Wed | Aug 23, 2017

Editorial: Jamaica is no Greece

Published:Tuesday | June 30, 2015 | 6:00 AM

The struggling rump of the Jamaican Left, their populist supporters, as well as the political opportunists of whatever stripe, are likely to have found heroes in Alexis Tsipras, Greece's prime minister of six months.

Last weekend, Mr Tsipras rejected the latest bailout conditionalities of Greece's troika of lenders - the European Central Bank, the European Union and the International Monetary Fund - and has called a referendum for this coming Sunday, hoping for ratification of his stance.

With the troika having suspended financial support to Greece and the country unlikely to make a €1.6-billion payment to the IMF today, Athens could plunge into default. Its future in the eurozone is uncertain, a development to which markets have responded with nervousness, though not panic. Not unexpectedly, Mr Tsipras' government has imposed capital controls. Banks are closed for the week, withdrawals from ATMs limited, and overseas business settlements restricted.

There are parallels between the economic situations in Jamaica and Greece. Both countries mismanaged their economies, ran huge fiscal deficits, and borrowed heavily to close the gaps and saddled their taxpayers with massive debts. In the case of Greece, their government lied about the extent of financial misbehaviour. Both countries, nonetheless, had to face a reckoning, enforcing tough reform measures, including running large primary balances - in our case, 7.5 per cent of gross domestic product (GDP) in an effort to put the debt on a downward trajectory.

But Jamaica's government has demonstrated far more maturity and responsible leadership than Mr Tsipras' administration, which came to office in January promising to overturn the austerity regime. Its discipline has ensured Jamaica's primary balance of 7.5 per cent of GDP has been met. Most of Jamaica's macroeconomic variables are heading in the right direction.

Jamaica has few options but to continue on this path of reform. Jamaica, after all, is not Greece.

 

Russia-Greece alliance

Greece was assured a bailout because it is part of two rich members' clubs, the EU and the eurozone, the latter a currency union. The potential contagion from a potential Greece exit from the euro is now far less than five years ago when the European banks, especially those of Germany and France - which had to take big haircuts - were heavily exposed to Athens and the troika agreed to a €240-billion bailout to Greece. But it is a danger that is not to be discounted, which causes European leaders to be wary of Grexit.

Economics apart, Greece may have other high cards, if not an ace in its suit: geopolitics. Mr Tsipras and his Syriza party have been flirting with Russia, which now has strained relations with the rest of the EU. A potential Russia-Greece economic alliance, in the circumstance, is not one that European capitals and other NATO members would welcome.

The bottom line is that these are not cards Jamaica can play. A Jamaican default would lock Kingston out of markets without causing much of a ripple thereto. And there are no geopolitical levers for Jamaica to pull.

In other words, there is no advantage to Jamaica being irresponsible.