The Great Pretenders
BY 2007, Jamaicans were sick and tired of Omar Davies as minister of finance.
His extended tenure as Jamaica’s CFO was littered with missteps, mistakes and policy flaws. His introduction of high interest rates as a disincentive to foreign-exchange speculation was a spectacular failure. Yet he stubbornly kept what ought to have been a short-term shock in place until it became long-term electrocution.
He moved like molasses in dealing with a looming financial crisis despite being warned by a delegation from the sector. By the time he acted, it was in standard bureaucrat reactive mode. He made another crucial error (in my opinion) by taking over financial institutions and creating FIS/FINSAC when Government’s chances of successfully managing/operating these private-sector entities was slim to none, slim having long left town.
The result: FIS/FINSAC was ineffective in collecting bad debts; Government refused to negotiate realistically with debtors, so a foreign financier bought the debts at a deep discount and almost immediately recouped his investment by writing a few demand letters. Thereafter, profits poured like rain; Jamaican entrepreneurs who borrowed at acceptable interest rates that quickly went through the roof were ruined; personal assets were lost; families destroyed; and all hope of economic growth eliminated.
So, by 2007, Jamaicans were fed up. Davies was presented to the electorate as a vital PNP team member; had been a candidate for PNP president; and was the one chosen to represent the PNP in the campaign debate on finance.
The electorate flatly rejected the PNP and, inferentially, Omar Davies as MOF in 2007. The JLP won the election and installed Audley Shaw as MOF. He, too, was a disaster of monumental proportions. His handling of Jamaica’s fiscal operations appeared to come from a primer on how to win at roulette. His tenure was highlighted by repeated fumbling of important negotiations.
TESTS FAILED
Shaw defied a clear IMF fiscal path to the extent that only two IMF tests could be passed. He denied that a global recession would affect Jamaica and then, when it did, blamed every fiscal ill on the recession. Worst of all, trumpeting his genius at acquiring low-cost debt, he increased Jamaica’s debt stock from an already unsustainable 115 per cent of GDP to a crippling 142%. In an act of hostility to future generations that beggared belief, he borrowed more than US$700 billion more in four years.
By 2011, Jamaicans were fed up. He was presented to the electorate as a vital JLP team member and was the JLP’s representative in the campaign debate on finance. Meanwhile, the PNP had seen, heard and accepted the 2007 electorate’s message. The PNP presented Peter Phillips as its new finance guru.
At the 2011 polls, Jamaica flatly rejected the JLP and, inferentially, Audley Shaw as MOF. The PNP won the election and appointed Peter Phillips as MOF. Without the slightest sign of petulance, Omar Davies accepted reassignment to an equally important portfolio as minister of infrastructure and transport (my nomenclature). With a capable team including Richard ‘Mr Roads’Azan and the dependable Morais Guy, Omar has plugged away with incremental success in a difficult ministry.
The PNP listened to the 2007 electorate with improved results. However, even before a single vote is cast, the JLP has already threatened to again impose Audley Shaw upon Jamaica as MOF. Has Young Andrew gone mad? Or is this a panic-driven reflex to discourage another leadership challenge? Was this a back-room deal struck to dispel the most recent attack on the leader; the quid pro quo for JLP unity? If so, instead of leadership, that’d be a sacrifice of Jamaicans’ best interests on the altar of political expediency.
Whatever the reason, PNP scores first. PNP 1: JLP nil.
The PNP’s anxiety to call the election before the 2016-17 Budget has been apparent since July 2015 when the MOF himself first hinted at early polls. During the Half-Way Tree mass hysteria of January 31, when the PNP captured more than four uninterrupted hours of free political advertisement on national media AND media pusillanimously presented PNP with that gift, Peter Phillips let slip what was coming.
In his contribution to that four-hour unpaid political commercial, Phillips boasted that $62 billion in NDX debt payable in February, plus other commitments to the public sector, would be paid. NDX means never put off paying until tomorrow what you can put off paying until the following year. Guess who’ll be paying? That’ll be you and me via a massive new tax package in the next Budget. No doubt these are among the ‘achievements’ that inspired The Gleaner to endorse Phillips as Man of the Year (MOY) during an informal election campaign and in an election year. The headline might as well have been ‘Vote PNP’. Other MOY ‘achievements’ include:
Borrowing vast sums to buy back PetroCaribe debt on terms transparently disadvantageous to Jamaica. Under PetroCaribe, Jamaica’s annual payments to Venezuela included principal pay-downs so that, after 25 years, we’d owe zero. These new loans call for interest payments only with the staggering result that we’ll still owe the full principal when the bonds mature;
Issuing a global bond in July 2014 of US$800 million (had gone to market for US$500 million, but, like George Mallory, borrowed 60% more “because it’s there”);
Orchestrating a deliberate devaluation of the J$ that added almost $100 million to our public debt in the last two years.
On Monday, August 10, 2015, Phillips said the PetroCaribe buy-back would reduce the public debt stock from $2.1 trillion to $1.9 trillion and would not require higher taxes.
This is an MOF admission that, in 2014-15, the debt stock rose to $2.1 trillion (125% of GDP), a rise of $125 billion or 6.5% above the 2013/2014 figure. The PetroCaribe debt, payable by Petrojam, was never included as part of government’s public debt. So, explain to this simpleton how a government loan in 2015-16 to buy a Petrojam debt decreased public debt?
DEBT STOCK
So, we started 2015-16 with an increased debt stock. On July 23, 2015, highly respected Bloomberg Business reported Jamaica sold $1.35 billion in bonds due 2028 to yield 6.75% and $650 million of notes due 2045 to yield 7.875% (weighted average 7.11 per cent) to fund the PetroCaribe buy-back. Bloomberg Business stated:
“Jamaica said in a filing Thursday [July 23, 2015] that it plans to spend $1.5 billion of the proceeds to pay down debt owed to state-owned PDVSA [Petroleos de Venezuela SA].”
Before buy-back, Jamaica paid 1% per annum interest plus some principal (US$30 million per year in interest payments) but barter arrangements meant taxpayers didn’t have to make those payments. Jamaica bought US$3 billion in debt for US$1.5 billion but will pay US$2.7 billion interest over 25 years (US$110 million/year) while still owing US$2b principal.
But, what’s this about a US$1.5b price tag? Didn’t we borrow US$2b? What’s up? According to Phillips at an August 10, 2015 press briefing, 25% of this high-cost loan was to be used for budgetary purposes enabling Government to fully fund the 2015-16 Budget. Lawks! More hidden borrowing to pay recurrent expenses!
In August 2015, the repayments hadn’t yet been brought into the Budget. Guess what’s coming next month? NDX? Public-sector wages? Debt buy-back interest payments? Easy Papa Tax ... .
Why’d Jamaica pay so dearly to buy back a debt that was costing taxpayers nothing and would’ve been extinguished in 25 years? Why was US$500 million additional borrowing for recurrent expenditure shuffled up and hidden in the deal? No doubt this deal represented a significant inflow of cash to Venezuela when its resources were dwindling and world oil prices falling. How’d Venezuela pressure Jamaica into this deal?
WHAT SLASH?
In all this fiscal genius, I’m at a loss as to the basis of Phillips’ Half-Way Tree boast that debt-to-GDP ratio has been slashed. The year began with increased debt (J$2.1 trillion) and US$2 (J$240) billion more was borrowed: $2.1 trillion+$240 billion = $2.34 trillion or 140% of GDP. Shuffling (e.g., bringing only interest payments into the Budget annually and pretending the rest isn’t ‘debt’), dancing and manipulating statistics aside, debt-to-GDP ratios will only be slashed if taxpayers are asked to pay at least the debt servicing of US$110 million per year starting next month. That’s an additional tax package of J$13 billion per annum for this item alone. Then there’s NDX.
You ready? You ready? Sound the trumpet!
Young Andrew and ‘Are You’ Shaw signalled their intention to play Paul Revere by exposing this three-card trick and alerting Jamaica to the unbearable hardships to be visited on citizens, thanks to the PNP’s perverted policies of procrastination, perplexity and penury. Goooooaaaaal! PNP 1: JLP 1. Peace and love.