Sat | Aug 18, 2018

Column: Celebrating more debt

Published:Thursday | April 2, 2015 | 12:00 AM

This week, the International Monetary Fund (IMF) announced that Jamaica passed its seventh quarterly test.

While the announcement may have received little more than a passing notice with even less comment from the majority of Jamaicans, it was cause for celebration in certain financial and government quarters. Ardent supporters of the Government joined in the revelry.

Many Jamaicans don't quite know what to make of passing these tests. Far too many others are burdened down with quite unmanageable financial and related difficulties and personal debts to even bother to understand.

The everyday cares of trying to find work, when in work trying hard to keep it by not making a mistake, and really trying very hard to make ends meet for two or three years while the Jamaican dollar slipped and slid.

Finance Minister Dr Peter Phillips may take some umbrage of talk like this because he may feel that it tends to mock the importance of passing these IMF tests. The importance of passing those IMF tests is real - especially to government officials and finance industry types.

The hard truth which government bigwigs need to face is that since the Government has taken to passing these tests, life has become incredibly hard for many Jamaicans across the various economic strata.

When we consider how often passing these IMF tests is pushed in most every medium by the Government, and when the economic and financial hardships are balanced against these passes, the IMF passes pale into something less than significant for many persons.

Still, there were those who were willing to shout hooray for joy that the IMF would disburse another amount of SDR28.32 million (special drawing rights), about US$40 million, now that the country passed yet another IMF test.

I became a bit concerned about the celebratory mood. It sounded as if we had earned some cash. The truth is we just borrowed more money - while we are in a debt-consolidation mode. The hard fact is we have to pay back that new - and every other old - loan.

When we look back at announcements of new loans borrowed in the 1990s and in subsequent decades, the words used made for celebration of these events.

drinking financial saltwater

Politicians and their sycophants would carry a message of solid performance and achievement when we borrowed these high-cost funds. The country was being hoodwinked into drinking financial saltwater. These borrowed funds would never quench Jamaica's thirst for real hard currency to pay for our unaffordable lifestyle.

We hear the mantras regularly. Passing the IMF tests has brought back international respect; lenders are queuing up to lend us more money at cheaper rates; and we even hear it said that President Obama is coming to visit because we have passed the IMF tests. Well, he might be, but what is of concern to me is the returning feeling that passing these IMF tests gives us the right to go and load up on more debt because its available.

We must not forget that paying down our unmanageable debt is at the centre of the debt-consolidation drive.

One fully understands that borrowing cheaper funds to replace some of those very high-cost loans we booked in the 1990s makes good sense.

However, boosting the debt stock because we have found restored respectability in lenders' eyes would be to throw away the sacrifices made in the painful debt-consolidation effort.

A good move on acquiring new debt would be to secure a deal like the Dominican Republic did recently on its PetroCaribe debt. It borrowed money to buy back its debt to Venezuela at about half its size. Venezuela needed the cash badly and so offered about a 50 per cent discount on the debt it held for the Dominican Republic in exchange for cash.

In the economic scheme of things, we are going to need to borrow more money unless we engineer much more rapid economic growth and increase the employment of many more thousands of Jamaicans.

In the process, we must reduce our imports and increase our exports. The Economic Programme Oversight Committee discloses in their regular communiquÈs that imports have been falling.

retreating exports

Unfortunately, exports have also been retreating. Today, the ratio of imports to exports is still about roughly four to one - that means for every $4 of imports we earn $1 in exports. This ratio is seriously out of kilter and needs radical rebalancing. That brings me back to the growth and export plans of the Government.

It is an urgent economic imperative that Jamaicans see and come to understand what the Government proposes as its clear growth- and export-facilitation plan. Fixing our fiscal imbalance is a very necessary and worthy task; it is not a growth plan. Fossil fuel for energy continues to be our largest single import; there is still no coherent energy policy.

Exports continue to be a major economic underperformer, but the Government has done little to cut the red tape and offer assistance. Banks still shy away from taking commercial risks to finance exporters - or export-substitution manufacturers. Banks are taking a long time to rid themselves of the addiction to high-priced Government of Jamaica bonds. Remember, those were supposed to be risk-free, until JDX and NDX hit them.

Now that the trumpeting about how brassy and respectable government borrowing profile has become, maybe the banks can't wait to gorge themselves on more government paper. This time around, Jamaicans as a whole should stand guard and be ready to object.

n Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the opposition leader.


Twitter: @hillaubyn