By Kathy Barrett KINGSTON, Jamaica, Feb 12, CMC – Jamaica’s political and business community Tuesday gave a cautious response to the call by Prime Minister Portia Simpson Miller for nationals to accept the stringent measures that will accompany a multi-million dollar Stand By Agreement (SBA) with the International Monetary Fund (IMF).
Prime Minister Simpson Miller said that among the measures include increased taxes and the launch of a national debt exchange offer on Tuesday as her administration seeks to deal with a national debt that now stands at 140 per cent of Gross Domestic Product (GDP).
Former finance minister Audley Shaw said the measures outlined by the government lacked specifics on the progress in negotiations for a new deal with the IMF.
However, he conceded that the debt exchange option had the potential to help revive the economy and result in a further reduction in interest rates in the financial sector.
Shaw was finance minister three years ago when the then ruling Jamaica Labour Party (JLP) introduced the first Jamaica debt exchange (JDX) aimed at achieving some of the same objectives outlined by Phillips.
Financial analyst, David Wan said that while the choice of a debt exchange meant that it was the banks, bondholders and pensioners who would do “the heavy lifting” it was a less unpalatable option “than a straight tax package”.
He said overt tax package would have been much more painful than this interest rate reduction on the bonds”.
Wan, who spoke on a television programme soon after Prime Minister Simpson Miller and her finance minister Dr. Peter Phillip addressed the nation on the negotiations with the Washington-based financial institution, said he would have loved to see more evidence of “shared sacrifice” in the measures announced by the government.
Phillips said the launch of the national debt exchange offer on Tuesday would be done with the support of leading private sector financial institutions.
“Let me assure bondholders that there will be no haircut on their principal investment. This offer which we urge bondholders to accept will make possible the reduction of our debt to GDP ratios by 8.5 per cent or around $17 billion (One Jamaica dollar =US$0.01 cents) per year between now and 2020.
“Essentially this programme exchanges higher interest debt for lower cost debt and will entail significant sacrifices from our financial institutions and the holders of our domestic bonds, it will be painful and difficult but we have no option.
“Many of our bondholders with good reason will immediately respond to this announcement with a sense of disappointment as they recall that they made a similar sacrifice for Jamaica three years ago, when they were assured that their sacrifice would have put Jamaica on the path of growth and stability.
President of the Jamaica Employers Federation (JEF), Wayne Chen, said the adjustment package announced by Phillips was “softer than it could have been which is not to say it is not going to be a difficult hurdle to overcome”.
He said it represented “a great opportunity to build that platform for sustained economic growth and development which has eluded us for many years”.
However, Chen said the debt exchange will result in a cut in profits to the financial institutions, leading in turn to a reduction in their value “so they are taking a double hit”.
He said Jamaican workers in both the public and private sectors had been required to make severe sacrifices over the last five to six years and were being asked to continue doing so for the foreseeable future.
President of the Private Sector Organisation of Jamaica (PSOJ), Christopher Zacca, while highlighting the negative impact on holders of government instruments, said the majority of the banks are aware of the need for a debt exchange programme.
“They are in favour of volunteering and once again stepping up to the plate and helping the country. I must commend them for that. It’s not going to be easy, it affects pensions etc, we have to come together at this time and put together a programme to rescue Jamaica’s economy and get our debt down over time.
“We have to ensure that the government sticks to what it is going to do and therefore there may be the upgrading of the Jamaican economy and therefore they could recoup some of these losses,” Zacca said.