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

May 30, 2017
Clancy Sigal
Even Grammar Bleeds
May 29, 2017
Jim Kavanagh
No Laughing Matter: The Manchester Bomber is the Spawn of Hillary and Barack’s Excellent Libyan Adventure
Vijay Prashad
The Afghan Toll
Melvin Goodman
The Washington Post’s Renewed Attack on Whistlblowers
Robert Fisk
We Must Look to the Past, Not ISIS, for the True Nature of Islam
Dean Baker
A Tax on Wall Street Trading is the Best Solution to Income Inequality
Lawrence Davidson
Reality and Its Enemies
Harry Hobbs
Australia’s Time to Recognize Indigenous Peoples’ Sovereignty
Ray McGovern
Will Europe Finally Rethink NATO’s Costs?
Cesar Chelala
Poetry to the Rescue of America’s Soul
Andrew Stewart
Xi, Trump and Geopolitics
Binoy Kampmark
The Merry Life of Dragnet Surveillance
Stephen Martin
The Silent Apartheid: Militarizing Architecture & Infrastructure
Weekend Edition
May 26, 2017
Friday - Sunday
Anthony DiMaggio
Swamp Politics, Trump Style: “Russiagate” Diverts From the Real White House Scandals
Paul Street
It’s Not Gonna Be Okay: the Nauseating Nothingness of Neoliberal Capitalist and Professional Class Politics
Jeffrey St. Clair
The ICEmen Cometh
Ron Jacobs
The Deep State is the State
Pete Dolack
Why Pence Might be Even Worse Than Trump
Patrick Cockburn
We Know What Inspired the Manchester Attack, We Just Won’t Admit It
Thomas Powell
The Dirty Secret of the Korean War
Mark Ashwill
The Fat Lady Finally Sings: Bob Kerrey Quietly Resigns from Fulbright University Vietnam Leadership Position
John Davis
Beyond Hope
Uri Avnery
The Visitation: Trump in Israel
Ralph Nader
The Left/Right Challenge to the Failed “War on Drugs”
Traci Yoder
Free Speech on Campus: a Critical Analysis
Dave Lindorff
Beware the Supporter Scorned: Upstate New York Trump Voters Hit Hard in President’s Proposed 2018 Budget
Daniel Read
“Sickening Cowardice”: Now More Than Ever, Britain’s Theresa May Must be Held to Account on the Plight of Yemen’s Children
Ana Portnoy
Before the Gates: Puerto Rico’s First Bankruptcy Trial
M. Reza Behnam
Rethinking Iran’s Terrorism Designation
Brian Cloughley
Ukraine and the NATO Military Alliance
Josh Hoxie
Pain as a Policy Choice
David Macaray
Stephen Hawking Needs to Keep His Mouth Shut
Ramzy Baroud
Fear as an Obstacle to Peace: Why Are Israelis So Afraid?
Kathleen Wallace
The Bilious Incongruity of Trump’s Toilet
Seth Sandronsky
Temping Now
Alan Barber – Dean Baker
Blue Collar Blues: Manufacturing Falls in Indiana, Ohio and Pennsylvania in April
Jill Richardson
Saving America’s Great Places
Richard Lawless
Are Credit Rating Agencies America’s Secret Fifth Column?
Louis Proyect
Venezuela Reconsidered
Murray Dobbin
The NDP’s Singh and Ashton: Flash Versus Vision
Ron Leighton
Endarkenment: Postmodernism, Identity Politics, and the Attack on Free Speech
Anthony Papa
Drug War Victim: Oklahoma’s Larry Yarbrough to be Freed after 23 Years in Prison
Rev. John Dear
A Call to Mobilize the Nation Over the Next 18 Months
Yves Engler
Why Anti-Zionism and Anti-Jewish Prejudice Have to Do With Each Other
Ish Mishra
Political Underworld and Adventure Journalism
FacebookTwitterGoogle+RedditEmail