Jamaica Homes Quarterly Mortgage & Housing Finance Review — Q1 2003

Publication date: 5 April 2003 | Covering: January – March 2003

Quarterly Briefing

• Iraq war begins: March 20 (FRESH 16 days) US-led coalition invades; “Shock and Awe”; Saddam’s government collapses within three weeks; Baghdad falls April 9
• Fed holds: 1.25% rate maintained; deflation risk discussed; Bernanke “helicopter money” speech November 2002 still cited; no cut yet
• SARS emerging: February–March first cases reported outside China; Hong Kong and Vietnam; WHO issues global alert March 15; travel warnings begin
• Venezuela oil strike ends: January 2003; two-month strike had removed 3mbpd from global supply; oil spike to US$35+; strike collapses; Chavez consolidates power
• Columbia shuttle: February 1 space shuttle Columbia disintegrates on re-entry; 7 astronauts killed; NASA investigation; second shuttle disaster
• North Korea: Withdraws from NPT January 10; nuclear programme threat; IAEA inspection impasse; geopolitical tension
• Diplomatic crisis: France, Germany oppose Iraq invasion; UN Security Council deadlock; “coalition of the willing”; trans-Atlantic relations strained
• Jamaica: Economy under debt pressure; NHT active; BOJ defending exchange rate; commercial mortgage rates high

Iraq War Begins; Shock and Awe

The first quarter of 2003 was dominated by the build-up to and launch of the US-led invasion of Iraq. After months of UN inspections that found no conclusive evidence of weapons of mass destruction programmes, and a bitter diplomatic battle in the Security Council that saw France and Germany oppose any authorisation of force, the United States — supported by the United Kingdom, Australia, and other members of a “coalition of the willing” — launched military operations on 20 March. The initial air campaign, called “Shock and Awe,” involved massive precision bombardment of Baghdad and other targets. The ground invasion that followed was rapid: US and British forces moved from Kuwait to Baghdad in approximately three weeks, with Iraqi military resistance collapsing far more quickly than anticipated. Saddam Hussein’s government effectively ceased to exist when Baghdad fell on 9 April, symbolised by the toppling of his statue in Firdos Square. The geopolitical consequences of the invasion — the trans-Atlantic split between the US and France/Germany, the UN’s marginalisation, and the subsequent decision not to find diplomatic and legal legitimacy through the Security Council — would shape international relations for a generation. For financial markets, the removal of the Iraq uncertainty that had weighed on sentiment for months triggered a significant relief rally: the S&P 500 rose approximately 15% from its March 11 low by the end of April.

SARS; Columbia; North Korea; Venezuela

Beyond Iraq, the first quarter brought several other significant events. The space shuttle Columbia disintegrated on 1 February during re-entry into Earth’s atmosphere, killing its seven-person crew. Investigation found that a piece of insulating foam that had broken off during launch had damaged the shuttle’s wing; the accident grounded the shuttle programme and led to significant changes in NASA safety protocols. SARS — the respiratory disease that had emerged in Guangdong, China in November 2002 — began spreading internationally through February and March, with the WHO issuing a global health alert on 15 March. North Korea’s withdrawal from the Nuclear Non-Proliferation Treaty on 10 January added to the global security anxiety of a quarter already dominated by Iraq. Venezuela’s two-month oil strike, which had removed approximately 3 million barrels per day from global supply and driven oil above US$35 per barrel, collapsed in January as workers returned and President Chávez consolidated his political position.

Jamaica: High Debt; Mortgage Conditions

Jamaica entered 2003 carrying one of the highest public debt burdens in the world — approximately 130% of GDP — accumulated through the 1990s banking crisis bailout, chronic fiscal deficits, and high interest costs. The Bank of Jamaica maintained a tight monetary stance to defend the Jamaican dollar and contain inflation, keeping domestic interest rates elevated. The NHT provided the most accessible housing finance at its subsidised 0%, 2%, and 4% rates on loans up to J$6.5 million individually or J$13 million for two-applicant borrowings, with commercial alternatives remaining significantly more expensive. The Venezuelan oil strike had contributed to elevated global oil prices at the start of the year, adding to Jamaica’s import cost pressures.

Looking Ahead to Q2 2003

The Iraq war is effectively over in its conventional phase, though reconstruction challenges are immediately apparent. SARS is a growing international concern. The Fed, at 1.25%, is contemplating whether to cut further to address deflation risk. For Jamaica, the external environment is complicated by oil prices and SARS’s potential impact on Caribbean tourism.

Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com