The Gavel: The goodwill of PetroCaribe and the debt buy-back
Finance Minister Dr Peter Phillips is scheduled to hold a press conference today to discuss the PetroCaribe debt buy-back issue, especially against the background of the parliamentary Opposition raising hell and saying the transaction is a bad deal for Jamaica.
Jamaica, on July 23, raised US$2 billion on the international capital market - the highest amount it has ever raised during a single transaction window - at the lowest rates it has ever been able to access from that market.
A third of that money, US$650 million, has a term of 30 years, while the remaining US$1.35 billion matures 13 years from now, in 2028.
The money will be used to buy back the PetroCaribe debt of US$3 billion from Venezuela, which is thought to have offered a 50 per cent discount.
The Ministry of Finance says the deal would save Jamaica US$250 million in debt payment. But it is insufficient to give the country some of the information. Phillips must put it all out there in the wash and let us all examine the figures and then decide who is doing bad math and who is engaged in deception.
Dr Damien King, head of the Department of Economics at the University of the West Indies, Mona, has apparently seen the figures and has made up his mind that it is a positive deal for Jamaica. On Twitter he said: "$1.76 billion in principal saved on the PetroCaribe debt buy-back is greater than the $1.24 billion in higher interest cost".
I have lots of respect for Dr King and I trust his assessment, but I still want to hear more from Dr Phillips.
lessons from dr king
No doubt, however, Opposition Leader Andrew Holness has made up his mind. He is just opposed to the transaction. Perhaps it would not be a bad idea if he sat at the feet of King for a day. It may prevent him from making the ludicrous statement he made last week.
"The PetroCaribe debt is one of the mildest debt arrangements that any country could get ... . What is of great concern to us is that, in trying to manage down the cost of the debt and the stock of debt, the Government would seek to liquidate a debt that is not troubling anybody, as we would say in Jamaican terms," Holness said at a press conference held at the Jamaica Labour Party's headquarters last Tuesday.
Dr King may want to advise Holness on the relationship between the lowering of the debt-to-GDP ratio and an improvement in the country's sovereign ratings on economic growth.
Perhaps, on reflection, Holness should have avoided making that statement in the same way that Prime Minister Portia Simpson Miller, in recognising the complexity of the matter, shelved her planned address to the nation on the said PetroCaribe debt buy-back deal.
more than economics
The matter at hand, however, is more than economics. There is no price that can be put on the goodwill of PetroCaribe. So, in addition to taking advantage of the discount on the US$3-billion debt, Jamaica may also be helping to preserve this most important pact.
Since PetroCaribe was conceived in 2005 by former President Hugo Ch·vez, Venezuela has sold more than US$28 billion in petroleum exports to countries across the Caribbean and Central America. The countries pay for only a portion of the bill upfront and finance the remainder at one per cent or two per cent over 25 years.
Falling oil prices and the world's fastest inflation have put pressure on Venezuelan President Nicol·s Maduro's government to change the programme.
Phillips may want to tell the press conference that Jamaica is helping out a brother, which is broke and cannot pay its bills. Yes, Jamaica, too, is broke, but our survival as a country has been enabled by the PetroCaribe deal.
Had there not been a PetroCaribe deal, there would have been the need for way more foreign exchange to pay for the oil being imported, and God alone knows what would have happened to the exchange rate. It is a well-known fact that Venezuela has been considering a significant reform of the programme. It has even been suggested that the deal could be abandoned.
Perhaps Phillips may also want to tell the nation today whether a consideration of the buy-back is to not only help Venezuela stand on its feet, but also to buy time on the life of the PetroCaribe agreement.
Audley Shaw, the opposition spokesman on finance, used his Budget Debate presentation in March to call for a debt buy-back as one of his 20 prescriptions for economic growth.
Shaw's concern then, as it is today, is the cost of the money that will be used to pay down the debt. For him, it is reprehensible that the Government would go to the capital market to get money at up to 7.875 per cent interest instead of going to the multilaterals.
Phillips, when he speaks today, must indicate whether the multilaterals were approached and why Jamaica did not borrow the cheap money from them. He also needs to make the connection between this transaction and economic growth.
Certainly, while it is a good thing that the debt-to-GDP ratio is being reduced, the sacrifices being made by Jamaicans under this oppressive economic reform programme will be meaningless if we fail to get economic growth.
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