The content of Portia Simpson Miller and Peter Phillips' joint address to the nation on Monday night could not have been a surprise to any in the financial services sector, and even to the broader Jamaican community.
The liability/debt-management issue was clearly the major consideration on the part of the IMF. The prime minister mentioned "the debt" close to a dozen times in her part of the presentation.
Still, for all the discussion, projections, prior hand-wringing and even resignation before the broadcast, it was a very sad group of sombre-faced financial executives who met the PM and her minister of finance at the Bank of Jamaica (BOJ) auditorium the next morning.
The pain in the room - from certain financial hurt, disappointment over the "squandered benefits" of the first JDX just about three years ago, the fear that whatever little benefit that will be derived will also be squandered and, a more terribly ominous fear that this JDX2, now dubbed NDX, will likely not be enough and, therefore, not the last - was palpable.
It is reported that no known representative from one of the largest players in the financial sector was present at the BOJ high-level briefing.
Apparently things are not unanimous in the sector, that is, at the time of this tribulation.
HIT TO PROFITS
Bruce Bowen, the head of the Jamaica Bankers' Association who is also the president and CEO of the country's most profitable bank, Scotiabank, like his counterpart at Sagicor, Richard Byles, is reported in the press to be unhappy about the NDX so soon after JDX. Gentlemen, brace yourselves.
The New Benchmark Bonds Pricing Terms put out by the Government of Jamaica (GOJ) at the BOJ conference room meeting indicated that current contracted interest rates on GOJ bonds will be cut by as much as five per cent on some securities.
Longer-term paper will suffer from less steep rate cuts, while holders of JMD Variable Rate Old Notes will see their margins fall by over 81 per cent. On average, it is estimated that there will be a two per cent cut in the rate of interest on the securities included in the NDX.
If we take a simple example of a financial institution that holds, say, J$200 billion in BOJ paper and apply the average two per cent to that portfolio, it is clear that such an institution will suffer a J$4 billion loss of profit in just one year.
Bear in mind as well that the country is going through a steep and probably increasing recession, and in such recessionary times bad loans increase and good loans are few and far between.
NDX NOT ENOUGH
Add to that the fact that consumers are already highly leveraged and are fearful of losing their jobs and it becomes clear why the unhappiness, and even anger, was so pervasive in the BOJ conference room.
In 2012, our two biggest banks made just over J$10 billion in net profits. Factor in the NDX hit and recessionary realities to that profit figure and the future profit pictures become stark - and Mr Bowen's blunt lecture to the prime minister and her Finance Minister Phillips gains perspective.
Standard & Poor's' (S&P) announcement was short, simple and stark. In a release from the rating agency on Tuesday after the NDX details were made public, it said of the debt restructuring effort of GOJ, "Based on our criteria, we consider this exchange a default".
S&P's technical designation for GOJ's significantly downgraded securities position, below investment grade, is "selective default". Needless to say, in the bond trading world, that is bad news.
Last week Fitch, another rating agency, also downgraded GOJ bonds. Fitch later indicated "that default on both types of debt instruments is highly likely in the near term". Simple translation: NDX is not enough to reduce sufficiently our huge debt stock to a manageable level.
The numbers are ominous. Minister Phillips,, in the national broadcast on Monday night, said our debt stock of J$1.7 billion which is 140 per cent of GDP must be reduced to 95 per cent of GDP in seven years.
By the next morning at the BOJ meeting with IMF's Chief of Mission, Jan KeesMartijn told the public that Jamaica needs to reduce its public debt to less than 60 per cent of GDP.
Let's take Dr Phillips' range. To move our debt stock from 140 per cent to 95 per cent in seven years will mean wiping out about J$600 billion, all things being equal.
Under the NDX, we are expecting a J$17-billion annual reduction for a total of J$119 billion. This means we still have another J$480 billion to extinguish.
S&P and Fitch clearly believe we will not be able to grow our way out of that burden so they wave the "default" word.
A vibrant, innovative and investing private sector is the real engine of economic growth. However, in an economy such as ours where the Government has taken such a commanding role for itself, it has to change to a super growth facilitator.
Some will be offended that I keep repeating that our current Government - and the previous ones for the last 40 years - has no clear growth strategy.
Now that it has taken its first liability-management step, the Simpson Miller administration needs to rearrange itself to adopt a robust, intellectually rigorous, practical growth strategy for the nation.
There are too many ministries that affect growth and we are too small a country and in too deep a crisis to afford them and their costly and inefficient overlapping.
A serious economic growth strategy that will engage a vibrant and encouraged-to-grow private sector will mean wiping out whole swathes of blocking bureaucracy, selling off GOJ assets, tackling our US$2.4-billion petroleum bill in a focused manner, and speedily introduce growth-enabling legislation and regulations.
Prime Minister, we now have to go for growth.
Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years. Email firstname.lastname@example.org; Twitter: @HillAubyn; Facebook: facebook.com/Corporate.Strategies.