Earlier in the decade, with the Government's deficit running at nearly eight per cent of gross domestic product (GDP), driven substantially by the requirement to service a national debt of about 150 per cent of GDP, people thrashed around for solutions.

Among the options floated by the private sector, as part of a broader initiative for a social partnership agreement, was domestic debt forgiveness of a sort. That is, Jamaican institutional holders of Government of Jamaica bonds would accept lower, negotiated, interest rates, thereby easing the fiscal pressures on the administration. It was never quite clear whether a reduction in principal would also be part of the mix.

In the end, it never happened and Jamaica has, up to now, not achieved, at least not in the broad sense, a social partnership agreement, although Prime Minister Golding declared it to be among his priorities when he assumed office 13 months ago. Unlike with the failed efforts of the previous administration, Mr Golding said he would bring the Opposition to the table "from the start".

Part of the reason that Jamaica has failed to pursue this tripartite effort to create a national economic policy framework was that the early crisis passed - of a fashion. The Government and trade unions discovered what they blandly call a memorandum of understanding (MOU). Under this MOU, as renewed by the Golding administration, the unions agree to moderate wage demands in exchange for the Government agreeing not to chop upwards of 20,000 jobs from the public-sector. So the expansion of wages or salaries as a component of the national budget has moderated, although the issue has not been solved. In the fiscal year just past, the public-sector deficit was 4.4 per cent of GDP and it will be only slightly less wide in the current one.

This focus on Jamaica's fiscal deficit and its underlying cause is no silly obsession, indicating, as it does, the reason for the country's anaemic economic growth and continued under-develop-ment. The debt, now around 137 per cent of GDP, has declined from its earlier ratio but is still extremely high and burdensome to the Government.

Indeed, over 60 per cent of the annual budget goes to debt servicing, and much of the country's borrowing is for debt replacement. Government borrowing keeps interest rates high, crowds out the private sector, thereby undermining the capacity of firms to invest and stimulate the economy. Moreover, the need to allocate such a high portion of its Budget to service debt crimps the ability of Government to invest in the social infrastructure, such as roads, water and education, which stimulate growth.

Answer to the problem

The clear answer to the problem, as anyone who has thought about the matter will say, must be the stimulation of economic growth. The Caribbean Policy Research Institute (CaPRI), the Jamaican public-policy think tank, earlier this year argued for comprehensive tax reform as the most efficacious way to stimulate growth and government income, leading to a relatively rapid decline in the fiscal deficit and debt-to-GDP ratio.

CaPRI's analysis remains sound. However, the emerged global financial credit crisis and looming recessions have changed some of the dimensions of Jamaica's problem. It is worthwhile, we believe, that a programme of negotiated debt reduction, in exchange for policy changes, be put back on the agenda.

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