Tue | Jun 22, 2021

Jamaica should go the Paris Club route

Published:Friday | June 1, 2012 | 12:00 AM

Dr Paul Chen-Young, Guest Columnist

The budget presentations by Minister of Finance Dr Peter Phillips, and Opposition spokesman on finance Audley Shaw left the country with more concern and lack of hope about the debt crisis that is strangling Jamaica.

In a post-Budget interview, the minister of finance acknowledged that a new agreement will not be signed with the IMF until late autumn, assuming of course that certain performance criteria are met - even though he said that there was none after his various negotiations in Washington - based on the projections in the current budget that would show "fiscal discipline".

The tax measures announced must have been agonisingly difficult for the Government as it had to renege on election promises and tarnished its political image as 'the caring party for the poor'.

It took the hard political decision to show the IMF, World Bank, IDB and other public-lending institutions, as well as international private-sector banks, that it was pursuing a path that would restore investor confidence and allow for increased flow of funds when an IMF agreement is slated to be concluded this year.

Pronouncements and actions by the Government and the Opposition have both followed the same path of marginal budgetary adjustments that serve as the basis of economic policy which have not produced any meaningful economic growth over the past 25 years or so - a lost generation.

Marginal budgetary adjustments cannot deal with Jamaica's debt problem.

We have for too many years faced an unsustainable debt crisis which cannot be solved by conventional means. We are just wasting time and deluding ourselves that the marginal budgetary measures will see significant capital inflows to resolve the debt crisis.

Other countries have faced serious debt crises and took the decision that a conventional approach could not work. They turned to what is known as the Paris Club to have their debts rescheduled, partially forgiven, and then returned to economic sustainability.

informal group

In a May 5, 2003 article on Slate.com titled 'What Is the Paris Club?', Brenda Koerner describes it as "an informal group of official creditors" that traces its roots back to 1956 during the financial crisis in Argentina under the 'Peronist Unrest'."

The "troubled country met with several of its sovereign creditors in Paris to arrange rescheduling of its debt payments. The negotiations helped stave off an economic catastrophe and convinced the creditor nations that - with multi-nation cooperation - they could prevent future Third World implosions. By meeting to come up with less onerous payment plans, which would typically include at least partial debt forgiveness, creditor nations could ensure that everyone got paid in a timely fashion," Koerner wrote.

Debtor countries are "often recommended by the International Monetary Fund, and only after they've already tried austerity plans and other reforms. A Paris Club debt rescheduling or debt cancellation is often viewed as a last resort before default," she continued.

"Among the club's recent handiwork was a deal last April to reschedule US$5.4 billion worth of Indonesia's debt, and a 2001 decision to reschedule US$12.5 billion in Pakistani debt over a 38-year stretch."

Going the Paris Club route is no panacea to our debt problems and prudent fiscal programmes will have to be negotiated and adhered to as part of any deal. But, at least, there will be more breathing space to allow for more expenditures on our ravaged essential services.

If we continue on the old path, sacrifices will be made in vain as there will be little relief from the intractable debt levels and annual servicing costs.

Is it not time for both the Government and the Opposition to have meaningful discussions to arrive at a united approach to deal with the debt problem? The Paris Club approach should be considered as a strategic move to deal with the problem.