D.K. Duncan FORTY YEARS after political Independence - 40 years into the search for economic independence or prosperity - we are solidly ensnared in a most vicious trap. Predicted and predictable, this debt-trap is essentially of our own making. We must take responsibility and act. The first general election in the new millennium (2002) is an appropriate juncture at which to take stock, and resolve to chart a reliable course out of this dilemma.
THE DILEMMA
Prime Minister Manley clearly stated Jamaica's dilemma in an address to the Board of Governors of the Inter-American Development Bank in May, 1979 - when he said: "If the country holds to its determination to work for a more just society... it may find that the incremental flows arising from private foreign investment do not materialise... It will find economic growth extremely difficult of attainment and may, indeed, find that growth to be inconsistent with the maintenance of an open society, it may face a political catastrophe."
Manley continued: "On the other hand, if it (the country) dismantles the assault upon social injustice, it will doubtless recover 'a good reputation'.... The incremental flows may resume, but at an internal price of social betrayal including a return to the path of growing social inequality.
Once again, the likely outcome, in an open society, is political catastrophe."
Twenty-three years later, over 40 countries have come to be grouped as the HIPC's - a most unfortunate consequence of the debt-trap. These "Heavily Indebted Poor Countries" (HIPC's) have been formally recognised by the same multi-lateral agencies that helped to preside over the trap. The World Bank recently expressed its pleasure at the assistance it is giving to this group of countries.
THE LOCAL SETTING
The Minister of Finance recently presented to Parliament the proposed Estimates of Expenditure for the financial year April 2002 to March 2003. He also, presented the Government's plan to finance the expenditure. These plans were approved by Parliament on Wednesday, May 1, 2002 after the Finance Minister made his closing speech.
The principal presenters in the exercise which began on Thursday, April 18, were the Minister of Finance, the Prime Minister, the Opposition Leader and the Opposition spokesman on Finance. The Speakers ranged far and wide - more consistent with a State of the Nation review. However, a central theme was the debt problem and the proposals and plans for its management.
THE TRAP
The budget calls for an expenditure of $210 billion. Therefore, an income of the same amount must be found. We only have $126 billion in real income. This is derived from $117 billion in taxes and $9 billion from divestment proceeds. However, as a first charge on income we plan to pay out $135 billion in debt servicing (principal plus interest). Therefore we are $9 billion short before we begin to pay salaries ($65 billion) or start/continue new projects ($10 billion). We need to find an additional $84 billion. We plan to borrow this addition $84 billion in order to cover our expenses. In essence, we are 'borrowing from Peter to pay Paul'.
From these figures, it is clear that we are in a downward spiral leading once again to predictable consequences.
THE DOWNWARD SPIRAL
Wesley Van Riel noted, in reviewing the 1992/93 budget, that:
Repayment of Public Debt constitutes the largest item of expenditure under General Services in the entire budget. This continues the trend of the past decade (1982-1992) during which debt payment and servicing has moved up as a percentage of total expenditure".
In 1972, debt servicing as a percentage of total expenditure was 10.7 per cent. By 1990, it was 24.4 per cent, in 1992 it was 50.4 per cent and this year, it is 64 per cent.
If any Jamaican applied for a mortgage to buy a house and presented these figures to any financial institution, that person would be turned down at the first interview. The building society or the bank that would be providing "bridging finance" would explain to the applicant that to qualify for a loan, current loan repayments could not exceed a certain percentage of income. Governments are treated differently but the effects on the people are equally devastating.
THE DEBT BURDEN
Jamaica's total debt as of March 31, 2002 was $495 billion. The external debt is $195 billion and the domestic debt is $300 billion. In 1970 the external debt as a percentage of Gross Domestic Product (GDP) was 15.8 per cent, in 1980 - 82.2 per cent, rising to 154 per cent in 1985 and is now at 134 per cent. The Opposition spokesman on Finance tells us that internationally the critical level is 60 per cent. The Minister of Finance tells us that present plans will result in a reduction of this figure to 100 per cent by 2004/2005.
THE CHALLENGE
There has been a significant increase in domestic borrowing in recent years. The present figure of $300 billion includes the recent $100 billion arising from FINSAC activities. Economist Denis Morrison, writing for the Observer states: "The tough truth is that our debt problem is largely related to the size of the domestic debt and the level of local interest rates". He notes that:
"The JLP ought not to be allowed to waffle its way through the question as to how it would finance the big spending plans it has put forward for education, health and inner-city redevelopment". He reminded the Opposition Leader of his own words in the 1980s - "It takes cash to care".
Morrison challenges the PNP to: "Convince us in specific terms that it would be aggressive in moving to reverse the debt-burden and free up resources for economic and social development. It is not sufficient for it to expose the emptiness of the JLP's wishful thinking."
More Jamaicans need to join the debt dialogue.
One love, one heart.
Former General Secretary and Government Minister in the PNP administration of the 1970s, Dr. Duncan - a Dental Surgeon, recently established "The D.K. Duncan Political Institute"; e-mail: dktruth@ hotmail.com
