FacebookTwitterGoogle+RedditEmail

Jamaica Restructured

by MARK WEISBROT

As the eurozone authorities move closer to accepting the inevitable Greek debt default/restructuring, there are some who have pointed to the Jamaican debt restructuring of last year as a model. It’s hard to imagine a worse disaster for Greece. It is worth a closer look at what has been done to Jamaica, not only as a warning to Greece, but to shed some light on the damage that can be done when “the international community” is willing to sacrifice a country for the sake of creditors’ interests.

Jamaica ? a middle-income developing country of 2.8 million people — has one of the worst debt burdens in the world, with a gross public debt of 123 percent of GDP. At first glance this looks better than Greece (166 percent of GDP) but the more important number is the interest burden of the debt: for Jamaica it has averaged 13 percent of GDP over the last five years. This is twice the burden of Greece (6.7 percent of GDP), which is in turn the highest in the eurozone. (It is worth keeping in mind that the burden of the debt can vary widely depending on interest rates, and on how much is borrowed from the country’s central bank ? Japan has a gross public debt of 220 percent of GDP but pays only about 2 percent of GDP in annual net interest, so it doesn’t have a public debt problem.)

Not surprisingly, a country that is paying so much interest on its debt does not have much room in its budget for other things. For the 2009/2010 fiscal year, Jamaica’s interest payments on the public debt were 45 percent of its government spending. This crowding out of public investment and social spending has hurt Jamaica’s progress toward the Millennium Development Goals. Jamaica’s coverage rates for detection and treatment of tuberculosis declined from 79 percent in 1997 to 43 percent in 2006, the worst decline of 77 countries for which data was available. The net enrollment ratio in primary school declined from 97 percent in 1991 to 87 percent in 2006/2007.

Jamaica’s long-term development failure is striking and has a lot to do with its debt burden. For the 20 years from 1988-2008, real income per person grew by just 14 percent, which is incredibly dismal. Then the country was hit by the U.S. and global recession at the end of 2008, losing export revenue, remittances, and other sources of aggregate demand. The government turned to the International Monetary Fund, which had already had a terrible track record in the country with almost continuous programs from 1973-1996. Unfortunately the 2010 IMF program called for policies that would be expected to worsen the recession, including a reduction of the fiscal deficit, as well as real decreases in spending on health, education, and childhood development.

In February of last year the Jamaican government reached agreement with creditors on the Jamaica Debt Exchange, which restructured Jamaica’s debt with the support of the IMF. The restructuring extended the average maturity of the debt and lowered interest rates enough to reduce the government’s interest burden by about 3 percent of GDP annually over the next three years. This would be quite substantial if Jamaica had a debt burden the size of Greece or Ireland, but unfortunately it still leaves the country with unbearable interest payments. There was no reduction in the principal, and Jamaica will have to refinance some 46 percent of its debt within the next one to five years ? which could prove disastrous if there are unfavorable market conditions.

Jamaica’s debt burden is outrageous, and needs to be drastically reduced. It is difficult to imagine the country making much progress in economic development while so much of its resources go to interest payments.

While the situation of every over-indebted country is different ? in terms of the burden and structure of the debt, to whom it is owed to (international or domestic creditors, official creditors such as the IMF or World Bank, and other specifics) — the most important issue is the same: How much should a country sacrifice in order to keep paying off its debt? Unfortunately the people making these decisions ? the European authorities, the IMF, the Paris Club and allied institutions ? look at this issue from the point of view of the creditors. But a responsible government will make its decisions on the basis of the needs of its people ? for employment, economic growth, and better living standards. It is this conflict of interest that underlies the debt crises we are looking at in most over-indebted countries.

Mark Weisbrot is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This column was originally published by The Guardian.

 

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

March 29, 2017
Jeffrey Sommers
Donald Trump and Steve Bannon: Real Threats More Serious Than Fake News Trafficked by Media
David Kowalski
Does Washington Want to Start a New War in the Balkans?
Patrick Cockburn
Bloodbath in West Mosul: Civilians Being Shot by Both ISIS and Iraqi Troops
Ron Forthofer
War and Propaganda
Matthew Stevenson
Letter From Phnom Penh
James Bovard
Peanuts Prove Congress is Incorrigible
Thomas Knapp
Presidential Golf Breaks: Good For America
Binoy Kampmark
Disaster as Joy: Cyclone Debbie Strikes
Peter Tatchell
Human Rights are Animal Rights!
George Wuerthner
Livestock Grazing vs. the Sage Grouse
Jesse Jackson
Trump Should Form a Bipartisan Coalition to Get Real Reforms
Thomas Mountain
Rwanda Indicts French Generals for 1994 Genocide
Clancy Sigal
President of Pain
Andrew Stewart
President Gina Raimondo?
Lawrence Wittner
Can Our Social Institutions Catch Up with Advances in Science and Technology?
March 28, 2017
Mike Whitney
Ending Syria’s Nightmare will Take Pressure From Below 
Mark Kernan
Memory Against Forgetting: the Resonance of Bloody Sunday
John McMurtry
Fake News: the Unravelling of US Empire From Within
Ron Jacobs
Mad Dog, Meet Eris, Queen of Strife
Michael J. Sainato
State Dept. Condemns Attacks on Russian Peaceful Protests, Ignores Those in America
Ted Rall
Five Things the Democrats Could Do to Save Their Party (But Probably Won’t)
Linn Washington Jr.
Judge Neil Gorsuch’s Hiring Practices: Privilege or Prejudice?
Philippe Marlière
Benoît Hamon, the Socialist Presidential Hopeful, is Good News for the French Left
Norman Pollack
Political Cannibalism: Eating America’s Vitals
Bruce Mastron
Obamacare? Trumpcare? Why Not Cubacare?
David Macaray
Hollywood Screen and TV Writers Call for Strike Vote
Christian Sorensen
We’ve Let Capitalism Kill the Planet
Rodolfo Acuna
What We Don’t Want to Know
Binoy Kampmark
The Futility of the Electronics Ban
Andrew Moss
Why ICE Raids Imperil Us All
March 27, 2017
Robert Hunziker
A Record-Setting Climate Going Bonkers
Frank Stricker
Why $15 an Hour Should be the Absolute Minimum Minimum Wage
Melvin Goodman
The Disappearance of Bipartisanship on the Intelligence Committees
Patrick Cockburn
ISIS’s Losses in Syria and Iraq Will Make It Difficult to Recruit
Russell Mokhiber
Single-Payer Bernie Morphs Into Public Option Dean
Gregory Barrett
Can Democracy Save Us?
Dave Lindorff
Budget Goes Military
John Heid
Disappeared on the Border: “Chase and Scatter” — to Death
Mark Weisbrot
The Troubling Financial Activities of an Ecuadorian Presidential Candidate
Robert Fisk
As ISIS’s Caliphate Shrinks, Syrian Anger Grows
Michael J. Sainato
Democratic Party Continues Shunning Popular Sanders Surrogates
Paul Bentley
Nazi Heritage: the Strange Saga of Chrystia Freeland’s Ukrainian Grandfather
Christopher Ketcham
Buddhism in the Storm
Thomas Barker
Platitudes in the Wake of London’s Terror Attack
Mike Hastie
Insane Truths: a Vietnam Vet on “Apocalypse Now, Redux”
FacebookTwitterGoogle+RedditEmail