Tue | Sep 26, 2017

Peter Espeut | Myths and truths about national debt

Published:Friday | May 27, 2016 | 5:00 AM

One of the legacies my generation has bequeathed to the next is a huge, almost crippling national debt. In 2014, Jamaica's total debt was in excess of J$2 trillion, or 135.5 per cent of GDP, making us the fourth-most-indebted country in the world after Japan, Greece, and Lebanon. One of the great public-relations achievements of both PNP and JLP governments since Independence has been the deflection of blame for this national crisis.

What amount of this debt did we inherit from our colonial masters? It is often loudly proclaimed that our huge national debt is the result of our colonial past - including the legacy of slavery - and that the best way for the bad, bad British to absolve themselves from their collective national guilt is to pay off our national debt with the reparations they owe us.




What is the truth? At Independence in 1962, we had a national debt of zero! Zilch! Nada! No local debt and no external debt. All the debt we now have has been contracted by local politicians of either the orange or the green persuasion, with no clear idea of how we would be able to pay it back. Blaming the national debt on colonialism and slavery is a myth carefully cultivated to distract us from the real culprits. History will not absolve our politicians from irresponsible borrowing.

In my mind, there is no doubt that reparations are due; but to use black people's money to pay off the debt irresponsibly contracted by politicians would be another travesty of justice. The politicians who are pushing this argument should be ashamed of themselves!

So who has been more irresponsible and profligate in borrowing? The PNP or the JLP? The received wisdom is that it is Michael Manley's PNP that has been poor in financial governance, while the JLP, led in the 1980s by a financial genius, has always been fiscally more responsible. What do the data show?

As I said, we began in 1962 with no debt, and the JLP Independence government immediately opened our account with modest foreign loans. Nothing wrong with that. In 1972, they left the national debt at 20.9% of GDP, all of which was owned by foreign entities; the highest the debt reached during that period was 23.2% of GDP in 1970.

It seems to me that the PNP made its reputation for profligacy in the 1970s. When they left power in 1980 the total debt-GDP ratio had tripled to 73.5%. The external debt: GDP ratio had increased to 35.2%, but in 1976, the PNP government began to contract local debt, which had risen to 38.3% by 1980. We were screaming in the 1970s at those irresponsible socialists!




In came the JLP in 1980, led by 'Mr Management', and by 1986, the total debt had skyrocketed to 212.4% of GDP - still a national record! The local debt had increased to 55.1% of GDP, while foreign debt was out of control at 139.5% of GDP - more than our total debt today.

Edward Seaga may have been the darling of the Western democracies and the multilaterals, but they were more than a little irresponsible in lending him millions they should have known he could not afford to pay back. When Seaga left power in 1989, our national debt had fallen to 164.7% - much higher than it is now (local 42.1%, foreign 128.0% of GDP).

When Manley departed as prime minister in 1992 after pursuing a more capitalist agenda, the total debt had fallen to 128.7% - lower than it is today (local 27.7%, foreign 101.0%). The reconstructed socialist did much better the second time around!

After P.J. Patterson's first year as prime minister, the total debt shot up again to 178.1% of GDP, with a record foreign debt of 158.9% of GDP. At the same time, the local debt had fallen to 19.1% of GDP - the lowest since 1975, and it has never been as low since.

When Patterson left office 13 years later in 2006, the total national debt had fallen to 122.9% of GDP, but foreign debt had fallen dramatically to 50.9% of GDP, while local debt had risen to 72.06%. Since then, local debt has always been greater than foreign debt.

At the end of the JLP's term of office in 2011, the debt had risen to 126.3% of GDP - lower than it is today (local 70.8%, foreign 55.5%).

Both PNP and JLP govern-ments are to blame for Jamaica's high debt burden. Maybe reparations from them are due. The other side of the coin is growth in GDP. If we can grow the economy, the debt-GDP ratio will come down.

- Peter Espeut is a sociologist and development scientist. Email feedback to columns@gleanerjm.com.