Debt default, devaluation or haircut - all are futile!
Wilberne Persaud, Financial Gleaner Columnist
I spoke with the producer of a usually insightful and popular radio talk show on Tuesday.
Our conversation turned to the issue of Jamaica's past, current and apparently unending discourse - negotiations if you will, although that descriptor may be considered inaccurate - with the International Monetary Fund (IMF).
In the course of our conversation, she mentioned her recent broadcast in which folks discussed various options available to Jamaica to find a workable and lasting settlement to its debt overhang problem.
I'm so sorry I missed the conversation. In any event, 140 per cent of GDP, particularly in recessionary times, is a big debt which, constitutionally some would insist, we must service before providing even the lowly 'nutri-bun' or its equivalent for 'schoolers' of a tender age.
Nevertheless, her recall was that the conversation turned on the issues and potential for default, a haircut and/or devaluation of the Jamaican dollar.
I recalled that in my last column I'd written that it should be evident, even to the most committed advocate of free or 'perfect markets', that devaluation of the Jamaica dollar does not really deliver increased exports and decreased imports. It did little over the years to correct incipient and chronic deficits in our balance of payments. Many pointed out that our major exportables, including tourism, were priced in US dollars or other foreign currency often subject to negotiated arrangements and not free markets.
This description of Jamaica's devaluation experience is merely enunciation of fact. These facts - as my late former professor and latterly colleague George Beckford would have said - to my certain knowledge, have not changed. Hence devaluation of the Jamaican dollar as an active measure to be implemented as remedial policy would be an act of pure folly bordering on insanity.
And you know, sadly, the other two scenarios appear not to fall too far short of that as well.
Default or debt repudiation - as just and equitable as it might appear to some thoughtful folk - is not available to Jamaica without immediately generating insurmountable problems too numerous and too well known to go into here.
A haircut, which is what voluntary scale back of investors' returns is called, would simply be JDX Version 2. And it would suck confidence like an industrial-grade vacuum, like the calm in the eye of Hurricane Gilbert, it would offer respite for but a fleetingly brief period.
I can find no better description of this situation than the Jamaican saying: 'Any way yu tun macca jook yu!' Really. But as I contemplate this, interconnections emerge.
Just this week, many of you may have watched the contortions of Republicans as they try to defend the indefensible on control of access to assault rifles and gun magazine clips of 30 rounds, even 100 rounds, and of course the so-called 'Dream Act' that would provide a pathway to citizenship for the 11 million or so illegal immigrants who now work and have families in the United States.
The truth is, workers who reap strawberries, or work as farmhands or maids at Best Western are often migrants - who knows whether legal or not?
Their children go to school and often, know no country but the US as home. Their status, however, puts them at risk, as they cannot vote and must accept working conditions and wages commensurate with their condition.
As one Republican member of Congress puts it, they help reap our crops, make our beds and even watch our children. This is it; to deny them the chance of citizenship is to create a permanent underclass of exploitable workers.
Making the case against this position, one commentator highlights the obvious: immigration is primarily an economic phenomenon. For a country facing a declining birth rate and an ageing retiring population, naturally increasing the number of workers (higher birth rates) to create the economic pie is one solution.
Immigration is even better - workers come ready to work, no baby formula needed. Many come to study, no childhood education needed. Many excel, they were the cream of their own neck of the woods in the underdeveloped countries.
Thus, one-tenth of the US population is foreign-born; one-quarter of all high-tech and engineering businesses begun between 1995 and 2005 had a foreign-born owner; half of the high-tech start-ups in Silicon Valley had foreign-born founders and, as a little icing for the US immigration jackpot cake, over the past half a century fully one-quarter of all US resident Nobel Laureates were foreign-born.
It requires no rocket scientist or maths brain to grasp the economic implications of these facts.
Now consider some more, some different facts or statistics embedded in this quote from the World Bank: "Officially recorded remittances to developing countries are expected to reach US$406 billion in 2012, up by 6.5 per cent from US$381 billion in 2011. The true size of remittance flows, including unrecorded flows through formal and informal channels, is believed to be significantly larger. Compared to private capital flows, remittance flows have shown remarkable resilience since the global financial crisis, registering only a modest fall in 2009, followed by a rapid recovery. The size of remittance flows to developing countries is now more than three times that of official development assistance."
Migrants' remittances is triple the value of aid to poor countries!
Have a look at this on the web, if you can: http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990...
Here's a simple proposition. Jamaica on its own cannot solve its debt, inequality and consequential condition of persistent poverty. Globalisation, rather than levelling the playing field, tilts it further tending to drain resources from those areas most ill-equipped to cope. Remittances present one mechanism that alleviates the deleterious impact of the global concentration of productive capacity.
The fruits of remittances to the folks back home, however, overwhelmingly go towards everyday living which, in many cases, funds purchase of imports. If countries like Jamaica are to compete in the global economy and achieve the standards of living the UN system deems reasonable, institutions such as the IMF shall have to take on board systemic elements of inequity that contribute to global inequality.
We've had the development decade and other initiatives - none of which have ever fulfilled their promise.
To suggest or ask for a more sensible approach to global economic management is no different from supporting, for instance, Basel III.
But in the final analysis, corruption and inefficiency in countries such as Jamaica militate against the mere mention, even the thought of such an idea.
Wilberne Persaud, an economist, currently works on technology change and capital solutions for Caribbean SMEs. Email firstname.lastname@example.org