It is impolitic in Jamaica to ever openly commend the political Opposition, but I want to commend them for the job of work done in the Parliamentary debate on the Jamaica Debt Exchange.

Every spokesperson for the Opposition was very well prepared and did yeoman service for the national good.  At the time of writing I have not yet got a copy of the speech delivered by Dr Peter Philips but I have no reason to believe that he fell below his usually high standards of excellence.

The Opposition Leader, for her part, indicated that the Opposition supported the JDX in principle and committed the PNP to serving the national good in the people’s interest by cooperating fully with the Government on those things in which the people’s interest is well served.

She called for all hands on deck, government, opposition, civil society, church, young and old.

This is where I beg to differ with the Opposition.  Something is not good simply because it is well intentioned and has a good end in view.

The means it uses and the process through which it goes are essential to a determination as to whether or not something is good.  I have therefore three fundamental objections to the JDX and I outline them below.

The first has to do with the fact that there was no consultation and that the burden of sacrifice is unevenly distributed.  This point is made abundantly clear in the speech delivered by Peter Bunting.  Bunting makes the important point that this JDX is the rough equivalent of a sovereign declaration of chapter 11 bankruptcy.  More importantly, he observes that the factors precipitating the filing of chapter 11 on January 14, 2010 were precipitated by the mishandling of the fiscal deficit in 2008.

Using the chart from the Government’s briefing document, interest as a percentage of tax revenues moved from 47 per cent in 07/08 to 50 per cent in 08/09 then jumped dramatically to 65 per cent in 09/10.

What this means is that the portion of the tax revenues available to provide all services of Government was cut by approximately a third (30 per cent) in the last year alone.  The Government couldn’t cut its services by that amount so it borrowed more, growing the fiscal deficit from 4.6 per cent of GDP in 07/08 to 7.3 per cent in 08/09 and 10% in 09/10.

Disproportionate

The deficits are central government’s rather than overall public sector, which would be higher.  Mr. Seaga made a similar observation on a radio programme.  This is a contrivance of the failure of the Golding administration to manage the Jamaican economy and society well.  The important point however, of Bunting’s contribution is the fact that he has pointed out the disproportionate nature of the sacrifice borne by pensioners and people who need short-term cash support in the use of their bonds.

Again he deserves to be quoted fully: Bunting has indicated that the key issue is how to achieve fairness and equity in the application of the JDX as a chapter 11 strategy.  He has shown that it has been disproportionately savage to new pension, costing a 40 per cent reduction in income, but more significantly people will have to wait as long as 15 times the period they intended to get back their money.  This is how Bunting makes the point.

“The JDX, while primarily targeting interest cost savings also attempts to improve liquidity by stretching out maturities.  If you look on the Summary of the Transaction Impact [pg.31], it is interesting to note that debt with an average maturity of 5.1 years before the transaction is lengthened to 6 years after the JDX, an extension of less than 20% yet debt with average maturity of 1.4 years is lengthened to 4.5 years, an extension of over 200%.

And if we drill down further into the specific instruments, we see that an instrument, which was scheduled to mature three months after the closing date of the JDX, will now see its owners having to wait four years for full repayment, or an extension of 1500%.

“Mr. Speaker, there seems to be a lack of proportionality, which does not square with the objectives of fairness and equity.  The important point is that people were never consulted.  The point with which the Leader of the Opposition ended her speech is the key point: ‘I have one word for you Mr. Prime Minister, “CONSULTATION” was the key point.

“People have been disrespected and bypassed in making decisions about their money and the banks and investment houses have colluded with the Government to fool the bondholders. A huge trunk of the holders have Government debt, those with repos have been excluded from the sacrifice, which others have been forced with a gun at their proverbial heads to make.’

The second point relates to the unsustainability of the JDX.  This was the point made in the speech given by Dr Omar Davies.  He pointed out the need for a second round of going to the “market”.  He cited the fact that oil prices have been on the increase and is therefore likely to place an inflationary pressure on interest rates as well as a pressure on the foreign exchange market.

He also pointed out that the NIR is programmed to decrease to U$1 billion.

Doing it twice

Sometime ago I saw a beggar begging with one cup in his hand.  The next time I saw him, he had two cups, so I asked him, why two cups and he responded, because business is expanding.  Everything that the Golding administration attempts it does twice.  It has twice come to the market with an intention to place GCT on basic items and so pillage and plunder the poor.  It has raised gas tax twice in a single year, the second time without the pretext of a road rehabilitation fund and by placing a tax upon a tax.  I believe this is not the last time that we will see a JDX.  Once it gets some revenue and some breathing room it will do it again.  The next time will be worse than the first.

Apologists of the Government argue that Belize and Argentina have gone this way to good effect.  I do not know a lot about what Belize is supposed to have done, but this is no Argentina.  Nobody got paid in Argentina, but it is bound to give the Government power to have done this without much protest.  What I believe gave inspiration to attempting this JDX is how the public responded to the loss of their savings/investment through Cash Plus and OLINT.  The JDX is the Government equivalent of OLINT and Cash Plus.  There is no guarantee that when time comes to pay the principal, the Government will not want to hold on to it for a few more years, or that it will be in a position to pay it.

The third and most fundamental objection to JDX is that it is unconstitutional. This is the first time in its history that Jamaica has defaulted on a debt.  This is not a technical default, whatever that means; this is hold down tek weh.      The Government has said you cannot get back your money until it says, and it will not pay you what it agreed to pay you, and there is nothing you can do about it.

The Constitution of Jamaica says otherwise, that debt payment is the first charge on the budget.  Therefore, the Government is in breach of the Constitution, and Opposition, media and business are in collusion at the expense of pensioners and small savers.  This thing should not go through without the Constitution being amended to say, we will pay if we can.