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Jamaica faces a bitter Lenten fast
In Jamaica, Ash Wednesday is a public holiday—a day for repentance and good works. But with no Carnival beforehand.
When a few thousand Trinis were cooling out on the Monday evening after a hard day on the roads, Jamaica’s Prime Minister Portia Simpson Miller took to the TV with her finance minister Peter Phillips. They announced a National Debt Exchange. Holders of the Government’s domestic debt were asked to swap their bonds for new ones, at a lower interest rate.
That was ashes indeed for the four financial institutions which hold half the domestic debt, and for their pension and life insurance clients. Overseas holders of Jamaica’s foreign debt are spared; but ratings agency Standard & Poor’s immediately cried default.
On the Tuesday. Phillips followed up in Parliament with an emergency tax package—months ahead of the annual budget. Plenty pain, but perhaps not much of a plan. The private sector in February last year presented a carefully reasoned proposal for overall tax reform which seems to have been more or less ignored.
Tax increases aroused more anger than debt restructuring. “I feel betrayed,” said Christopher Zacca of the Private Sector Organisation of Jamaica. The Opposition walked out of Parliament during the tax debate.
On February 15, the Friday after repentance day, came a provisional payback. The IMF announced a staff level agreement for a US$750 million four-year loan arrangement. A firm agreement by the IMF’s Board should follow, probably in March—if Jamaica first completes further painful “prior actions” and negotiates a public sector pay freeze.
Indeed, the agreement may be still-born. Unions were reported last Thursday to have rejected a government offer working out at just TT$21 a week to cover the next two years. For many in Jamaica, life is far from stylish. The minimum wage—for those in work—is less than TT$350 for a 40-hour week.
The IMF meanwhile bemoans Jamaica’s “low economic growth, declining productivity and reduced international competitiveness” and its “unsustainable debt burden.” The fund will support a programme for tax reform, better financial supervision, an improved business environment and protection for the vulnerable.
Sounds familiar? Bruce Golding’s Jamaica Labour Party government reached a broadly similar US$1.27 billion loan agreement with the IMF just three years ago, in February 2010. A Jamaica Debt Exchange slashed interest on domestic debt. He had a similar do-list of promises: tax and public sector reforms, upgraded financial supervision.
Performance soon went adrift. Public sector pay targets proved impossible to meet. With the economy stagnant, and Golding’s record on the May 2010 Tivoli battles also under attack, he stepped down from office—and watched the JLP lose a December 2011 election.
Jamaica has a long and troubled history with the IMF. Michael Witter, writing in the Gleaner last year, counted 12 agreements since 1977. Three were completed with no problems, and another two with special waivers of performance tests. Seven ended in tears. “We keep repeating our mistakes with great diligence and with no thought to a sustainable solution,” says a respected Kingston financier.
After years of stagnation, government debt is 140 per cent of GDP—Trinidad and Tobago’s is around 50 per cent. Debt interest and public service salaries eat more than 80 per cent of government revenue, leaving too little for health, education and roads. The Jamaica dollar has lost almost ten per cent of its value in the past year, while almost half the net international reserves have drained away.
On the face of it, there’s no reason for 40 years of stagnation and poverty. Jamaica has no offshore oil and gas—at least none has yet been found. But nor do Barbados, St Lucia or the Bahamas. The country has great beaches, a perfect climate for agriculture, and a port conveniently placed between the Panama Canal and Florida. There are useful bauxite resources. More important, there are plenty of talented, creative and well-educated Jamaicans.
Would a quick fix for debt ratios and interest rates set things right? Probably not. Business leaders, journalists, academics and campaigners complain of the standard of governance. The problem of the public sector is not just its cost, but how it operates.
There are complaints of favouritism and cronyism at all levels, and of a defensive, top-down management style. Middle managers are told to listen to their boss, not to the client—and still less, to suggest a fresh or creative approach.
Businesses small and large, households rich and poor are drained by the high cost of power—up to 40 US cents per kilowatt hour. For more than a decade, governments have put forward schemes to use LNG or “clean” coal. Each proposal has been knocked down, some amidst accusations of incompetence or mismanagement.
For the young, well qualified and mobile, there’s a quick solution. “Tax increases? I won’t be paying any of that. I’m moving to Canada,” says a lively young Jamaican, about to finish his law degree. Others have no choice but to stay, and pay.
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