Why debt repudiation is a common sense approach to Jamaica's economic crisis

1. Omar Davies, Bruce Golding and Audley Shaw have said on many occasions prior to the Debt Exchange (JDX) that Jamaica would never default on its debts. Omar Davies famously and proudly told UWI students that paying the debt will ALWAYS take priority over taking care of the country’s domestic needs.
2. In the talks prior to the signing of the 2009 IMF Agreement it was clear to the IMF and their technocrats that Jamaica’s debt level was not only unsustainable (the country was perilously close to a default) but required a radical reduction of the debt stock beyond the usual measures: suppression of government expenditure, etc. The IMF/UNDP suggested what became known as the Jamaica Debt Exchange (JDX) which resulted in a $40 billion write off of the local debt.
3. So beholden was the government to creditors that it was paradoxical for it to be the IMF/UNDP (who serve the interests of creditors) to encourage this debt write off instead of the government acting proactively and pragmatically on behalf of the most vulnerable. The government was dragged along kicking and screaming, even though they now proudly point to the JDX as one of their achievements.
4. A principle has therefore been established that normal means alone cannot be used to reduce an unsustainable debt level. European banks have been forced to write off 50% of the Greek debt because the Greek government was politically unable to impose more austerity measures on the population.
5. Despite the JDX, the debt stock is now at an even higher level. This is a result of the country’s high propensity to borrow which reflects deep ‘structural’ problems.
6. Objectively with 1.2 million or about 45% of the Jamaican population living below the poverty line and a 13% official unemployment rate it is clear that should the government impose more austerity it runs the risk of stirring up political resistance. It would literally be bleeding the poor dry.

WHAT TO DO? Taxing those who can afford it.

7. If precedent is to go by the Government will continue to refuse to impose radical new taxes on the wealthy. The Golding government, for example, using specious and self-serving arguments, refused to put a special tax on the super profits of the banks. Both BNS and NCB, not surprisingly (it is the trend all over the world) have been reporting record profits for several years now, and there is absolutely no temptation on the part of the government to increase taxes on those profits.
8. There was, however, a reluctant and minimal tax on earnings over five million dollars. But this was for one year only! It once again shows a clear class bias typical not only of this JLP government but the PNP as well. [By contrast former UK Prime Minister Gordon Brown increased the tax level to 50% in 2009 for those making over 150,000 pounds].
9. The ideology behind refusing to tax the wealthy is that they will engage in capital flight and capital strike. We must all sink or swim coddling the rich.
10. With political leaders wearing such ideological blinkers it usually requires a strong political push from below to get them to face reality. This government and certainly the opposition seem to feel confident that the chances of such a movement developing are not very likely.
11. In the absence of such political resistance, the government aided by the ideological class, the IMF and the media, will continue to argue that it has no option but to suppress demand levels even further i.e. cutting fiscal expenditure (especially hurtful where education and health are concerned) and to institute public sector layoffs (which are pending) combined with imposing more taxes, which according to tradition, as we said before would be to tax the poor and the working class even more.

The radical but pragmatic option: debt repudiation
12. The truth is that in addition to increasing taxes on the wealthy [the current IMF-backed plan to impose a regressive tax policy under the guise of tax reform must be exposed and resisted], the only other effective option is to repudiate the debt. Argentina is one country to have done so recently with significant debt reduction results. Other countries in history have done so including the United States during the civil war, Mexico, and Cuba.

What does repudiating the debt mean.
13. The Government declares to all creditors that there is an immediate moratorium on all debt payments, but a door is diplomatically left open for negotiations. The national debt is approximately J$2 trillion. About 500 billion, the equivalent of all taxes collected is paid over each year.

Categories of creditors/negotiating strategy
14. First, there must be a forensic audit of the debt to determine what portion corruptly went to politicians, bureaucrats and private sector accomplices. Lenders are sometimes complicit with these corrupt practices. Morally and politically the poor should not be required to pay back such debt since they received no benefit.
15. Currently one politician is before the courts, and another is awaiting a ruling from the DPP. Highway 2000 and the US$62 million Palisadoes Highway are two projects which smack of corruption and which are of dubious benefit to the poor.
16. The late 1990s Bank bailout and the resultant FINSAC debt on the surface is also dubious debt. There is currently a FINSAC Commission of Enquiry going on but without a forensic audit being required this is a grand waste of taxpayer’s money.
17. The unearthing of such corruption is a legal, moral and political negotiating tool with creditors.
18. To amplify the point -- because the Jamaican constitution guarantees that debt has a first lien on the consolidated fund --creditors are not obliged to be responsible in their lending practices which gives rise to the concept of irresponsible lending.
19. There was no obligation, for example, for any lender to Air Jamaica to concern itself with whether the airline was bankrupt and able pay back its loans because all of Air Jamaica’s loans were guaranteed by the government. This would be a prime example of irresponsible lending.
The paradox of local creditors
20. Some local creditors are in fact government institutions which have invested in government bonds. This poses very little political problem for central government in cancelling this debt. The state must take responsibility for social welfare including pensions.
21. The Banking oligopoly owns a significant portion of the debt as well. The fact that they have enjoyed such super profits in the past years strengthens case for debt cancellation.
22. Generally speaking the government has the option to offer long term bonds with radical value reduction if it feels the need for a less acrimonious approach.
23. Should capital strike and capital flight be the response then government would obviously be forced to nationalize the banks, or any sector that engages in capital strike, and to take measures to prevent capital flight.

Negotiating with foreign creditors
24. Without precise data as to who are the foreign creditors, and the appropriate negotiating strategy, it is clear that government would generally demand a significant write off of the debt.
25. Argentina was able to get a 75% sovereign debt write off in some cases.
26. Creditors would rather get something on the dollar than nothing at all. This is something that those who predict doom and gloom fail to appreciate.
27. Externally it would be advisable to seek to form a debtor’s club with other heavily indebted Caribbean countries.
28. All of this requires a commitment to protect the 45% of the population living below the poverty line; to prevent further deterioration in our health care system; to invest in education at all levels; and to prevent the total breakdown of the country’s infrastructure which is inevitable should the present path of fiscal contraction be continued.
29. That is the pragmatic nature of debt repudiation.
30. It is a commitment to protect the poor and the working class generally, the class that is the producer of wealth, but expropriated by the few.
31. Finally we need to refute the ideologists who keep talking about growing our way out of the crisis.
32. According to the World Bank "Jamaica was one of the world's slowest-growing economies in the last four decades. In the 2000s, Jamaica's average real GDP growth ranked 180th out of 196 countries. Jamaica's ranking in terms of average real GDP growth continuously deteriorated during 1960-2008. Jamaica also lost ground against countries in Latin America and the Caribbean. Its ranking in the 2000s was 29th out of 34 countries." Furthermore, says the World Bank “There is no silver bullet for all of Jamaica’s problems, or any single, unique binding commitment whose removal would solve them.”
33. In other words, those with mono causal explanations, such as it’s because of crime, or it’s because of bureaucratic red tape, or it’s because of the need for tax reform why the economy isn’t growing, are really promoting a self-serving agenda, designed to distract from the root concern.
34. And as for those who promote economic growth as the magic answer, they need to be reminded that there can be economic growth with little or no improvement in the standard of living of the poor and the working class generally.
35. If the economy can’t ‘grow’ for whatever reason then the cake has to be divided up more fairly. We cannot allow for the alarming rates of poverty to continue increasing and for the country’s infrastructure to disintegrate further.
The political system has to change from a two-party dictatorship to a people’s democracy.

Lloyd D’Aguilar
Campaign for Social and Economic Justice