Debt exchange demands more than faith
Jamaican savers are about to undertake, perhaps, the greatest act of faith in the country's history by surrendering a huge chunk of their wealth on the promise of politicians to be good and prudent managers, in the future. Stripped of the technical overburden, that, essentially, is what the Government's plan to redeem, then reissue, at lower interest rates, over $700 billion of domestic debt comes down to.
The Government, in the circumstances, had little choice but to make this offer, which reconfigures undertakings given to Jamaicans when they bought the bonds. And as this newspaper has made clear, we have no choice but to accept it in the national interest.
Jamaica faces a grave economic crisis that has been worsened by the global recession. The country has a debt that, at 137 per cent of gross domestic product (GDP), is unsustainable. Its servicing consumes 65 per cent of tax revenues and a similar amount of the Government's annual expenditure, thereby limiting the administration's capacity to invest in the national social and economic infrastructure, and forcing it to borrow heavily to meet its obligations. Or, to put it another way, the Government's big appetite for debt limits the private sector's capacity to borrow affordably, thus constraining investment, growth and job creation.
Clearly, the dynamic of Jamaica's national debt has to change. But neither our understanding of this fact nor our sympathy for how the Government is proceeding warps our recognition of or constrains our obligation to point to some of the nasty bits, associated with this deal, beyond any complaint about the presumed unfairness of exempting externally issued bonds from the rate cuts.
A wider restructuring, though, would be far more complex, involving many people who share no emotional bond with Jamaica and whose decision would be conditioned primarily on the impact on their portfolios.
At home, however, despite Prime Minister Bruce Golding's promise of a "covenant" of good management with people who have been asked to make this sacrifice, there is as yet no rules-based and bankable mechanism for Jamaicans to be assured that the Government will, over the long term, adhere to its obligations.
As it now is, the Government, on the assumption that there will be no hitch in a deal for US$1.3 billion in loans from the International Monetary Fund (IMF), is being handed a signed document for it to fill in the blanks. For instance, the Government has promised fiscal responsibility legislation which, we presume, will establish debt-to-GDP ratios as well as fiscal-deficit targets. That, however, remains a promise. The public is yet to see a draft law, or green or white papers, on the matter, so there can be a discussion on what are practical targets.
As much as we may believe in the sincerity and personal integrity of the financial secretary, Dr Wesley Hughes, his personal guarantee of fiscal discipline, or even the PM's undertaking that "we are going to do everything possible to make sure that we hold our end of the bargain", these are not, in the circumstances, good enough. Nor do we believe that it ought to be oversight of the foreign receiver, the IMF, for the Government to behave responsibly.
The Government, among other things, must outline now its plans for public-sector reform and reduced spending, if it is to shore up confidence. Something, sometime down the road, is not good enough.
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