Saturday, December 16, 2017

Will other Caribbean states follow Jamaica to IMF?

Ronald Sanders logo2

Mark Fraser

JAMAICA’S harsh experience

with the International

Monetary Fund (IMF), to

get a new $750 million loan,

signals equally brutal conditions

for many Caribbean countries in

the not too distant future.

The burden of the tough conditions

placed on Jamaica by the

IMF falls entirely on the Jamaican

people and Jamaican businesses.

Under a National Debt Exchange

Offer (NDX), Jamaican

holders of Government debt

instruments are expected to exchange

such instruments for new

ones that, in some cases, will have

a lower value and in all cases will

mature over a longer period at reduced

rates of interest.

The NDX was launched on February

13 with a closing date of

February 21. By the time this commentary

is read the results of the

offer will be known.

There are several important

aspects of the NDX that should

cause other Caribbean countries

to be troubled.

First, the IMF has made it clear

that without an NDX, there would

be no loan. Second, while Jamaican

creditors are categorically required

to join the debt exchange,

foreign creditors are not. Third,

the length of time from the launch

of the NDX to its closing was a

mere nine days. It had the feel of a

gun to your head—do or die.

The IMF justifies the requirement

for the NDX on the basis that

Jamaica’s debt is “unsustainable”

—the official debt-to-GDP ratio is

over 140 per cent. It rationalises

not applying the same requirements

to foreign holders of Jamaica’s

debt instruments to join in

the NDX, by arguing that Jamaica

must repay its foreign debt to give

confidence to foreign capital markets

in the future. In as much as

the latter point may be arguable, it

is clear that the IMF insisted upon

it as a pre-requisite of its loan,

and the Jamaica government had

no choice but to accept it.

There are now several Caribbean

Community and Common

Market (Caricom) countries that

are in programmes with the IMF

as lender of last resort. They are

there, in part, because their debtto-

GDP ratios are more than 100

per cent or very close to it. After

debt servicing, they have little

money left to provide goods and

services to their populations.

Now that the precedent of a

National Debt Exchange Offer

(the world “offer” in this context

is a misnomer if ever there was

one) has been established in Jamaica,

every Caribbean country

that seeks an IMF loan, or an extension

of it, can expect a similar

requirement. This will have consequences

for those governments

that have borrowed heavily from

local statutory bodies such as social

security and national health

organisations. If those bodies are

compelled to exchange existing

debt instruments for ones that

are less favourable, they will be

depleting monies contributed by

the public for pensions and health


The unfairness of the NDX

is that the entire burden falls on

the local population; the foreign

creditors are assured of being repaid

even though they, too, took

the risk of lending and should be

open to the same requirements

that apply to local lenders.

If the NDX was the only condition

applied to Jamaica it

would be bad enough. But

there is more. The government

also has to increase taxes

and introduce a raft of new ones.

Spending must also be reduced.

This means public service retrenchment

and a cutback on infrastructural


Whether this bitter medicine

will cure the needy Jamaican

economy, or worsen it, is

left to be seen. What is certain is

that Jamaicans are now in for a

tougher time. The IMF Executive

Board will meet in March to judge

whether the government has met

the pre-conditions for the loan

of $750 million spread over four


The Jamaican government

does not have much of an option.

There are no “white knights” on

the IMF Executive Board championing

the cause of Jamaica or

any other developing country in

similar circumstances, and arguing

for less harsh conditions. And,

with 55 per cent of government

earnings going toward paying

back debt and 25 per cent being

spent on wages, only 20 per cent is

left for everything else—including

education, security and health.

A few other Caribbean governments

are at the same point as Jamaica,

or pretty close. Their fate

will not be much different, unless

they implement policies that

reduce their borrowing significantly,

particularly within their

own domestic economies; find

creative ways of increasing export

revenues, including in tourism

and the creation and sale of

new services; reduce government

spending on unnecessary projects;

and encourage the private

sector—both local and foreign—to

take on more of the capital risk

and to increase employment. In

other words, governments have to

rethink their roles—focusing on

facilitation and regulation rather

than competing with the private

sector. Further, governments have

to build genuine partnerships

with the private sector and trade


aribbean governments

also have to stop treating

the opportunities that regional

economic integration

offers as though they do not

exist or are not worth pursuing.

The integration of the factors of

production—natural resources,

capital, management know-how

and labour—can increase production

and export earnings. Perfecting

the Caribbean Single Market

remains a vital step in this process.

And, of course, that won’t

happen if governments persist in

the decision made two years ago

to “pause” integration.

A joint Caribbean approach

to external debt negotiation, including

with the IMF, would also

give the region more bargaining

strength. It is not beyond the creativity

of regional technicians to

work out how.

Caricom countries should be

swimming together; right now

many of them are sinking alone.

Sir Ronald Sanders is a

consultant, former Caribbean

Diplomat and Visiting Fellow at

London University