Editorial - If Jamaica is to avoid a downgrade

Published: Sunday | October 14, 2012 Comments 0

The positive news is that rather than downgrade, Standard & Poor's (S&P) maintained its B to B- ratings on Jamaican government bonds. What is not so good is that S&P told creditors that its outlook for Jamaica was negative.

So, if Peter Phillips approached financial markets anytime soon, he could expect lenders to extract an even greater risk premium. Jamaica would have to pay higher interest rates to borrow.

S&P is clear as to why it advised investors to be circumspect in approaching Jamaica's debt. The rating agency said: "Our ratings on Jamaica reflect its high general government debt and interest rate burden; limited fiscal, monetary and external flexibility; lower growth prospects; and vulnerability to natural disasters due to its location in the hurricane belt."

Not too long from now, S&P - and other agencies - will be back with its follow-up assessment of Jamaica. Much of what is said will be informed by the quality of the agreement Jamaica negotiates with the International Monetary Fund (IMF) - assuming that one is secured - and the purpose with which the Portia Simpson Miller administration is going about meeting its conditions. Herein lay the imponderables.

For while there seems to be an intellectual acceptance of sorts of the necessity of a deal with the IMF, there doesn't appear to be in the Government an appetite for one. Nor do we discern from the Government a clear economic strategy. If it has one, the administration has displayed neither the capacity nor the willingness to coherently articulate it.

Afraid of hard decisions

Our Government appears afraid of the hard decisions.

It is against this backdrop that few are sanguine that Dr Phillips will deliver an agreement with the Fund before his self-imposed deadline of the end of this year.

Further, there are concerns that even if the deal is done, the commitment to it will be so flaccid that it will merely limp along to the inglorious, slow-motion disintegration of the standby agreement of the past administration.

For instance, in an effort to reduce Jamaica's debt from its unsustainable, Greek-style 140 per cent of gross domestic product (GDP), the IMF has proposed Jamaica reduce its public-sector wage bill from nearly 12 per cent to around nine per cent of GDP. The Fund has also called for the public sector to be overhauled to make it more efficient and entrepreneurial; for the tax system to be reformed to encourage investment while more people pay their fair share; and that civil servants be made to contribute to their pensions.

The Government says that these, fundamentally, are its policies, but it has been snail-like in offering specifics on them. It has been slower in robustly engaging the people on them in an effort to build support for what, initially, will be a painful undertaking.

Nor have Jamaicans been told how, if at all, seemingly disparate projects announced by various ministers fit into a coherent matrix, which includes an IMF programme that would eventually deliver growth and jobs.

Peter Phillips can do far more on this front. But the ultimate responsibility lies with Prime Minister Simpson Miller - by virtue of her office and the fact that in her resides a special talent to communicate with the majority of the Jamaican people in the language, and with the emotional intelligence and empathy, that makes understanding easier.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.

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