EMAIL SIGN UP!
Most Popular This Week
Popular content
Today's Top News
Jamaica's Crippling Debt Crisis Must Serve as a Warning to Greece
The experience of debt-ridden Jamaica shows the damage that can be done when the interests of creditors are given too much weight
As the eurozone authorities move closer to the accepting the inevitable Greek debt default/restructuring, there are some who have pointed to the Jamaican debt restructuring of last year as a model.
It's hard to imagine a worse disaster for Greece. It is worth a closer look at what has been done to Jamaica, not only as a warning to Greece, but to shed some light on the damage that can be done when "the international community" is willing to sacrifice a country for the sake of creditors' interests.
Jamaica – a middle-income developing country of 2.8 million people – has one of the worst debt burdens in the world, with a gross public debt of 123% of GDP.
At first glance this looks better than Greece (166% of GDP) but the more important number is the interest burden of the debt: for Jamaica it has averaged 13% of GDP over the last five years. This is twice the burden of Greece (6.7% of GDP), which is in turn the highest in the eurozone. (It is worth keeping in mind that the burden of the debt can vary widely depending on interest rates, and on how much is borrowed from the country's central bank – Japan has a gross public debt of 220% of GDP but pays only about 2% of GDP in annual net interest, so it doesn't have a public debt problem.)
Not surprisingly, a country that is paying so much interest on its debt does not have much room in its budget for other things. For the 2009/2010 fiscal year, Jamaica's interest payments on the public debt were 45% of its government spending. This crowding out of public investment and social spending has hurt Jamaica's progress towards the Millennium development goals.
Jamaica's coverage rates for detection and treatment of tuberculosis declined from 79% in 1997 to 43% in 2006, the worst decline of 77 countries for which data was available. The net enrollment ratio in primary school declined from 97% in 1991 to 87% in 2006/2007.
Jamaica's long term development failure is striking, and has a lot to do with its debt burden. For the 20 years from 1988-2008, real income per person grew by just 14%, which is incredibly dismal. The the country was hit by the U.S. and global recession at the end of 2008, losing export revenue, remittances, and other sources of aggregate demand.
The government turned to the IMF, which had already had a terrible track record in the country with almost continuous programmes from 1973-1996. Unfortunately the 2010 IMF prorgamme called for policies that would be expected to worsen the recession, including a reduction of the fiscal deficit, as well as real decreases in spending on health, education, and childhood development.
In February of last year the Jamaican government reached agreement with creditors on the Jamaica Debt Exchange, which restructured Jamaica's debt with the support of the IMF. The restructuring extended the average maturity of the debt and lowered interest rates enough to reduce the government's interest burden by about 3% of GDP annually over the next three years.
This would be quite substantial if Jamaica had a debt burden the size of Greece or Ireland, but unfortunately it still leaves the country with unbearable interest payments. There was no reduction in the principal, and Jamaica will have to refinance some 46% of its debt within the next one to five years – which could prove disastrous if there are unfavorable market conditions.
Jamaica's debt burden is outrageous, and needs to be drastically reduced. It is difficult to imagine the country making much progress in economic development while so much of its resources go to interest payments.
While the situation of every over-indebted country is different – in terms of the burden and structure of the debt, whom it is owed to (international or domestic creditors, official creditors such as the IMF or World Bank, and other specifics) – the most important issue is the same: how much should a country sacrifice in order to keep paying off its debt?
Unfortunately the people making these decisions – the European authorities, the IMF, the Paris Club and allied institutions – look at this issue from the point of view of the creditors.
But a responsible government will make its decisions on the basis of the needs of its people – for employment, economic growth, and better living standards. It is this conflict of interest that underlies the debt crises we are looking at in most over-indebted countries.
Comments
Note: Disqus 2012 is best viewed on an up to date browser. Click here for information. Instructions for how to sign up to comment can be viewed here. Our Comment Policy can be viewed here. Please follow the guidelines. Note to Readers: Spam Filter May Capture Legitimate Comments...
11 Comments so far
Show AllNow let us see. The Price of a Slave in Jamaica averaged 75 pounds sterling. A well trained slave with skills could sell for 250 pounds sterling.
This sum was 4 times what a well trained "supervisor" would have earned as a wage in this richest of British Colonies at the time.
Translate this into today's dollars multiplied by the 2.5 million people and one arrives at a sum of around 250 billion dollars.
Problem solved, given people are just seen as a resource and a commodity in the "Modern World of Economics" just sell the entire population into slavery and pay off the bankers.
This is what it coming too and I am sure there some right wing think tank plugging in these numbers as we speak and some Financial institution thinking up clever ways they can see "Futures" on the Slave market.
Indeed when one looks at the sweat shops of Haiti as an example, one can argue that the day has already come. It was what they wish to make the peoples of Greece and it what the people of Iceland rejected.
For freedoms sake Jamaica MUST refuse to pay this debt.
Hey, it's not called "slavery" anymore. That has a harsh ring to it.
We prefer to call it "pre-paid labor" now.
I lived in Jamaica and it was depressing to witness the destruction of a society by the IMF edicts. The IMF recolonizes countries for its resources. The Colonizers now are the International banksters which colonize the countries assets without having to administer the country. The USA has been recolonized since 1913 with the creation of the Federal Reserve which bought the USA into the Globalized banking scheme. The Wall St., Wash.,DC, the real Axis of Evil, provides the cannon fodder[troops]weapons systems and money exemplified by the Pentagon protection racket scheme of fund US,the Pentagram, for protection,or else. The purpose of the Pentagon is to provide worldwide protection for the assets and resources of the WEALTHY CORPORATIST WELFARE KINGS, most of which pay little or no taxes. The funding for this being the FORCED CONTRIBUTIONS, withholding TAXES, by taxing labor and transferring it in like kind or benefits to the WELFARE KINGS.The money is then used for worldwide unethical gangsterism. Al Capone was an ethical gangster, Al didn't provide protection for those that didn't pay for it. .
Well said bogi666. Jamaica was a thriving society prior to around 1973. Manufacturing was booming; there was a dynamic and sophisticated cultural climate; exports were keeping the trade deficit at a minumum; the streets of Kingston were relatively safe; Jamaica was a foremost power in regional caribbean politics and in fact the defacto leader of the Caribbean. The University Medical Center(University of the West-Indies Mona campus) was considered a world-class facility where people from all the entire Caribbean region would go to for treatment.
To be continued........................ran out of time.
Thanks. It was the CIA involvement in Jamaica that initiated its collapse. Although Michael Manley was an idiot, insulting Nixon, who then armed the opposition Labor Party to drive Manley from office. Manley's openly cavorting with Castro's Cuba didn't help, furthermore insulting Nixon, Ford and even Carter who continued to supply weapons to the Labor Party. I suspect that the CIA was behind the attempt to assassinate Bob Marley. The assassins had to have the capability to leave Jamaica. Staying there and they would have been revealed. Being a small country news gets out. That why armed criminals in Jamaica kill their victims,so they won't be identified. I rented a room out to a Jamaican detective and he could tell if someone assassinated knew their assassin by the way they were killed. No witnesses.
Possibly in a saner world countries could and would buy insurance to protect themselves from being trapped into the situation that Greece and Jamaica find themselves in. The rate paid might be decided on by an international body of actuaries with representatives from each country to determine the risk involved, and to determine when intervention was required and how it should proceed. When intervention was required the insurance company (much preferably non-profit) would buy up some of the debt, restructure it and investigate how the situation arose. Ideally, if it found that dishonest lending practices were involved, or that graft by the countries leaders played a part in the countries financial disaster, then the insurance firm could take steps to try and recover some of the funds from those responsible for the disaster. Continued dealings by other countries with the dishonest lenders would require premium rises to compensate for the increased risk incurred.
Legalize ganja and guarantee free trade in it. Jamaica will become a financial leader quickly as any balance of trade problems will disappear.
Life and Debt documentary. Documentary about IMF rackets in Jamaica. You might have to download divx to watch
http://stagevu.com/video/skhedrrazrgt
The Perils of globalization:
http://www.snagfilms.com/films/title/the_end_of_poverty/
Life and Debt is a great and informative documentary available via Netflix. The former PM states he reached out to China and the Russian mafia for assistance prior to giving into the IMF!
He clearly new IMF and World Band were the worst options for the country. Jamaica was a world class dairy producer. Part of the deal made the country import cheap dry milk product from the US. End result was the shut down of all dairy production in Jamaica.
There is no question that the smartest thing to do is just default and be done with it. Nations that have defaulted have recovered in just a couple of years. Nations the accept "help" remain in poverty for decades. That is what history shows us. The "help" is just a way for the financial industries to take control over public services, etc. and raise prices and profits while screwing the people out of education, health care, etc. DEFAULT is the right way to go!
In Jamaica's case what you propose is the best thing they could do.They can never pay back what they owe. I'm familiar with the numbers. Jamaica could not be any worse off should it default. Their are more Jamaicans living outside of Jamaica who send remittances there and they may be willing to increase their remittances. Many Jamaicans, just like Mexicans, would move back to their country of origin if conditions allowed.