Prime Minister Portia Simpson Miller and Finance Minister Dr Peter Phillips, in an unprecedented joint national broadcast last night, announced the Administration’s plan for what they have termed a “National Debt Exchange Offer” which, they said, will be launched with the support of leading private sector financial institutions.
“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 $17b per year between now and 2020,” Dr Phillips said.
“Let me assure bondholders that there will be no haircut on their principal investment,” Dr Phillips said. “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.”
Simpson Miller explained that the debt exchange is a critical component of both the IMF agreement and the Administration’s debt reduction programme, adding that “It can only succeed with the fullest co-operation of the broad financial sector and the support of the entire country.”
Dr Phillips said that many bondholders will, with good reason, respond to the announcement with disappointment, given that they were asked to make 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.
“I am only too aware of the fact that for them to be asked to make another sacrifice at this time is a burden that will be hard to bear,” he said.
Phillips’ reference was to the Jamaica Debt Exchange (JDX) launched in 2010 by the then Bruce Golding-led Government.
The JDX, which was pivotal to Jamaica’s signing of a 24-month Standby Arrangement with the IMF, had been expected to save the Administration $40 billion in interest expenditure on domestic debt in the 2010/2011 fiscal year.
In April 2011, then Finance Minister Audley Shaw, in opening the budget debate, aid the JDX was largely responsible for the stable, but delicate, macro-economic environment.
However, a week later, in his contribution to the debate, then Opposition spokesman on finance Dr Omar Davies, saying that there were rumblings of a JDX 2, warned the Government against trying to “pull off” a second JDX.
Dr Davies said that while the virtues of the voluntary debt swap programme — under which holders of Government bonds accepted lower interest rates and longer maturities — had been lauded by the Administration, a second one would be suicide.
“The minister (Shaw), during Standing Finance Committee, gave the assurance that the Administration had no such intention. However, I want him to realise that there are persons, not necessarily within his ministry, but closely aligned to the Administration who are speaking about a JDX 2; we worked too hard to establish Jamaica’s credit worthiness to sit idly by and see it destroyed,” Dr Davies told parliamentarians.
“While we trumpet the success of the JDX, let the following be fully recognised: The JDX speaks only to interest rates. It does not affect the principal amount, and so the over $1.570-billion of debt will have to be repaid,” Dr Davies said.
“I say very, very calmly and with all good intentions to the minister, let us not even contemplate taking any such step, I am referring to the possibility of a JDX 2,” Dr Davies added.
Last night, Dr Phillips said that measures will be put in place to ensure that the objectives of the debt swap, as well as another round of public sector wage restraints, will be achieved.
“First, we shall be establishing, by the end of March 2013, a co-ordinating and implementing unit in the Ministry of Finance, staffed with persons recruited from outside and within the public sector charged with nothing else than ensuring that everyone — all agencies and departments get with the programme and meet the timelines,” Dr Phillips said.
“We will also be putting in place an Economic Programme Oversight Committee, including stakeholder representatives (such as the private sector and trade unions) and government officials to, among other things, monitor the compliance and progress of the ministries, departments and agencies with regard to the implementation of the IMF agreement with full authority on their part to inform the public of their findings. This is an unprecedented step of public accountability and transparency,” he added.
Phillips said that one of the conditions stipulated by the IMF is a contract with public sector workers that will enable the achievement of a wage-to-GDP ratio of nine per cent by 2015/2016.
“We are in active discussion with the representatives of public sector workers to achieve this objective,” the finance minister said.
He also said that the Government will have to take concrete steps to reduce and virtually eliminate discretionary tax waivers, details of which he will provide to the Parliament later this week.
The programme, he said, is designed to secure the major reforms up front, either as prior actions or benchmarks for the first year. “This, in itself, enhances the chances of success.”
Added Phillips: “The entire nation will be mobilised around the national objective of reducing Jamaica’s debt ratio from over 140 per cent of GDP currently (using the higher IMF numbers) to approximately 95 per cent of GDP over the next seven years.
“I am satisfied that the agreement we are currently finalising is the best we could negotiate for Jamaica. However, the implementation process will require a national effort and a contribution from everyone,” said the finance minister. “Even as we try to minimise the impact of the sacrifice we will all be called upon to make, we must seek to protect the poor and the vulnerable.”
Prime Minister Simpson Miller said that in order to achieve the necessary level of debt reduction, greater accountability and discipline will be required.
“My Administration is setting the example,” she said. “There is absolutely no room for non-performance. I insist on full accountability from everyone, every department, every ministry, every government entity, as we move confidently towards achieving our objectives.”
The Government, she said, will redouble its efforts to collect the taxes that are due from every business enterprise and individual; do all it can to provide more efficient, effective and considerate public service; and lead the national fight against corruption to ensure that the public receives value for every dollar spent.
“My fellow Jamaicans, we can only come out of this crisis by taking extraordinary measures with the urgency that the situation demands,” Simpson Miller said.
“If we pull together and stay focused we can bring down the debt,” she said. “We can fix the economy. We can inspire a new sense of hope and possibility in our country.”