Published: Sunday | October 11, 2009
Robert Buddan POLITICS OF OUR TIME
The video 'Life and Debt', depicting Jamaica's previous experience with the International Monetary Fund (IMF) was recently rebroadcast on local TV. It was a story about Jamaica's debt trap of the 1970s and 1980s. The story is relevant to the present as well. Ecuador held elections in 2008. The winning party's campaign slogan was 'Life after debt'. It argued then and argues now that interest payments on debt were consuming too much of its GDP and too little was left over to spend on productive economic activities. This is exactly Jamaica's problem.
Most Jamaicans don't know that we have well passed the point of crisis of the kind that many countries are experiencing and say, where we were this time in 2008. At that time, an agreement with the IMF might still have been useful to shore up our collapsing foreign currency base. But we have well passed that stage and we still don't have an IMF agreement. To now contemplate an IMF agreement of the kind that we could have expected even up to the time of the April Budget would be like treating an illness appropriate to the benign stage when it is really at the terminal stage.
We are no longer just in crisis. We are now in deep crisis, a state where our negotiations with the IMF take on far greater complexity and consequence than they would have just months ago. The supplementary Budget presented last week has not pulled the situation back. It has confirmed how far we have gone into deep crisis.
Neither the government's Budget of April nor its supplementary Budget has much credibility. Barclay's Capital, billed as 'one of the world's most reputable brokerage houses' reviewed the supplementary Budget and concluded that it is going in the wrong direction - more spending with less revenues coming in. Barclay's says the Jamaican economy has reached the 'point of no return' and no medium-term economic reform plan is going to change that. It believes the IMF should consider debt restructuring rather than lend Jamaica the $1.2 billion it is asking for. It believes the IMF is now considering this.
The local financial sector has been thinking of ways to avoid this dreaded debt restructuring. Keith Duncan had been leading a liability management programme to swap high-cost debt for low-cost debt. But important financial bodies had been wary saying should this be done it would be a form of debt restructuring sending the wrong signals about the Government's ability to repay its debts.
Debt restructuring is a powerful term purposely made vague because of its power. It is a euphemism for default. The Jamaican Government, in other words, has a high likelihood of default. The Opposition doesn't want to say this, fearing the impact this news would have. It could become a self-fulfilling prophecy. But as a society we have to start thinking about how this would impact us and how we can soften that impact.
Randall Dodd wrote in 2002 that the international system had no orderly, just and transparent process for dealing with sovereign (government) debt restructuring. Each country had to develop its own. The IMF has an interest and a role in this.
At a forum on economic policy in July put on by the People's National Party (PNP), Keith Duncan of Jamaica Money Market Brokers felt that an immediate two-year plan, at a minimum, and political partnership for Jamaica was necessary. Events since have deteriorated so rapidly to make the idea worth it. This alone would give much confidence to creditors. It would be an investment of our political capital for Jamaica's sake.
Jamaica could seek status under the Heavily Indebted Poor Country Initiative as a country facing an unsustainable debt burden. This alone could lead to debt forgiveness and reduce debt servicing by 30 per cent. However, there is no certainty of this and this could take time. Jamaica needs certainty and does not have time.
To get more time, a partnership of parties, private sector, unions and social sector, should agree to an arbiter (under the auspices of the UN) for debt restructuring. The arbiter would act on behalf of debtor and creditors. Randall Dodd believes that during the negotiations the debtor should be protected from claims by creditors, and the country would not have to default.
Finance Minister Audley Shaw and Keith Duncan
Very importantly, he believes the debtor country should receive resources from the IMF to meet its debt service obligations, and to limit economic dislocation. Dodd believes that aspects of US Chapter 9 law on bankruptcy could be applied, "To protect the human rights of the nation's citizens by preventing the debtor country from raising debt payment revenue by destroying basic social services and it would require that funds for a sustainable economic recovery be set aside".
A plan arising from the broad partnership would not have to be a structural adjustment plan even if it does meet concerns of the IMF and World Bank, which realistically it would have to. Taxpayers and government employees would even have an opportunity to comment on the plan.
I believe there can be enough creativity and flexibility on the part of Jamaica and its creditors to find an alternative to both default and an IMF structural adjustment programme. I have never accepted that there is no alternative to the IMF. What stands in our way are the rigidities of political positions, the special interests of private business, and the dogma of the IMF.
The political parties, private sector, and citizens would have to agree to share burdens, make sacrifices, and prioritise resources for production, security and basic social services rather than for political gamesmanship, or class luxuries. The plan should ensure that waste, corruption and cost overruns are strictly contained and taxes, fees and fines are paid up.
Prime Minister Golding did not give the country any future direction in his address last week. It might be that he cannot find a way through the many conflicting interests involved in the politics of his government and the economics of the country. He has made things worse by giving the private sector special access, appointing Christopher Zacca as 'special advisor', while freezing labour unions out.
The question we now face has gone beyond whether the IMF has changed or not. The fate awaiting us is looming larger and larger with each day that we remain immobile, tardy and without direction. If Barclay's is correct then we have already passed that critical point. All we have is a promise to cut the size of the executive sometime in the future and Zacca's appointment is already undermining that promise.
At the annual meeting of the World Bank and IMF last week, Audley Shaw asked both organisations to help Jamaica to find 'innovative ways' to help it out of its crisis of indebtedness. Fine, but the Government must be credible. The only credible formula is the one Portia Simpson Miller offered in her Budget presentation in April, "let us in this House all set aside the differences that separate us and focus on the bonds that unite us".
Robert Buddan lectures in the Department of Government, UWI, Mona. Email: Robert.Buddan@uwimona.edu.jm