From left, Pham, Bowen and Duncan
Daraine Luton, Staff Reporter
The GOVERNMENT IS being urged to tread cautiously in any proposal to restructuring its debts even though most analysts agree that this would provide the country with much-needed breathing space.
Minh Pham, resident repre-sentative of the United Nations Development Programme (UNDP), told a Gleaner Editor's Forum on Friday that the agency is willing to provide the forum for dialogue between Government and it's domestic creditors to work out a plan for the proposed debt rescheduling.
"There is no way that Jamaica can continue to pay its debts at the current levels without hurting its future," Pham said.
Albatross
The country's debt burden has been an albatross around the neck of ordinary Jamaicans, who each owe approximately US$5,000 of the $1.2 trillion debt which the country was carrying at the end of 2008.
Finance Minister Audley Shaw and his predecessor Dr Omar Davies have boasted that even though Jamaica has a huge debt burden, the country has an exemplary record of honouring its obligations.
But addressing the recent Gleaner Editors' Forum, Pham said while there is no question about Jamaica's willingness to service its debt, there is need for dialogue on the interests charged on loans to the Government and the length of time for the repayment.
According to Pham, because the majority of debt owners are Jamaican institutions, local creditors must sit with the Government to come up with a solution on restructuring the debt.
Expenditure budget
Debt service payments eat up a huge chunk of the expenditure budget yearly and retards the chances of sectors such as health, education, and national security. Fifty-six per cent of the $555.7 billion budget this fiscal year is devoted to debt servicing.
"There is a critical need to look at how we rebalance the interests of a handful of debt holders versus that of the population at large and to find a win-win solution," Pham said as he made the call for dialogue on restructuring the country's debts.
But financial analysts and industry players have said that the country should, at all costs, avoid a structured restructuring.
Bruce Bowen, president of Scotiabank Jamaica, told the Editors' Forum that there are dangers in any formal restructuring.
"I disagree that a formal restructuring of the debt is necessary or would be a good thing for the country. You would not get access to capital for a long-term time afterwards," Bowen warned.
Similarly, Keith Duncan, managing director of Jamaica Money Market Brokers (JMMB), said care must be taken with the way in which the term debt restructuring is used.
"We have to be careful how we use that term as it can be construed as default. It would have significant implication for financial institutions and business on a whole," Duncan said.
The JMMB boss added that a restructuring of the country's debt could involve voluntary restructuring, voluntary swops and liability management programme.
University of the West Indies lecturer in economics, Dr Damion King, also said that the definition of debt restructuring and the modalities must be clear if Government decides to consider approaching its local creditors.
Bad word
"If by debt restructuring you mean something that the Government imposes on creditors or a move by creditors fearing that they are not going to get paid, in that context debt restructuring is a bad word.
"Jamaica has an astounding reputation for fidelity to its debt and it has caused us to be able to survive for very long with a frighteningly high debt to GDP ratio. I don't want us to throw that away for any reason because we are going to want to be dependent on the domestic and international capital market for some time and we need to preserve that," King said.
This year, the Government plans to borrow $186.4 billion in the local market to conduct its business and $29.4 externally.
The Government is also projecting a budget deficit of 5.5 per cent, which means it could turn to the local market for an additional $70 billion.
daraine.luton@gleanerjm.com<
Chen
Richard Chen, chairman of the economics committee of the Private Sector Organisation of Jamaica (PSOJ), has labelled Jamaican governments, past and present, "incompetent".
"We have been lurching from one incompetent government to the next. Our governments, past and present, have been incompetent," Chen said during a Gleaner Editors' Forum on Friday. The forum facilitated discussions on Jamaica's debt problem.
Chen lamented that governments over the years have failed to grow the economy and improve the standard of living of the Jamaican people.
He argued that the governments' appetite for borrowing has crowded out investment by the private sector which cannot compete with the state for loans from the domestic market.
"The measure of this incompetence is Jamaica's growth over any period, compared to the rest of the world. It has proven that our governments have been incompetent," Chen argued.
A World Bank analysis of GDP per capita, and real GDP growth rates in Latin America and the Caribbean for 1960-2005 ranks Jamaica above only Haiti in terms of average GDP growth.
The country had an average of less than two per cent annual economic growth over the period while Trinidad and Tobago enjoyed an average of nearly 3.5 per cent.
Haiti's economy grew by just over one per cent annual during the period.
Chen said that the incompetence of the country's governments gives him no confidence that they would not mess up again even if the country is debt free.
"If a wand was to be waved and the debt was to go away, and we do not fix the problem of having an incompetent government then we will just get back into the same situation that we were in before," Chen said.