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.

 

 

Like What You’ve Read? Support CounterPunch
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy
Dave Lindorff
What’s Wrong with Police in America
Louis Proyect
Jacobin and “The War on Syria”
Lawrence Wittner
Militarism Run Amok: How Russians and Americans are Preparing Their Children for War
Binoy Kampmark
Tales of Darkness: Europe’s Refugee Woes
Ralph Nader
Lo, the Poor Enlightened Billionaire!
Peter Koenig
Greece: a New Beginning? A New Hope?
Dean Baker
America Needs an “Idiot-Proof” Retirement System
Vijay Prashad
Why the Iran Deal is Essential
Tom Clifford
The Marco Polo Bridge Incident: a History That Continues to Resonate
Peter Belmont
The Salaita Affair: a Scandal That Never Should Have Happened
Weekend Edition
August 28-30, 2015
Randy Blazak
Donald Trump is the New Face of White Supremacy
Jeffrey St. Clair
Long Time Coming, Long Time Gone
Mike Whitney
Looting Made Easy: the $2 Trillion Buyback Binge
Alan Nasser
The Myth of the Middle Class: Have Most Americans Always Been Poor?
Rob Urie
Wall Street and the Cycle of Crises
Andrew Levine
Viva Trump?
Ismael Hossein-Zadeh
Behind the Congressional Disagreements Over the Iran Nuclear Deal
Lawrence Ware – Marcus T. McCullough
I Won’t Say Amen: Three Black Christian Clichés That Must Go
Evan Jones
Zionism in Britain: a Neglected Chronicle
John Wight
Learning About the Migration Crisis From Ancient Rome
Andre Vltchek
Lebanon – What if it Fell?
Charles Pierson
How the US and the WTO Crushed India’s Subsidies for Solar Energy
Robert Fantina
Hillary Clinton, Palestine and the Long View
Ben Burgis
Gore Vidal Was Right: What Best of Enemies Leaves Out
Suzanne Gordon
How Vets May Suffer From McCain’s Latest Captivity
Robert Sandels - Nelson P. Valdés
The Cuban Adjustment Act: the Other Immigration Mess
Uri Avnery
The Molten Three: Israel’s Aborted Strike on Iran
John Stanton
Israel’s JINSA Earns Return on Investment: 190 Americans Admirals and Generals Oppose Iran Deal
Bill Yousman
The Fire This Time: Ta-Nehisi Coates’s “Between the World and Me”
Scott Parkin
Katrina Plus Ten: Climate Justice in Action
Michael Welton
The Conversable World: Finding a Compass in Post-9/11 Times
Brian Cloughley
Don’t be Black in America
Kent Paterson
In Search of the Great New Mexico Chile Pepper in a Post-NAFTA Era
Binoy Kampmark
Live Death on Air: The Killings at WDBJ
Gui Rochat
The Guise of American Democracy
Emma Scully
Vultures Over Puerto Rico: the Financial Implications of Dependency
Chuck Churchill
Is “White Skin Privilege” the Key to Understanding Racism?
Kathleen Wallace
The Id(iots) Emerge
Andrew Stewart
Zionist Hip-Hop: a Critical Look at Matisyahu
Gregg Shotwell
The Fate of the UAW: Study, Aim, Fire