I need to refer to Mr. Aubyn Hill’s thought provoking article in the Financial Gleaner of January 25, 2013, about voluntary but necessary debt forgiveness for Jamaica; which seems the only way out of a deep financial crisis; then a rapid economic growth toward building production.
Though rapid economic growth is a solution, is it attainable? We neither have the working capital, or the inclination.
May I point out that the first ten years after independence, growth was evident? Of course as has been suggested, one other option is declaring the country bankrupt, and reneging on all debt obligations, but those countries that have taken this step recently (Argentina) cannot find resumption to normal business.
I remember that in July 2012 I made a similar remark, writing to the Gleaner in that instant about the feasibility of Caricom, and thoughts of debt reduction to Trinidad. And I quote:
“The only solution is to borrow our way out, or for Trinidad to significantly write-down or write-off the debt, so that we can jointly make a new start reviewing the Caricom functions and streamlining them to be more efficient, and guard against future imbalances. If the former is being contemplated a low interest, a long term loan from Trinidad might also be appropriate, or Trinidadian support through the CDB”.
I thought that a long term loan, over five or ten years, would give us some relief, and give Trinidad some satisfaction when Caricom trading is allowed to resume. But we have had no replies or hints from Trinidad, or from anyone else. I think that some further discussion in this area is warranted, to arrive at some conclusion.
But why would an Institution or Country want to write off debt by Jamaica, or for that matter anyone else? What would be gained from refinancing, when in the future of Jamaica there is no plan to use new money and produce, energy, agricultural, manufactured products and services that would pay the debt? A planned mode of action is required. Would any serious business person write off a bad debt of substantial value from a client as long as there is some hope of recovery? I doubt it. In fact they may take a position to be in line early when repayment or other money from some source is being provided.
What of the IMF and other International Lending Agencies? Will they come to assist Jamaica resolve a crisis when the total lending package may be used in paying off debt? Then will they lend more money? And I guess yes, but on their terms.
They might monetize the debt which is buying our debt in the form of bonds and then we print more money which devalues our dollar, making anything you save, or earn, instantly worth less, while necessities like food skyrocket. You have to drastically slash spending, stop raising the debt ceiling…but no matter, inflation surfaces. In order to pay off the debt, it is also pointless to raise taxes: I think taxes won’t even cover the interest into the next 20 years. So there is in part an answer, significant devaluation.
Coupled with this we then need to mitigate the effect of high inflation so caused, produce what we can in terms of food products, and cease unnecessary spending, including capital expenses. It would be a problem to raise taxes, devalue the dollar, and restrict spending all at the same time, so I would suggest we keep taxes as they are.
I would not reject the first intention, to negotiate a compromise with all creditors; this should proceed with immediate vigor, but this is not the cure all as co-operation is difficult, and interest is waning:
There is after all a world-wide economic crisis, and every country is trying to solidify its position and survive.
(646 words, 26/01/2013)
R. K. Sujanani