Ayana Allen
31-Jan-10
Thirty-three years after first borrowing from the IMF; fourteen years after finally being able to terminate the borrowing agreement; and nine years after Stephanie Black’s American documentary “Life and Debt,” the Jamaican Government returns for a second shot at financial recovery though a $1.25 billion loan under a 27-month stand-by agreement with the IMF.
The IMF was expected to approve or reject the loan agreement the last week in January, but delayed the announcement until the government agreed on two loan preconditions. The first precondition requires
The Jamaican Debt Exchange, the second precondition, consists of government bondholders returning their high interest earning bonds for bonds with lower yields and longer maturities. The government is waiting for the last 9 percent of bondholders to get on board to reach 100 percent cooperation of the program—which is expected to save the government billions in interest payments.
In January members of the opposition party challenged the government’s thorough review of the loan agreement, leading many to believe officials were more focused on passing the letter on to the IMF for approval than carefully reviewing conditions of the agreement.
The government believes approval of the agreement will lead to an additional $1 billion in funding from other international financial institutions.
In a press release the IMF outlines its plan to increase public finance responsibility, reform public sector employment and strengthen the tax structure, at the cost of increasing taxes and cutting public sector salaries and other spending. The agreement will also allow the government to increase social safety net spending to protect
When the government first borrowed from the IMF (the lender of last resort) through a stand-by agreement in 1977 the organization required Jamaica to devalue its currency, remove tariff barriers to trade, and freeze wages. Such details may be visible in the fine print of the current loan agreement that Jamaicans at home and abroad are concerned about.
Update: On Thursday, February 04, 2010, the International Monetary Fund (IMF) approved
Ayana Allen is a senior journalism major at the
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ReplyDeleteAyana, good article. I tentatively support the government's decision to borrow from the IMF, and fully support the IMF's pre-conditions, namely getting rid of Air Jamaica and requiring that those dubious bondholders accept lower interest rates.
ReplyDeleteThere are many Jamaicans who are against the government's sale of Air Jamaica. I am not one. Air Jamaica is an unabating failure; it is totally mismanaged, and as such costs the Jamaican people billions in operational losses. The government needs to let it go. This brings us to another issue. To whom should the goverment sell Air Jamaica? The Trinidadians or the Jamaican pilots? Well, in my opinion, the government should sell Air Jamaica to the party who will provide most benefits, long term and short term, to the Jamaican people. I would be estactic if the Jamaica pilots acquired Air Jamaica. I am, however, not yet convinced that selling Air Jamaica to the Jamaican pilots is the most beneficial thing for the Jamaican people. In assessing the benefits of selling Air Jamaica, our primary concern should not be whether the potential owners are Jamaicans. Do remember that our own Bush Stewart took over Air Jamaica, messed it up and then returned it to the Jamaican government. Let's make sure we don't have a repeat of that. Further, CARICOM now have a single market economy: Jamaicans have the right to own anything in Trindad, and vice-versa.
Let's now turn to those dubios bondholders. The former goverment was reckless, if not criminal, in borrowing money at such outrageous interest rates. Notably, many of those bondholders were well connected to the prior administration, some of them government officials themselves. That's all in the past, however.
Going forward, I would like the JLP administration to fully explain to the Jamaican people how they they plan to administer the borrowed funds. Basic economics dictate that we cannot emerge from our economic predicament until we produce more than we consume. In our case, we simply need to start producing. Why di hell wi a import banana, corn, chicken, etc? Simply borrowing IMF funds alone will not uplift the Jamaican economy. We have to make sure those funds are invested in sectors that will provide positive rates of return. Some of these funds would be well invested in our obsolete, if not dilapidated, infrastructure. Better yet is investment in the agri-culture sector, through loans to farmers and the creation of food processing plants. More importantly, these funds should be efficiently and transparently administered, i.e. NO POLITICAL PATRONAGE