The Multinational Monitor



Setback for Seaga

Reynolds Says Goodbye

by Jonathan Friedland

The Reynolds Metal Company has announced that it is ending all bauxite mining operations on the Caribbean island of Jamaica. The February 29 announcement is another blow to Jamaica's ailing bauxite industry and complicates completion of negotiations with the International Monetary Fund (IMF) for a new standby loan.

The Reynolds move has prompted the government of Prime Minister Edward Seaga to call on the U.S. government to "cushion the blow" by purchasing more Jamaican bauxite for U.S. strategic reserves.

"Our inclination is to be as helpful as possible," said one U.S. State Department official March 9, "but I don't think we have received a formal request yet." An official at the U.S. General Services Administration, which manages the stockpile of the ore, indicated that more bauxite could be bought before approaching the 21 million ton stockpile ceiling.

Seaga called for a major new purchase after Reynolds, which has been in Jamaica since 1943, announced the closing of its mines and the withdrawal of its participation in Reynolds Jamaica Mines, a joint venture with the Jamaican government. Analysts in Jamaica believe that the pullout will slice the country's previously estimated 10.5 million ton 1984 production levels by 1.5 million tons. And if the Seaga government does not find a new partner to take up Reynold's 49 percent share in the joint venture, 200 jobs will be lost, following layoffs of some 400 Reynolds workers since 1981.

The U.S. has bought 11.45 million tons of Jamaican bauxite in recent years, and administration officials admit that the timing of the purchases have coincided with cash flow problems for the hardpressed Seaga government. The Reagan administration has been particularly willing to help out Seaga, who has been touted as a model Caribbean leader.

The Reynolds announcement apparently came as a surprise to the government, since the company was taking part in negotiations with other bauxite producers and Kingston to reduce royalty taxes, or production levies, imposed by the Michael Manley government in 1974. Seaga and Mines Minister Hugh Hart complained almost immediately that Reynolds had informed the government just a few days before the announcement, and said the closure would leave a $30 million shortfall in the government operating budget and a $33 million shortfall in the foreign exchange budget for 1984.

"The immediate result of the Reynolds decision is that it will be exceedingly difficult to maintain the timetable of the IMF decisions," said Seaga the week of March 4. A final agreement with the IMF was supposed to have been reached by mid-March. IMF sources indicate that the shortfall in the budget will force Seaga to further curb spending, making an IMF austerity program a major political cross to bear.

Reynolds officials in the U.S., however, deny that the company withheld information on the pull-out. "We notified the government as soon as the decision was final," said company spokesman Bob Shaffer from Reynolds headquarters in North Carolina. "I would presume that throughout the talks [on reducing the production levy], the Jamaicans were aware of the situation." The official company announcement of the pull-out said that the world recession had left it with "no option but to take advantage of alternative sources of bauxite supplies."

Analysts in Washington greeted the pull-out with little surprise, and indicated that since the imposition of high production levies in 1974, transnational bauxite producers had begun looking elsewhere for lower-cost supplies. Producers "allowed their Jamaican operations and their smelters [in southern U.S. states] which rely on [Jamaican] bauxite to become uneconomical after the imposition of the levy," said one analyst at the U.N. Development Program in New York. "The levy, combined with a weak world market for aluminum created a reaction by the industry to get out of Jamaica completely and leave the bauxite in the ground."

Reynolds will now be counting on supplies from the new $1.2 billion Worsely mine and smelter in western Australia, from Brazil, and from the Boke Mine in the West African nation of Guinea.

"Even though the Seaga government was busily trying to renegotiate the levies, it was too late to keep Reynolds in," said a bauxite analyst at a Washington-based multilateral development bank. "Although Jamaican bauxite is more recoverable than Australian or Brazilian ore, it still makes sense for them to look farther abroad for materials.

The analyst added that he expected other multinationals, such as Kaiser, to follow in Reynold's wake. "It's too late to turn the Jamaican bauxite industry around without a lot of investment," said another analyst. "Most of these companies would prefer to look elsewhere."

The closure of the Reynolds facility is an embarrassing blow to the Seaga regime. In recent statements, government officials in Kingston have been predicting that the nascent recovery in the U.S. auto and construction industries would provide a boost to flagging Jamaican bauxite exports. But as in the past three years, most of Jamaica's bauxite exports to the U.S. this year will probably end up in the government stockpile rather than in commercial products.

Jonathan Friedland is the Washington financial correspondent for Inter Press Service, Rome.

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