Editorial: A better idea for the Black Caucus
We are grateful for the interest by members of the Black Caucus of the US Congress in Jamaica's economic welfare. Jamaica has benefited from their concern, such as in 2013 when, with the country shut out of the credit markets and running out of money, they intervened with Christine Lagarde for an urgent conclusion of an agreement with the International Monetary Fund (IMF).
But good intent, in the absence of robust analysis, is sometimes the enemy of logic - a matter of which the Black Caucus, and others who now complain about the quantitative targets set under the IMF agreement, should be mindful. Five members of the Black Caucus - Maxine Walters, Yvette Clarke, Sheila Jackson Lee, Gregory Meeks and Charles Rangel - have written to President Barack Obama urging that his administration muscle the IMF into softening the terms of the agreement.
They targeted, specifically, the requirement that the Government run a high primary balance of 7.5 per cent of gross domestic product (GDP) so as to have the surplus with which to service its debt. Such a high primary surplus, they argued, restricted the Government's ability to spend on infrastructure and social welfare and other projects that generate growth. The upshot: declining employment and increased poverty.
Even if it is assumed that these presumed outcomes are fact, the argument misses several crucial points, not least of which that after nearly half a century of poor economic management and fiscal misdemeanour, Jamaica's GDP expansion was trifling and the Government's debt was heading towards and unsustainable 150 per cent of annual national output. Nobody was willing to lend to Jamaica - at least at rates we could afford.
The primary surplus of 7.5 per cent was not a number conjured by Houdini. It is what all the empirical analysis concluded was required, over the medium term, to place the debt on a sustainably downward trajectory. The debt-to-GDP ratio is now 138.5 per cent. Shifting that primary surplus target at this time would be to undermine the debt sustainability project, keeping Jamaica locked in a debt trap.
Implicit in the argument proposed for the relaxation of the target and for greater government spending is the ideological presumption of government as the engine of growth and creator of jobs, rather than the enabler of the private sector to do these things.
It is a call for the Government to resume its old posture of jostling firms out of the way and gobbling up the credit on which it grew fat, while operators in the real economy became emaciated.
The Black Caucus wants the Obama administration to press the IMF and multilateral banks - which hold about 39 per cent of Jamaica's US$8.6-billion foreign debt - to restructure these loans by extending maturities and lowering rates. That, at this juncture, is an unlikely sell.
Perhaps, though, the Black Caucus might urge the administration to have the US Treasury issue Brady-type bonds to be used to redeem the US$4.5 billion, or 52 per cent of the debt, owed to
Like the Chinese, whose capital is what now drives what little growth there is in Jamaica, the administration might be told to underpin this strategy with an encouragement of US foreign direct investment to the island. Now that the idea has been broached, perhaps Beijing might consider a Brady-bond-type
programme for Jamaica.