EDITORIAL - The PM should listen to Mr Livshits
Published: Sunday | October 18, 2009
It is time, as we have argued before, for hard-nosed, radical action if the economy is to have a fighting chance for recovery and growth. The other option is, as Prime Minister Bruce Golding appeared to have recognised, strangulation by debt.
What Mr Golding and his government have, however, so far failed to do is to offer a specific path out of the crisis - beyond the current negotiations with the International Monetary Fund for a US$1.2-billion, three-year credit facility.
In this regard, we commend to Mr Golding the suggestions of Mr Alexander Livshits, who used to be the finance minister of the Russian Federation, and who is now a senior executive at UC Rusal, the firm that owns three alumina refineries in Jamaica. In both jobs, he would have learned more than a thing or two about debt. Indeed, as Russia's finance minister in the late 1990s, he negotiated with private banks the restructuring of more than US$19 billion of debt.
At a forum hosted in Kingston last week by the Jamaica Chamber of Commerce, Mr Livshits, having looked at Jamaica's debt situation, declared: "I believe that the time has come to start a negotiating process with the London Club of creditors to reach a restructuring deal with private holders of Jamaica's foreign debt, which accounts for approximately 60 per cent of total external public debt."
'Liquidity management programme'
It is an argument that this newspaper first advanced late in 2008. And in August, as the Government went into a retreat, in the face of a downgrade by Standard & Poor's (S&P), from the euphemistically labelled 'liquidity management programme' offered by local banks, we sought to stiffen its resolve to proceed. S&P claimed that the scheme had the odour of default.
There are some critical observations, however, which ought to trump the fear of such actions by S&P and similar agencies, not least of which is that servicing Jamaica's J$1.26-trillion debt this fiscal year will require J$325 billion, or approximately half the country's budget. Another quarter of public spending is for public-sector wages, leaving very little for programmes and investments to create the conditions for economic growth.
This is a recurring situation for Jamaica, but this year it is happening in the context of a deep global recession and a major fallout in the island's economy: the alumina sector has collapsed costing a loss of export earnings and J$8 billion in levy payments to the Government; remittances, which last year brought in US$2 billion, are 14 per cent down; tourism is soft.
Mr Golding has warned that his government would have to take tough fiscal decisions, including, correctly, cutting public jobs. But adjustment demands far more than this.
From our perspective, debt rescheduling appears inevitable - and not just the US$6.2 billion owed externally, of which perhaps $4.2 billion would be subject to a London Club review. Action on the debt is one way to moblise national consensus around the other tough actions we have to take.
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