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EDITORIAL - PM seems ready to learn from Greece

Published:Monday | March 5, 2012 | 12:00 AM

Prime Minister Portia Simpson Miller is clearly paying attention to Jamaica's fiscal crisis and looking at the parallels between our problems and those of other countries. Greece has been an obvious stop for Mrs Simpson Miller.

Like Jamaica, Greece has an unsustainable debt. Theirs is more than 150 per cent of gross domestic product. Ours is around 131 per cent, but would rise a fair deal if commercial payment arrears were brought on to the books.

Neither country collects enough taxes to service its debt and meet other obligations. They have to borrow to meet the bills. This situation has caught up with Kingston and Athens.

But in Greece's case, a troika of the International Monetary Fund (IMF), the European Union and the European Central Bank is at the forefront of efforts to pull the Greeks through economic reforms so that it might escape the debt trap.

The troika's latest effort includes a US$173-billion bailout package to head off debt default, as well as muscling private lenders to accept a 53 per cent haircut on Greek bonds.

Hinting at haircut

Our prime minister noticed.

She apparently hopes that the IMF, with which her Government is negotiating a new lending agreement, can lean on, or persuade, other lenders to accept a haircut on Jamaica's debt.

She told Bloomberg, the financial news service: "If they [the IMF] could give a bailout like Greece, Lord, have mercy, you would see Jamaica grow. ... We know we would never be able to get the same level as Greece, but if we could get some consideration from countries or the IMF, we would be on our way."

Two years ago, Jamaica did restructure more than J$700 billion of its domestic debt. Creditors accepted lower interest at longer maturities, saving the country around J$40 billion a year in debt-servicing costs.

The then administration, however, did not approach its external creditors. This now seems to be in the contemplation of the Simpson Miller administration, judging from the PM's remarks.

PM must own reforms

The development is significant. That would signal the willingness of the prime minister to throw her full weight behind the fiscal reforms that Jamaica will have to undertake and would be part of a foreign bailout plan.

For instance, in Greece's bailout package, Athens agreed to slash 15,000 public-sector jobs and up to 150,000 by 2015. It will also lower its minimum wage by 20 per cent and liberalise its labour laws.

These measures are in addition to earlier ones that froze wages, lowered pensions, increased taxes, cut back on public spending and paved the way for the divestment of government enterprises.

As Mrs Simpson Miller would have recognised, there are no fiscal free lunches. Indeed, her finance minister, Dr Peter Phillips, has acknowledged the need to restrain the Government's wage bill, have public-sector employees contribute to their pensions, and reform the tax system in order to collect more while inducing investment.

Mrs Simpson Miller has wide appeal in Jamaica, which she will have to leverage if these reforms are to be successful. This does not preclude providing some cushion for society's most vulnerable.

Avoiding the hard choices will only mire Jamaica deeper in crisis.

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