EDITORIAL - Debt management, now for the rest
Many will insist, not without logic, that the debt-restructuring programme Prime Minister Bruce Golding will formally unveil to Jamaicans tonight is effectively a default.
That as it may be, what the Government is engaged in is a practical expedience, the courage for which it was long in stirring but for which it is to be commended and encouraged. For Jamaica, as this newspaper has long argued, faces a dire economic circumstance which requires tough action.
After all, a public-sector deficit of more than $100 billion, or more than 12 per cent of gross domestic product, which the recent trajectory suggested was the likelihood, is unsustainable. Debt servicing, accounting for more than 60 per cent of the Government's budget expenditure, is the biggest drag on the fiscal accounts. It is understandable, therefore, that the administration is seeking to reschedule the bulk of the J$735.6 billion domestic portion of the country's debt, which consumes more than 70 per cent of interest payments.
But while we are sympathetic to the administration's objectives, we are certain that the Government's adjustment programme, in so far as it has been articulated, does not go nearly far enough. To put it bluntly, the Golding administration, while it has talked a lot about containing public expenditure it has - debt restructuring apart - largely waffled on the subject. That must change.
In this regard, when Mr Golding speaks tonight he must bring clarity to the matter. He must come with specifics about what will be done to achieve the "fiscal compression", to which he and his ministers like to refer.
Promising to deliver something sometime in April, when the new budget is presented, will not be good enough. Indeed, any attempt to use projected saving on interest payments to boost the administration's electoral chances, rather than for a real economic fix, will not be tolerated. That would be to betray the sacrifices of the two million savers who will not only make concessions on interest rates, but are already bearing the burden of $40 billion in new taxes this fiscal year.
There are few other points relating to this debt-restructuring programme, which we believe are pertinent to the administration and which the Government needs to give attention. Not least of these is the January 26 deadline which it is said has been given for holders of bonds to signal their willingness to comply with the Government's deal. That is 13 days from now, which is perhaps long enough for institutional holders of government debt. But there are thousands of individuals, including many living abroad, who will have problems meeting that timetable and may be subject to penalties that might apply to those who fail to respond.
Important, too, is the rate of around 12 per cent that has emerged as what the Government is likely to offer on the swopped bonds. That rate is in a context of inflation at around nine per cent and projected to run as high as 11 per cent over the next fiscal year.
The danger here, given the fees that are perforce charged by institutions, is that savers, who must be enticed to keep their money here to fuel investment and growth, receive negative real returns on their cash. It is imperative that rates be linked to price indices and that the authorities do their job of keeping inflation under control.
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