Mark Ricketts | Debt, mining, and IMF leaving

Sometimes it is hard for small developing nations with an extremely open economy to survive sudden changes in weather, trade, declines in investment inflows, or sharp price increases in critical inputs such as oil. Since Independence, Jamaica has had to withstand all these external shocks, at great cost.

Accepting the reality of these shocks, countries like Jamaica have very little room for error. Competence, management, and leadership are critical to the country’s survival and growth prospects.

If bad policies are pursued and the country continues with what I call its garrison-driven politics of personal affection, we are going to end up, as we are now, struggling with the enormity and hardship of a J$2.18-trillion national debt. This limits our ability to undertake initiatives to offset our infrastructural deficits, build our institutions, and modernise our economy.

Over the last few years, one of the achievements we have bragged about, and presumably should provide us with comfort, is that our debt-to-GDP ratio has fallen quite dramatically.

Six years ago when the International Monetary Fund (IMF) and the Government brokered an agreement to institute an economic reform programme, our debt stood at 150 per cent of GDP. Today, it’s 105 per cent.

Back-to-back devaluation

We had expected it to reach in the low 90s, but back-to-back devaluation over the last two years increased our national debt. A significant portion of it is in foreign exchange, so devaluation means more Jamaican dollars are needed to repay such debt.

The decline in debt-to-GDP ratio occurred because of periodic refinancing of the country’s foreign debt, as well as an attractive deal Venezuela provided some years ago through the beneficial oil arrangements we had with that country.

The marginal gains in economic growth we have recorded in the last few years have also allowed us to improve our debt-to-GDP ratio.

While it is commendable that we have had fairly sharp declines in that regard, we have made no impact on the absolute amount we owe. Yes, we have eased our current annual payouts by buyouts and refinancing and extending the years for repayment, as Finance Minister Dr Nigel Clarke did this month. The Government has also been creative in substituting lower-cost interest instruments for higher-cost fixed-income securities.

These better pricing arrangements are possible because of the country’s improved macroeconomic stability. In spite of these gains, we cannot lose sight of the fact that in absolute dollars, we still owe more than $2 trillion, and that figure has not declined in years.

Jamaica is not generating what is needed to seriously tackle our national debt, whether through productivity increases, meaningful economic growth, and positive shifts in our current account.

Equally troubling is the fact that any future declines in the dollar will continue to make it difficult for us to reduce the absolute value of the national debt, where, today, every man, woman, and child owes $770,000.

While that debt remains high, we now have to cope with the disappointment of not reaping the economic advantages of the multibillion-dollar capital investment JISCO had planned for its industrial park.

The other sad news is the two years, come November, that the recently reopened JISCO bauxite alumina plant (formerly Alpart) will be out of commission for renovation. That’s going to devastate export earnings.

Many Jamaicans seem indifferent to this reality. Hearing the discontent with bauxite mining among protesters and conversations I am buttonholed in having with people generally, I despair. Some protesters are adamant that the bauxite companies must leave.

Battle lines are drawn, even if they are not relevant. It is now mining versus the Cockpit. Mining is dirty, the Cockpit is pure. Mining is theirs, the Cockpit is ours. Mining is exploitation, the Cockpit is purification. Mining is all about money, the Cockpit is about people.

Even the unions representing the bauxite workers, and the workers themselves, in their attempt to define both the issues and the boundaries in this crossfire are given short shrift as they are sinners, coming with unclean hands, representing and defending the indefensible – the greedy corporate multinational juggernauts who are here not to build Jamaica but to take what they can from the country.

When I ask the question, with JISCO shutting down, affecting employment, export earnings, and economic growth, what happens if Noranda leaves, then returns when alumina prices justify plant reopening and production. Listeners shrug their shoulders, implying the country will be fine.

Their answers captured the passions of the 1970s; the joy of eating what we grow, the beauty of creating our own survival, the charm of self-reliance and volunteerism, and the excitement of taking our hands and make fashion.

To my question, how do we pay our national debt? The answers: “We still have our beautiful beaches, our mountains, and our unsoiled Cockpit Country, and, if we can’t make it, we will just send back for the IMF. It couldn’t have gone far, it just left. Plus, we never used the US$1.6 billion they were lending us. We can borrow it now to take care of business.”

External shocks

Sometimes external shocks can be sustained and unforgiving. Oil prices jumped recently after the Saudi Arabia oil facilities were damaged. Whenever crude oil prices rise, even for a short time, it’s hard on us, an oil-dependent nation.

As oil prices start retreating, Thomas Cook, one of the world’s largest tour operators, filed for bankruptcy. That’s not good news. The company was expected to fly 16 charters to Jamaica during the next six months.

Tourism Minister Ed Bartlett was off to London the next day trying to troubleshoot, finding appropriate fill-ins for what he described as small issues in Canada, in Germany, and, unfortunately, a much larger one in Britain.

The best-laid plans of mice and men do go awry. Because of that, and the size of our debt, and the openness of our economy, we can’t afford the luxury of mistakes and the recent missteps.

-  Mark Ricketts is an economist, author, and lecturer. Email feedback to columns@gleanerjm.com and rckttsmrk@yahoo.com.