Deeper indebtedness
published: Wednesday | April 23, 2003
Delroy Chuck
"OUR SITUATION is impossible to sustain," said XYZ in an emergency address to the nation. "Overspending and mounting debt have condemned us to recession. We cannot continue paying these high interest rates. From here on out, we will spend only what we have." (See Time Magazine, July 23rd, 2001). That excerpt was actually not given, at least not yet, by Jamaica's Finance Minister Dr. Omar Davies or Prime Minister PJ Patterson, but by the then Argentine President Fernando de la Rua, as he made another last ditch effort to save his government and rescue the nation's ailing economy. By then, it was too late, Argentina was headed for financial ruin, destined to default, and the whole country was in chaos, confusion and uncertainty.
Is Jamaica's situation any different? Are we not in a more precarious predicament? When will we hear a similar emergency address? In the budget presentation, Jamaica expected a contrite confession and responsible concern for our deepening and overwhelming indebtedness and, thus, a credible strategy to cap and reduce the debt burden. Oh no! Dr. Davies treated the accumulating debt as mere numbers and told the nation how wonderful our indebtedness has been, how the debt was used to build hospitals, roads and schools, without acknowledging that the vast majority of the debt had been used to correct and respond to his failed economic policies. Most of the indebtedness in fact accumulated from interest payments, FINSAC bailout, public sector rescues, and for budget support and budget deficits.
THE TRUTH ABOUT SPENDING
Actually, Jamaica has very little to show for its deepening indebtedness, and that is the real tragedy. For example, the national debt increased in fiscal year 2002/03 by 104 billion dollars, if even half of that amount had been spent on hospitals, roads and schools, they would be of first world quality. In fact, our national debt has increased by over 300 billion dollars during the past 6 years, or by over 6 billion US dollars. If Dr. Davies is correct and the money was spent on our infrastructure and facilities, then why are the residential roads, schools, clinics, morgues, government facilities, inner cities, etc, in such appalling and rotten states?
The real truth is that this government has borrowed and indebted the nation for two primary purposes - to continue its uninhibited overspending and to protect the currency. Government's wage bill has increased steadily, almost doubling during the past 6 years, which is far more than can be justified by inflation or by its ability to pay. When commentators urge the government to cut expenditure, then instead of increasing salaries and employing consultants, the government should ask for pay cuts, voluntary redundancy or put some employees on part time. To protect the currency, the government continues with its prolonged high interest rate policy, which adds tens, and tens, of billions of dollars to our indebtedness and, still, the currency slides. I reckon the government has spent over 300 billion dollars, in FINSAC bailout and interest payments, to protect a sliding currency, to no avail.
"As in previous years," the Memorandum on the Budget 2003/04, ch.2, p.1, notes, "debt servicing is a significant growth point in the budget. Interest payments are expected to grow by 27.5% and amortisation by 0.4%." This year, in fact, we are projected to pay $79.211 billion in interest compared to last year when we paid 62.12 billion. Sadly, the mounting indebtedness is not increasing employment, generating growth and development or improving the quality of life. The government's insatiable appetite for debt is merely compounding the economic difficulties, and transferring wealth to the already cash-rich companies and prosperous individuals. Instead of boasting about the debt, Minister Davies should apologise to the poor, the unemployed and the vulnerable, who are further pauperised, marginalised and crushed by the deepening indebtedness.
STOP TO INSANITY
The compelling issue is when will this ridiculous, unthinking and insane monetary policy stop? Annually, a Debt Management Strategy is provided, which is a Ministry Paper intended no doubt to allay the fears of lenders and International Investment Fund Managers but, regrettably, is not worth the paper it is printed on. For example, the Strategy always promises a reduction of fiscal deficit, but without increased indebtedness the promise cannot be met. Curiously, last year's, "2002/03 Budget", according to the Memorandum on the Budget 2003/04, "was developed around a framework of fiscal consolidation targeting a reduction of the fiscal deficit. Fiscal policy for FY2002/03 aimed at reducing the deficit through broadening the tax base and improving collections, while continuing to adhere to prudent expenditure management practices."
Well, the reverse occurred, the fiscal deficit worsened and Dr. Davies admitted in his infamous address to the comrades at the North West St. Andrew Constituency that he did not engage in "prudent expenditure management practices". From all indications, our indebtedness will worsen. Jamaica's debt in FY 2002/03 increased from $497.082 billion to $601.241 billion, or to 151.8% of GDP, instead of the 131% targeted. What will stop it moving to $750 billion dollars or more in this fiscal year?
Interestingly, just before Argentina defaulted, its foreign debt was about 46% of GDP and it had to pay 14% interest to local banks to secure much needed financing. Jamaica's external debt is US$4.18 billion, or 59.4% of GDP and to mop up liquidity or borrow from local banks the government pays over 35%. When Argentina could neither get more foreign loans nor continue to pay the high interest rates, its finance minister, its president, and then the whole government had to go, which I suspect is the ugly scenario that may well unfold in our debt-ridden nation.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at delchuck@hotmail.com.
