Will other Caribbean states follow Jamaica to IMF?

By Ronald Sanders

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
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