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Critical hour - Ahead of broadcast, Hill says liability management crucial for nation's economy

Published:Monday | February 11, 2013 | 12:00 AM
Prime Minister Portia Simpson Miller and Finance Minister Dr Peter Phillips during the recording of their national address which airs tonight. - JIS photo
Aubyn Hill
Danny Roberts

WITH PRIME Minister Portia Simpson Miller and her finance minister, Dr Peter Phillips, set to outline Jamaica's economic programme and reform measures in a national broadcast tonight, management consultant Aubyn Hill is arguing that a liability-management programme is critical to achieving significant debt reduction.

Phillips and Simpson Miller are slated to speak to the state of negotiations with the International Monetary Fund (IMF) and could announce such a management programme.

The country, which is currently in an economic quagmire, is seeking an extended fund facility from the IMF to replace the 27-month standby agreement that went awry.

"With a debt-to-GDP ratio of above 140 per cent, a persistent and perennial low-growth or no-growth economy, a crushing debt stock of J$1.7 trillion, and consistent under-performance on revenue collection, the Government of Jamaica has had to consider debt reduction, voluntary or otherwise, because as Dr Phillips indicated a while ago, it is now necessary," Hill told The Gleaner yesterday.

Phillips, speaking during a recent post-Cabinet retreat press conference at Jamaica House, said the IMF and Jamaica continue to discuss the issue of a voluntary liability-management operation in relation to the debt.

"No haircut is contemplated. Cabinet is committed to the sustainability of the financial sector and the maintenance of its integrity," Phillips said then.

He had added, however, that the Government "will be engaged further in voluntary and necessary debt-liability management because, as we said, sacrifices will have to be borne by all".

Problems with bankers

Hill suggested that bankers and other lenders do not want to contemplate the debt-liability management option.

He, however, argued that "they are wise enough to try and 'front-run' the GOJ (Government of Jamaica) by offering and agreeing to a JDX2-type programme, which could see a lengthening of debt maturities, some reduction in interest rates, but no reduction in principal".

As a precursor to the 2010 deal with the IMF, the Government created the Jamaica Debt Exchange (JDX), which recorded a participation rate of 99.2 per cent and resulted in a notable change in the maturity profile of the domestic debt.

The average maturity of the domestic debt after the JDX increased to 8.9 years from 4.5 years, lowering pressures on interest rates and improving the Government's ability to respond to shocks.

This initiative generated interest savings of at least three per cent of GDP through the reduction in interest rates by seven percentage points and two percentage points on outstanding domestic and US dollar-denominated bonds, respectively.

Hill, meanwhile, appeared unconvinced whether debt-liability management would be enough to deal with the huge debt burden.

"The numbers would suggest that even if the GOJ were to get the IMF to accept a debt-reduction plan stretched over seven to 10 years, this would be an extended timetable, our economic growth trajectory over the last 40 years would not allow us to bring down our debt/GDP ratio to, say, 110 per cent that the IMF may find to be acceptable during even that extended time frame," Hill said.

No-growth plan

He added that there appeared to be a no-growth plan for the country over the medium term, saying: "If the GOJ has a plan for growth, it has not been shared with the public over the last 13 months."

Hill said: "The tough issue the GOJ and its lenders, and us taxpayers who must pay the huge debt, will have to face is will a JDX2 bring a real solution, or will we be looking at a JDX with an increasing suffix every two to three years?"

In the meantime, Hill argued that the issue of public-sector wages has to be confronted. He said the Government "has no choice but to cut its payroll - that means many of their jobs".

"The GOJ over the years has hired too many people and has not required and secured productivity increases from many whom they employed," Hill said.

Phillips has said a firm commitment to wage restraint was a precondition to an IMF agreement, and that without such restraint there would have to be job cuts.

Yesterday, veteran trade unionist Danny Roberts said the Government's approach to the wage-restraint aspect of its negotiations with the IMF was wrong.

Roberts, who is the head of the Hugh Lawson Shearer Trade Union Education Institute, charged that the Government was looking at the issue "simply from the point of (view of) containment".

"Without recognising that perhaps what we need to do is to put our minds to the development of a broader income policy that would tie wage increases to productivity improvements," he asserted yesterday.

"I think we are trying to look at the issue in a segmented way when it is not. The issue of the wage restraint must be connected to the issue of growth," Roberts insisted.

The Opposition, through its spokesman on finance, Audley Shaw, said Simpson Miller and Phillips need to provide the nation with a report "on what is the precise status of negotiations" with the IMF.