A Washington think tank is criticising the IMF for putting Jamaica in a 'straitjacket' and insists that the debt restructuring completed last year has not done enough to halt the country's debt trajectory.
What the country needed, it said, was "debt cancellation" to free funds for investment in the social sector.
The J$702-billion Jamaica Debt Exchange is one of Finance Minister Audley Shaw's signatory accomplishments that swapped out some 350 domestic bonds for 24 issues with lower coupon rates averaging 12 per cent but extended maturity periods.
The finance ministry said the debt ratio came down by a point to 128.3 per cent at the close of March 2011. And it projects further deceleration over the medium term, with the debt to GDP ratio forecast at 95 per cent at March 2016.
The debt now stands at a nominal J$1.57 trillion - J$809b of domestic debt and US$8.87b (J$761b) in foreign liabilities - and is expect to rise to J$1.79 trillion by March 2014, but remain flat for the next two years.
Still, the Center for Economic and Policy Research (CEPR) said Jamaica remains one of the most heavily indebted countries, whose liabilities amounted to 129.4 per cent of GDP at the close of fiscal year 2010, while interest payments over five years has averaged 13 per cent of GDP.
"Jamaica is a clear case where the IMF and other international actors have put the economy in a straitjacket," said CEPR co-director Mark Weisbrot in a statement from the think tank announcing publication of its new paper, Jamaica: Macroeconomic Policy, Debt and the IMF, authored by Jake Johnston and Juan Antonio Montecino,
"Jamaica needs debt cancellation and economic stimulus to get out of its long slump, and it has not gotten either of these," Montecino said.
The research paper, which is highly critical of the IMF's approach, concludes that: "Jamaica's agreement with the IMF has included pro-cyclical macroeconomic policies during the current downturn. This unfavourable policy mix risks perpetuating an unsustainable cycle where public-spending cuts lead to low growth, exacerbating the public-debt burden and eventually leading to further cuts and evenlower growth," the authors said.
"In the absence of plans to tackle Jamaica's debt problems with a broader concern for the growth and employment needs of the economy, Jamaica's economy will likely continue to stagnate."
CEPR said the debt burden has crowded out most other public investment, including education and infrastructure, which it said have stagnated over the last 18 years; and has slowed progress on achieving Millennium Development Goals, "with declines in detection and treatment of tuberculosis, and in primary-school enrolment rates."
The JDX has done little, by itself, to solve the problem, it said.
"Although the JDX was able to lower average interest rates on domestic debt, there was no reduction of principal and maturities remained virtually unchanged," said CEPR's statement.
The think tank has weighed in on Jamaica as discussions begin in Kingston on whether a second round of restructuring - a JDX2 - should be pursued on the external component of the debt.
The Ministry of Finance has said it plans buy-backs of some of its bonds, but not in what volumes, as well as interest rate swaps, but insists these programmes do not amount to a foreign-debt restructuring (see related story on Page 5).
A restructuring is likely to be seen as a default by external bondholders.
Jamaica is also about to seek new negotiations with the IMF to extend its current bailout agreement by two years, beyond the initial May 2012 end date.
CEPR said its new research suggests the current IMF agreement prescribes pro-cyclical policies that could worsen the debt burden, harm health and education; that the loan programme focuses on containing the wage bill, "even though this can have negative consequences for a developing country that needs to increase spending on health and education."
The IMF predicts Jamaica will grow 1.6 per cent this year after three years of economic contraction. Inflation is projected at single digits, 7.4 per cent.