ECONOMY-JAMAICA: The Poor Gamble on Pyramid Schemes to Get Ahead

By IPS Correspondents Reprint | | Print |

Dionne Jackson Miller

MONTEGO BAY, Apr 25 2001 (IPS) - Tired of scrimping to save enough money to expand his studio flat and buy a car, Alex Shaw decided to jump-start his dreams by investing in “partner plans” pyramid schemes which lately have been blossoming – and withering – in this northern Caribbean island.

The 28 year old professional from Montego Bay sadly admits that now he is unlikely to see a penny of the approximately 1,100 dollars he put in two partner plan schemes.

The partner plans borrow the name of traditional Jamaican savings schemes, called ‘partner’, in which each contributor invests an equal amount of money each week, and each in turn collects the combined totals of the contributions.

The new partner plans, however, are an entirely different affair. Most accept an initial deposit of 136 dollars, and within a month, pay out anywhere from 409¡1,036 dollars to contributors. Organisers will often accept several deposits of 136 dollars from a single contributor; some investors have put over 10,000 dollars into the schemes.

The Bank of Jamaica, and the Securities Commission, have issued a joint statement warning the public against participating in partner plans.

“Such schemes are not regulated, and monies placed are not covered by the Statutory Deposit Insurance Scheme or any other statutory compensation fund. Persons entering into any such ‘Pyramid Schemes’ do so at their own risk,” the institutions said.

Shaw was fully aware of the risks involved, but decided to take a chance.

“I have some plans, and I thought that joining the partner plan would have resulted in me executing those plans a little quicker. I’ve known persons who have benefited from a couple of the plans and I had been encouraged to join,” he says.

Shaw and hundreds of others decided to risk their savings because of their financial difficulties, largely caused by economic stagnation and lack of growth for the last five years. Jamaica’s recorded 0.8 percent economic growth for the last calendar year, was the first sign of growth in five years, and the government is now projecting three percent growth for the fiscal year 2001/2002.

But half a decade of economic stagnation has taken its toll on many Jamaicans. Sixty-two percent of the country’s 2001/2002 4.1 billion dollar budget is earmarked for debt servicing, leaving relatively little left over for social services, infrastructure improvement projects, or stimulating economic development.

The minimum wage stands at 26.66 dollars per week, and estimates are that some 20,000 jobs were lost in the past five years, many of those losses due to garment factories closing down. According to the 2000 Survey of Living Conditions, the total employed labour force fell last year by 1.1 percent to 933,500 persons, but a simultaneous contraction of the labour force by 1.2 percent to 1.1 million resulted in the unemployment rate holding relatively steady at about 15.5 percent. Nineteen ninety nine figures estimate poverty levels at 17 percent.

Under these conditions, many Jamaicans find it difficult to realise their dreams of building a house or owning a car.

Shaw was hoping to hurry his dreams along by joining the partner plans. But one of the plans he joined has been shut down for weeks now, after the operators had difficulties paying investors on their due dates, and ran into trouble with boisterous crowds which damaged their office furniture, and threatened the scheme’s managers. The operators insist that they will be re- opening, but two previous attempts to re-start the operations have failed, problems the operators attribute to large, unruly crowds which turned up and prevented any business from being done.

And Shaw has received word that the second scheme has shut down as well. “I thought that any losses I suffered in one plan, I could have recouped in the second, but the second is looking equally dismal,” he says.

Earl Melhado, executive director of the Securities Commission, says this is precisely what he has been trying to communicate to the public. “The fact is that all such schemes fail,” says Melhado, “That is the history of these schemes. The schemes that are being practised in Jamaica have no feature that distinguish them from ones that have failed in countries like Romania, Albania and Russia.”

In Albania, the collapse of fraudulent pyramid schemes in 1997 triggered widespread rioting and unrest, as already poor families lost their life savings and blamed the government for not taking action sooner. In Jamaica, the government has been doing what it can to discourage participation in the schemes, and attempting to investigate problems.

“The history of these schemes is that a few win, and a large number lose. When that large number loses, they want to fight and burn down buildings and demonstrate, so the government must be involved. There is no proposal to close down these schemes. My job is simply to bring to the notice of those who want to participate that they are highly risky,” Melhado says.

That fact appears to now be coming home to hundreds of people. The failure of yet another scheme recently triggered a public demonstration by hundreds of people in Montego Bay’s centre, Sam Sharpe Square, calling for police intervention.

Esmie Jones, the operator of the Speedy Cash Partner Plan is now before the court on fraud charges. Fraud charges were also brought against Kenneth Chue, operator of the Fast Cash Plan, whose operation reportedly collapsed after he invested the funds in Jones’ scheme. Initial charges were dropped after he re-paid approximately 689 dollars which was owed to two “depositors” who complained they had lost money in the scheme.

Protestors rampaged through the town of Lucea in Hanover parish on Monday, after Doris Dale, the organiser of the scheme there, reneged on a promise to begin refunding depositors, because of the unruly crowd which turned up. Protestors blocked roads and damaged property belonging to Dale’s family, and after she sought refuge in a police station, they stormed the station. Four police officers had to be hospitalised and five police vehicles were damaged. The Fraud Squad is also to begin investigations into that case.

Several other schemes are still in operation, however, and there are now calls from the public to shut down all such operations, but the government says it is still investigating the nature of their operations to determine if they are in fact breaching local laws.

Opposition Spokesman on Finance Audley Shaw, in his contribution to the 2001/2002 budget debate criticised the government’s position, saying it should seek to enact laws prohibiting the operation of pyramid schemes, rather than relying on fraud laws to prosecute offenders after the fact.

“The weakness with the fraud laws is it’s after the fact, after the people have been ripped off, the horse done gone through the gate already,” he said.

Social commentator and newspaper columnist the Reverend Garnet Roper said that it is the communal nature of Caribbean society, which draws people to schemes of this sort, along with their use of the traditional name “partner”. The new schemes have largely arisen, he adds, because poor people have been shut out of the traditional financial institutions.

“It’s inevitable that it will fail, and if you listen to (participants), they seem to take it for granted that eventually it will fail, but in the meantime, some poor people will be able to build a house, start a business, break through that glass ceiling, and release that trapdoor and get out of the economic oppression they’ve been feeling,” Roper says. His comments appear to be borne out by at least some of the participants.

“I heard of this partner and they say it’s for poor people, and I was one of the ones who went in there, although I don’t get my pay as yet, but I’m hoping to get it,” says one woman, who asked not to be identified. The plan she joined remains closed after weeks of promises by the operator to resume business.

Another man, who also asked not to be identified, said that he knowingly took a financial risk hoping for a big pay-off.

“I would rather know that I lose 6,000 dollars (136 US dollars) than to know that I could have been the beneficiary of 24,000 dollars (545 US dollars), and didn’t take the risk,” he says.