EDITORIAL - Lessons from Detroit

DETROIT, THE United States (US) city that filed for bankruptcy last week, shares many similarities with Jamaica. Both are broke and show their poverty. Both are being forced to take radical action to deal with fiscal crises.

But the option exercised by Detroit, whose nominal debt of US$18.5 billion is roughly equivalent to Jamaica's, is not one open to the authorities in Kingston. Jamaica can't file for protection from its creditors.

Instead, Jamaica, whose debt is equivalent to more than 150 per cent of annual output, has opted for a voluntary programme of austerity, under guidance from the International Monetary Fund. In either case, the hoped-for outcome is the same - lower debt (both now allocate more than 40 per cent of their budgets to debt servicing) and fiscal stability.

How Detroit, once one of America's leading industrial towns, and Jamaica came to this pass should make interesting case studies. Moreover, the likely effect of Detroit's bankruptcy filing should be a matter to which those Jamaican stakeholders who would resist public sector and pension reforms pay close attention.

Like Jamaica, Detroit has, for too long, suffered from bad government and poor economic management, which exacerbated the loss of competitive advantage by the city's motor manufacturers.

There was a time, though, when the vibrancy of the city's motor industry masked the shortcomings and the city offered its employees generous pensions and insurance. When there was no longer the income to meet these obligations, the city, like Jamaica, borrowed to cover the expense.

Parallels

Then there are the parallels in social and environmental effect from economic collapse. The departure of industries in Detroit, as is the case in large swathes of Jamaica's capital, Kingston, accelerated urban blight. Nearly 80,000 buildings in Detroit are abandoned and the city collects not much than half of its property taxes - a rate that mirrors Jamaica's. Detroit's unemployment of over 18 per cent is perhaps close to the real rate of joblessness in Jamaica.

With insufficient income, social services have deteriorated. About 40 per cent of Detroit's streets light don't work, similar to Jamaica's. And the city's rate of violent crime, at over 2,000 per 100,000 population, though higher than Jamaica's, is something to which this country's citizens can relate.

Detroit is likely to ask the bankruptcy court to force its creditors, including bondholders and pensioners, to accept pennies on the dollar of what is owed. Job cuts for city workers are likely.

Which brings us to reform in Jamaica, or the slow pace with which the substantive matter of public sector, pension and tax reforms are being advanced.

Despite much talk, we are yet to see a coherent implementable plan, with executable timelines for the bloated public sector before the deferral of the hard decisions with a wage freeze. We do not yet have a specific road map to reverse the Government of Jamaica's mounting pension obligations. Nor do we sense any urgency to create a more efficient tax structure that collects more of what is owed to the Government and, more important, encourage investment by businesses.

Dilly-dallying and a failure to find consensus, or a lack of guts to do the tough things, could drive Jamaica into a declared bankruptcy, without the cushion of America's chapter 9 and the space that provides for a municipality to reorganise.

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