Jamaica

From April 8-11, President Obama will make his first trip south of the U.S. border since February of 2014.  On April 9, he will be in Kingston, Jamaica for meetings with Prime Minister Portia Simpson-Miller and the leaders of the Caribbean Community (CARICOM), an organization made up of 15 Caribbean governments.  Then on April 10 and 11, he will be in Panama City where he’ll participate in the seventh Summit of the Americas alongside the leaders of every independent government in the hemisphere including – for the first time – the Republic of Cuba.   

As we had predicted, the last Summit of the Americas that took place in Cartagena, Colombia in April of 2012 was a stormy affair for Obama, with many Latin American leaders objecting to the U.S.’ refusal to allow Cuba’s participation in the summit and criticizing the U.S. “War on Drugs” (not to mention that little scandal involving Secret Service agents and local prostitutes).  Following Obama’s efforts to begin the normalization of relations with Cuba and the lifting of his veto on Raul Castro’s participation in the Panama summit, many expect the U.S. president to receive a warmer welcome this time around.  But dark clouds have gathered again following the White House’s executive order declaring Venezuela an “extraordinary national security threat” and slapping senior Venezuelan officials with sanctions. 

On April 7, two senior White House officials, Ricardo Zúñiga – National Security Council Senior Director for Western Hemisphere Affairs – and Ben Rhodes – Deputy National Security Advisor for Strategic Communications – provided the press with a briefing on Obama’s trip to Kingston and Panama City.  As a service to our readers, CEPR has the pleasure of offering its own background briefing on some of the key issues that are sure to come up during Obama’s trip, with a few choice contributions from the aforementioned White House briefing.

Let’s start with Jamaica.  On April 9, President Obama will, in the words of Zúñiga, “have an opportunity to speak to Prime Minister Miller about (…) our strong support for Jamaica’s work to deal with a debt crisis, with a fiscal crisis, and its strong performance in the last two years in working with the IMF and World Bank and others to address that, in support of the prosperity and security of her citizens.”

Mark WeisbrotAl Jazeera America, April 8, 2015

April 2015, Jake Johnston

June 2013, Jake Johnston

After months of speculation, in early May the IMF formally approved a new lending agreement with Jamaica worth $932.3 million. With additional commitments from the World Bank and Inter-American Development Bank, the total loan package amounts to $2 billion. But, after another year of negative economic growth (the fourth in the last five years), will this time be any different?

Jamaica previously agreed to an IMF loan in early 2010, which was coupled with a debt exchange that sought to lower interest rates but did not provide any haircut (a lowering of the debt’s principal). The agreement mandated harsh austerity measures and despite the debt exchange, Jamaica’s interest burden remained the highest in the world, at 11 percent of GDP. The agreement eventually broke down after a Jamaican court ruled that the government had to distribute back pay to public sector workers, against the wishes of the IMF. Nevertheless, Jamaica has largely continued the austerity measures from the first agreement. After a return to growth –albeit slow- in fiscal year 2011/12, Jamaica slipped back into a recession this past year, after cutting non-interest expenditure by over 2 percentage points of GDP. Even some within the IMF warned that the fiscal consolidation efforts were going too far and could threaten “the fragile recovery and social cohesion.”

As a precondition for the new IMF agreement, the Jamaican government undertook a second debt exchange in February of this year, seeking to lower interest costs and “bring down the debt burden over time.” However, similar to the previous exchange, the principal of the debt was not touched and interest costs remain extremely high and damaging. Of the 131 countries for which IMF World Economic Outlook data is available, Jamaica will still have the highest average interest burden in the world over the next six years. The debt exchange succeeded in extending the maturity profile of domestic debt (the amount coming due within five years decreased from 53.2 percent to 23.4 percent), but Jamaica is still expected to spend some 8 percent of GDP on interest payments for the next three years, crowding out needed spending elsewhere. Overall debt servicing is projected to take up 45 percent of total government expenditures over the next three years, only a slight reduction from the 46 percent average over the previous three.

Last Friday, the IMF released a Public Information Notice on the Executive Board’s discussion of Jamaica’s Article IV consultation, an annual report in which the IMF assesses member countries’ economic programs. Of course, the timing was perfect, released just one day after the conclusion of the Jamaican parliamentary debate on its 2012/13 budget.  The Article IV discussion clearly shows which way the IMF’s Executive Board—or at least 62.5 percent of it— wants Jamaica to go: further fiscal austerity.

The Jamaican Finance Minister had told Parliament that there were no pre-conditions that had to be met before securing a new IMF loan. Nonetheless, Jamaica’s new “creditor’s budget” is explicitly designed to placate the IMF after the previous loan agreement veered off track over a year ago, when the Jamaican government defied the IMF by paying out back wages and giving already agreed-upon raises to public sector workers. The new budget for 2012/13 cuts non-interest expenditure by two percentage points of GDP—this despite the fact that GDP remains below its 2007 level and per capita GDP is not projected to reach its 2007 level until after 2017.

The IMF praised the cuts, as the Executive Directors “welcomed the authorities’ efforts to increase the primary surplus in this fiscal year.” In addition, “[t]hey were generally of the view that a strong upfront fiscal adjustment would provide credibility to the program.” But not all of the 24 Executive Directors agreed. In a rarely seen move, the IMF press release notes that a “number of Directors, however, supported a balanced pace of adjustment to safeguard the fragile recovery and social cohesion.” Flipping to the convenient “Qualifiers Used in Summings Up of Executive Board Meetings,” one finds that a “number” of Directors means from six to nine. In other words, over a quarter of the Executive Board cautioned against such front-loaded fiscal austerity.

Mark WeisbrotThe Guardian Unlimited, May 18, 2012En Español

Jake Johnston
Caribbean Journal, May 17, 2012