Mon | Nov 19, 2018

Martin Henry | The incapacity of the State

Published:Sunday | November 26, 2017 | 12:00 AM

This newspaper is not allowing us to forget that the National Identification System (NIDS), rushed into law by the Government side of Parliament, is to be paid for by borrowed money.

The Gleaner editorial last Tuesday reminded that "the fundamental reason for the administration's haste ... is that the Inter-American Development Bank is providing Jamaica with a US$68-million loan to implement NIDS, and the law has to be in place in time for the December meetings of the IDB board for the loan to be approved if it is to fall within the 2018 Budget/funding cycle."

So we have to borrow money for the simple matter of providing universal personal identification for the citizens of the country, something that we are hearing is of basic importance for effective governance.

What else are we borrowing for? Some of us were both shocked and disappointed to hear that the proposed construction of a much-needed new Parliament building in the setting of creating a Government Circle at National Heroes Circle would be Chinese-financed. How can something as fundamental as providing for the functioning of Government be loan-financed, whether by internal or external borrowing?

News headline, The Gleaner, Thursday, November 23: "IDB US$20-million loan to boost police investigative capacity."

We have borrowed for schools, clinics, roads, and bridges, airports and seaports. And, worst of all, for recurrent budget support. We have stretched our hands for grants for justice and security (among the few core functions of government). And had to confront the option of a British grant for new prison facilities when the decaying and overcrowded penal facilities we now have date back to the 19th century and earlier and cannot readily be replaced from domestic resources.

We have grant support for health services, education, agriculture, environment, and a crowd of other state services areas. It is easier to name the few sectors not supported by grants, if we can only find them.




Jamaica's debt burden is now over J$2 trillion. The debt-to-GDP ratio has recently been pegged down but still stands at 115 per cent.

The International Monetary Fund was, a couple of weeks ago, in town, telling us and the rest of the Caribbean how to grow our economies. The prime minister was quite right in challenging claims that the IMF, per se, was guilty of imposing hardships on Caribbean countries, including Jamaica. "It is disingenuous to say that the IMF imposes hardships," Mr Holness said in responding to a press conference question about the hardships that have accompanied IMF programmes across the region.

Mark you, he was speaking in the presence of the Great Lady, and, minding his diplomatic and host manners, could hardly have said otherwise in the joint press conference.

Mr Holness called for "a level of honesty and maturity in the discussion about how Caribbean countries have managed public financing ... . By and large," he argued, "we have consumed without regard for production and productivity, and that consumption has led to high debt."

A level of accuracy with history, economics, and politics will also be necessary for the best analytic results.




Mr Holness leaps on to the convenient corruption bandwagon, claiming that a large chunk of our consumption was eaten up by corruption. That 'large chunk' could stand some quantifying, which is not beyond our scholars of economics, politics and history to estimate.

As I have argued in this space and elsewhere, before, when corruption and inefficiency and waste are factored out, there is an even larger chunk of the debt attributable to bona fide development financing. We have expanded education, health care, public infrastructure, social-welfare support in building a modern society faster than tax revenues could pay for. We have borrowed to do so with the pipe-dream delusion that one day we would catch up and be able to pay back. This is not unique to us.

Jamaica, the Caribbean and the entire postcolonial developing world started out in leg irons. The master countries that started earliest on the road to 'development' had distinct advantages of history. Trapped in production and export of mainly primary commodities with low value-added, it was always going to be a difficult task to catch up with countries at the front end of the Industrial Revolution. Governments offered the people much; the people demanded even more, in a cycle of escalation of promise and expectation. Real capacity was exceeded towards noble ends.

Almost universally, borrowing was used to drive development at a faster clip than organic growth and lagging tax revenues could pay for. Countries spent tomorrow's income today for the benefit of the people in the expectation that they would somehow be in a better position to repay debts tomorrow. It hasn't turned out that way.

The IMF managing director, Christine Lagarde, told the press conference she held with Prime Minister Holness that when the IMF enters into an agreement to assist a country facing serious balance-of-payments problems, difficult measures have to be introduced in order to restore conditions for sustainable growth. The IMF enters when a country's economy and fiscal management are already stressed. Not a doctor of social and preventive medicine. But a therapeutic doctor bearing bitter medicine and a scalpel.

Balance of payments (BOP), for the uninitiated, is economics techno-speak for the balance between the total sum of payment inflows into a country and the total sum of payment outflows.

When all components of the BOP accounts are included, they must sum to zero, with no overall surplus or deficit. So if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways such as by funds earned from its foreign investments, by running down currency reserves, or by borrowing.




There is a BOP problem, of the kind the IMF specialises in, when we buy more than we can pay for and have to borrow to make up the difference. Or what most countries have been reluctant to do: cut payouts to match pay-ins.

Virtually every country in this world has public debt. The United States, with the biggest economy, is, in fact, the most indebted country in the world, pushing close to US$20 trillion of national debt. The problem with debt is when it cannot be serviced without damage to operational capacity, that is, the debt is unsustainable.

The top 10 countries for debt-to-GDP ratio are not all the usual suspects. They are: Japan (234.7%), Greece (181.6%), Lebanon (132.5%), Italy (132.5%), Portugal (126.2%), Eritrea (119.8%), Cape Verde (116.8%), Jamaica (115%), Singapore (110.5%), and Grenada (110%). For comparison, the United States' debt-to-GDP ratio is now 106 per cent.

Certainly for the developing countries of the world with weak and vulnerable economies that cannot win, the catch-up game with their debt is unpayable. Their efforts to service their debt creates an illusion of stability in the global financial market. If a country or two default, they can be isolated and punished. If a larger number of countries are forced into default, they are going to bring down the global financial system and economy with them. We saw the scare over the Greek economy and the EU. The IMF and other lenders very well know this.

Unpayable debt may yet be a powerful bargaining chip in the hands of poor countries banding together to bargain for debt relief. But any initiator is likely to be swiftly isolated and punished, in a bid to sustain the system at all costs, while the charade of servicing unsustainable debt continues to suck the life out of countries like ours with a high level of debt and a low capacity to ever pay off. Who will bell the cat?

Jamaica got here mostly because delivery of development, in scope and pace, exceeded the capacity of the State and had to be supported by borrowing, as is the case with most countries now caught in the debt trap of unsustainable debt.

- Martin Henry is a university administrator. Email feedback to and