NPAs equivalent to at least J$89 billion ($2.36 billion). The two units had recovered or sold most of this portfolio by December 2001 but recouped only 35% of the NPL portfolio’s face value.

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