More questions for Peter Phillips
Thanks to Peter Phillips for taking the time ('Gordon Robinson fails the fact-check test', February 9) to respond to my comments on the PetroCaribe deal ('The Great Pretenders', February 7).
I especially appreciate his dumbing down the complicated budgetary process for simpletons like me. Regrettably, I still have concerns, queries and comments. Peter Phillips cited the following as 'facts':
1 The PetroCaribe debt is included in the extended fund facility definition of the stock of debt, the definition used when I speak about debt numbers.
Perhaps. In a special contract between two parties, the parties can define anything they want as anything they want.
Oh, oh, yes, I'm the great pretender;
pretending that I'm doing well.
My need is such I pretend too much.
I'm lonely but no one can tell.
FACT: Venezuelan oil is imported by Petrojam Limited - a limited-liability company jointly owned by PDVCaribe, a subsidiary of Petroleos de Venezuela (PDVSA), and PCJ, a statutory corporation under the Ministry of Science, Technology, Energy and Mining. Petrojam is NOT wholly or even majority Jamaica government-owned. Petrojam buys crude oil from its shareholder PDVCaribe/ Venezuela under a concessionary deal (PetroCaribe), giving it a two-year moratorium followed by payment over 25 years at 1% per annum (US$30 million per year interest on the US$3b buy-back debt). Annual principal payments are also made so that, at the end of the 25-year period, Petrojam would owe nothing. Petrojam's 'debt' to PDVCaribe isn't government guaranteed.
FACT: Petrojam is in the oil-refining business and sells refined petrol to the local retail trade for profit. Additionally, PetroCaribe involves barter-type and investment terms [e.g., some repayments paid into PetroCaribe Development Fund (PDF)], all of which result in the Jamaican taxpayer not paying a dollar to service this debt.
OPINION: In my world, Simpletons Inc, this can't be classified as a 'public debt' and is NOT SO CLASSIFIED outside of the IMF agreement.
2 The value of the PetroCaribe debt purchased by Government is US$3.25b. The purchase price was US$1.5b, which represents a substantial write-down of the US$3.25b.
Oops. US$3.25b it is. The issue remains, who benefits from this write-down? Taxpayers? Petrojam? PDF? Who? More anon.
3 In order to make the [buy-back] payment and support other budgetary needs, [GOJ] issued a US$2b instrument in the international capital market, at the lowest rate ever received by Jamaica.
I'm not going to argue with Peter Phillips regarding rates of previous Jamaican borrowing. If 7.11% weighted average is the lowest ever, that's not something of which I'd be particularly proud, but that's just me.
Oh, oh, yes, I'm the great pretender;
adrift in a world of my own.
I've played the game but, to my real shame,
you've left me to grieve all alone.
FACT: It remains over 6% per annum more than Petrojam was 'paying' to Venezuela (less barter/investment agreements) and it doesn't include any reduction of principal.
4 In that regard, we reduced the debt stock by US$3.25b and added US$2b, resulting in a net reduction in the debt stock of US$1.25b and a simultaneous reduction in the debt-to-GDP ratio of 10%.
Whose debt stock was reduced by US$3.25b? Whose was increased by US$2b? Could part of the answer be found in the supplementary estimates recently tabled, adding almost $170 billion in taxpayer expenditure NOT PROVIDED FOR IN MARCH 2015? It's trumpeted as a one-of payment connected to the PetroCaribe buy-back, but Phillips says the deal resulted in "a net reduction in the debt stock". Shouldn't there be a net reduction in the expenditure budget?
Regarding the 'one-of' claim, bondholders will be owed US$110 million every year in interest to be paid by taxpayers.
Petrojam's PetroCaribe repayment deal included the creation of the PetroCaribe Development Fund (PDF), into which Petrojam paid a percentage of the debt and out of which many government agencies benefited from soft loans. Currently, the PDF is owed US$129.2 million (Port Authority); US$25.8 million (Airports Authority); US$11.2 million (SCJH); US$39.8 million and $877.98 million (DBJ); US$8.3 million (UDC); US$6.5 million (JUTC); US$73.2 million (National Road Operating and Constructing Company); US$12.1 million (Students' Loan Bureau); US$28.3 million and $600.95m (Exim Bank); US$64.9 million (Wigton Windfarm), and US$74.6 million (Petrojam itself).
What's going on? Was the US$1.5 billion paid to PDVCaribe/Venezuela or to PDF to clear government debt? Is that how government's debt-to-GDP ratio was 'slashed'? How'd the buy-back affect PDF and agencies needing quick 'n' easy loans? Has government kept the US$3.25b debt it 'purchased' on the books as a receivable from Petrojam (part owned by Venezuela), or has it been written off?
Lower debt-GDP ratios produce supplementary budget estimates with higher debt payments? Bah, humbug!
Too real is this feeling of make believe;
too real when I feel what my heart can't conceal."
FACT: Taxpayers now must fork out US$110 million per year to service this debt which, by the way, includes a shuffled-up US$500 million additional borrowing which had NOTHING TO DO WITH PETROCARIBE but was for normal budget funding.
FACT: This is now, by everybody's definition, newly created government borrowing producing a never-ending debt obligation with zero provision for any principal pay down.
5 ... Calculations show that the debt service will be lower by approximately US$328m over the life of the funds raised in the international market, when compared with the total debt service on the full PetroCaribe debt.
US$328m over 25 years is only US$13 million per year.
FACT: The bond debt service includes interest only while 'total debt service on the full PetroCaribe debt' also included principal payments.
My original question remains unanswered, which is, how does the government "buy-back" of a Petrojam debt at higher cost to the taxpayer end up reducing debt-GDP ratios? If it does, through statistical shuffling, what monstrous fiscal game are we playing?
Yes, I'm the great pretender
just laughin' and gay like a clown
I seem to be what I'm not, you see.
I'm wearing my heart like a crown;
pretending that you're still around"
Ande 'Buck' Ram was a BMI Top 5 songwriter long before he became the Platters' producer-manager. The Platters' sound featured legendary lead singer Tony Williams, the best lead singer ever. Their first hit, Only You (also written by Ram who played piano on the recording), badly needed a quick follow-up, so Buck reportedly wrote The Great Pretender in 20 minutes while in the Flamingo Hotel washroom (shades of Lionel Richie's penning of the Kenny Rogers' hit Lady).
Finally, Dr Phillips wrote: "With respect to the payout of the NDX bonds totalling J$62b ... financing for this amount was included in the 2015-16 Budget."
Would that be the same Budget financing recently increased by $170 billion in one fell swoop based on unaccounted for borrowing? Sigh. My finance ministry website search revealed a document 'CENTRAL GOVERNMENT BUDGET FY 2015-16', which records a 2015-16 expenditure budget of $463 billion, total interest payable for the year is $131.6 billion (rounded; $75.2b domestic; $58.3b international).
I realise the monthly numbers may represent averages rather than actual monthly expenditures, but the highest monthly amount reserved for interest payments was $17.5b in May 2015, with $12.4b earmarked for February 2016. I get it, Dr Phillips, this isn't the be-all and end-all, but other expenditure categories are 'programmes' and 'wages'. If NDX expenditure appears in one of those two, would that be deceptive budgeting? So, where's the $62 billion NDX repayment? Was it classified as 'domestic' or 'international'?
Mark you, my predicted new tax package of J$13 billion had nothing to do with NDX payments, but I fully expect to be asked to reimburse those payments in the new Budget. Based on the sudden, immense increase in interest payments casually cast on to the backs of ordinary Jamaicans by Nicodemus-like supplementary estimates after massive unbudgeted borrowings to trouble a debt that was troubling nobody but Venezuela, I apologise for not taking comfort in Dr Phillips' latest budgetary assurance.
Anyway, no need to argue. Dr Phillips and I both know PNP is about to cruise to victory (right?) and a new Budget is nearby. We shall see what we shall see.
I'm grateful to Dr Phillips for his flattering offer of the financial secretary's services. But, I'll pass. I prefer independent research and independent thought to government-issue propaganda.
So, finally, the political football game is over. In the last minute of extra time, Peter Phillips scores an own goal. Final score: PNP 2, JLP3.
Peace and love.
- Gordon Robinson is an attorney-at-law. Email feedback to firstname.lastname@example.org.