Capri Study Backs JDX

In an important study just released, the independent Caribbean Policy Research Institute (CAPRI) has strongly endorsed the Government’s debt exchange programme, saying “the Jamaica Debt Exchange has turned an unsustainable fiscal situation into a potentially sustainable one. The fact and manner of the programme deserves kudos for both the government and domestic debt-holders”.
The study, which looks at the experiences of a number of countries, which had debt swap arrangements says that “to Jamaica’s credit, only two of the eight countries in the International Monetary Fund’s (IMF) cross-country review (Argentina and Ukraine) had also been able to achieve an upgrade from Moody’s in less than six months”.
Titled ‘Achieving Fiscal Sustainability in Jamaica: The JDX and Beyond,’ the study whose principal researcher is the well-known University of the West Indies (UWI) Senior lecturer in economics, Dr. Damien King, states that based on the experiences of other countries, Jamaica could expect continued access to international capital markets, with “only minimal, short-lived interest penalty, if any at all, which will likely be mitigated by assistance received from multilateral lending agencies”.
Noting that Jamaica’s average debt level over the last 10 years has been 115 per cent of Gross Domestic Product (GDP), producing a crushing debt burden, the CAPRI study points out that despite much public debate and promises over the years to grapple with the debt problem and diminish the vulnerability of the fiscal accounts, “almost a decade has passed since the debt/GDP ratio topped 100 per cent, under two administrations, with little being done.”
But “since December 2009 the Golding administration has executed a number of initiatives that potentially could represent a turning point in addressing Jamaica’s high debt burden”.
Highlighting the consequences of the country’s high debt burden, the study observes that servicing the debt has “siphoned off exactly half of the government’s revenue over the last 10 years.” The result has been “crumbling, inadequate infrastructure, declining quality and quantity of public services and rising rates of crime and violence. For all of the last 10 years, the debt burden as kept Jamaica on the brink of crisis.”
Significantly, the study draws attention to the fact that liabilities outside of central government continue to be the largest factor in adding to the debt stock. The government’s commitment to a central treasury management system as well as its commitment to divest loss-making entities form a major part of its medium-term economic programme, hence supporting the study’s conclusions.
The study downplays any negative reaction from the international capital market as a result of the debt exchange. Drawing on its cross-country research, the study says that “the market’s generally beneficent treatment of restructurers; its short memory and the preemptiveness and orderliness of the Jamaican swap; the continuous demonstration of ‘willingness to pay’ by the Jamaican government and the improved liquidity position, means that the country is unlikely to pay a noticeable price, if any at all” for its debt exchange programme.
The study warns, however, that without difficult public sector modernisation, tax reform and disciplined management of liabilities, the likelihood of another fiscal crisis in the future would be high. But it finds that “altogether, the swap was the minimum necessary restructuring, appropriately designed and skillfully executed”.