EDITORIAL - Debate the foreign debt

IN A hitherto little-noticed discussion document, on which this newspaper reported last week, the United Nations Development Programme (UNDP) suggested that following last February's restructuring of more than J$700 billion of domestic debt, Jamaica should now seek to do the same thing with foreign lenders.

"The debt exchange has brought the Government invaluable breathing space," said the document, authored by Gail Hurley of the UNDP's Bureau of Development Policy, its resident representative in Jamaica, Minh Pham and the local office's poverty programme adviser, Machel Stewart. "Arguably, however, a more robust resolution to the island's debt problems may have been found should the country have had recourse to a sovereign insolvency mechanism at the international level."

Sinking into more debt

In other words, despite the easing of debt servicing and broader fiscal pressures that have come with the euphemistically titled Jamaica Debt Exchange (JDX), Jamaica is far from out of the woods regarding its debt burden. The US$7.71 billion of foreign debt - 55 per cent of which is held by private creditors, who demand high-risk premiums - was unaffected by the deal. It will, this fiscal year, require J$47 billion to pay interest only on this debt, limiting the Government's capacity for social spending or expenditure to stimulate the economy without undermining deficit targets. Looked at another way, the country's debt, heading towards 140 per cent of GDP, represents a structural reinforcement of underdevelopment and poverty.

Or, as some analysts posit the issue, Jamaica's public debt remains unsustainable and the JDX notwithstanding, the country could, in the future, face another payment crisis.

It is largely in this context that the UNDP suggests a reopening of "public-policy debates over the usefulness of a sovereign debt workout mechanism at the international level". We agree.

Of course, there is no suggestion that a 'Kingston Club' deal, if it happened, would be easy. There would be, for instance, the implications for the Jamaican holders of the 'foreign' debt, who have already absorbed the impact of the JDX.

Moreover, the timing of the restructuring of the domestic debt, at the height of the global economic crisis, was opportune. There was national consensus that it had to be done. The Government, too, had far greater political credibility and trust.None of this, though, should proscribe the debate.

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