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Restructure JA's debt
Jamaica needs to restructure its debt, says former Russian finance minister
By Camilo Thame
Friday, October 16, 2009
Former Russian finance minister Alexander Livshits believes the Jamaican Government needs to restructure its debt in order to bring it under control.
In his speaking notes, presented on Tuesday to the Jamaica Chamber of Commerce's (JCC's) economic forum, he said the "time has come" to commence negotiations with the London Club of creditors.
At stake is "a restructuring deal with private holders of Jamaican foreign debt which accounts for approximately 60 per cent of total external public debt", according to Livshits, while he expects "the same procedure could be considered with relation to sovereign creditors - both multilateral and bilateral".
Alexander Livshits
"I am aware that Jamaica already has an experience of dealing with the Paris Club of sovereign creditors having signed seven restructuring agreements between 1984 and 1993 for a total US$1.1 billion in sovereign debt," stated Livshits.
The London Club is an informal group of international private creditors while the Paris Club is a group of public lenders that negotiate over sovereign debt.
In 2000, the London Club agreed to write off 36.5 per cent of Russia's US$32-billion, Soviet-era debt and reschedule payments over 30 years following a seven-year grace period. Then, Russia's debt-to-GDP ratio was 100 per cent.
Jamaica's debt ratio stood at 115.8 per cent on April 1.
At the end of July 2009, Jamaica's external debt stock stood at US$6.28 billion ($559.3 billion), or approximately 44 per cent of its total debt.
But the restructuring external debt can only go so far in shrinking the annual burden of debt on the Government's coffers.
Interest payments on external debt for the current fiscal year is projected at $47 billion, or 27 per cent of total payments and just under half the projected fiscal deficit of $94.5 billion. Amortisation is even lower at $27 billion or 18 per cent of total debt repayment.
The former Russian minister went further to suggest that new borrowing be capped and restricted to borrowing cheaper money.
"There should be a special Government decision or, better, a law establishing a long-term framework for new borrowing," he said.
Ultimately, Livshits believes that Jamaica will only rid itself of a heavy debt burden in the medium term if it has economic growth while pointing to projects that will lead to cheaper energy.
"One of the most important means of debt management is stimulation of economic growth by means of taxation, tariffs, custom duties, etc," Livshits said. "The engine of economic growth - strategic national projects like cheap energy generation based on LNG or coal and/or construction of maritime transport hub."
The Port Authority of Jamaica has been undergoing massive expansion over the last three to four years, while liquefied natural gas has been targeted as the alternative fuel to be used to replace more volatile and expensive petroleum-based fuels.
The Government has not yet opened the process of bidding on the development that will include the construction of a regassification plant while port development has been decelerated due to the downturn in the economy.
Incidentally, the recession is one of the reasons Livshits believes the Government should avoid selling its stakes in companies.
"Privatisation of public companies (divestment) at the bottom of the crisis always seems to be rather premature and ineffective," said Livshits. "One of the ways that might be contemplated at the moment is some form of lease to private owners with eventual buy-out."
He did, however, include the disclaimer: "But ultimately public companies should not generate new public debt."
Air Jamaica, which is now on the auction block, racks up over US$100 million in losses annually, most of which the Government will have to take on.
In other areas of expenditure, Livshits, like Prime Minister Bruce Golding, believes public sector job cuts are unavoidable, although the degree to which this will take place may vary between them.
"I am afraid it is impossible to avoid serious downscaling of administrative expenditures," he said, rather than the "hardly avoidable" pronouncement by Golding a few weeks ago.
He added: "The most difficult, but inevitable task for public debt manager is cutting budget expenditure. It involves revision of all investment projects. Some of them may go on, some delayed, some cancelled for good."
The former Russian minister made other recommendations, including:
. Increasing General Consumption Tax (GCT) - now at 16.5 per cent - by four to five percentage points; and
. Replacing a flat income tax with a progressive one, where a suggestive rate of 40 per cent would apply to the most properous individuals income.
Jamaica needs to restructure its debt, says former Russian finance minister
By Camilo Thame
Friday, October 16, 2009
Former Russian finance minister Alexander Livshits believes the Jamaican Government needs to restructure its debt in order to bring it under control.
In his speaking notes, presented on Tuesday to the Jamaica Chamber of Commerce's (JCC's) economic forum, he said the "time has come" to commence negotiations with the London Club of creditors.
At stake is "a restructuring deal with private holders of Jamaican foreign debt which accounts for approximately 60 per cent of total external public debt", according to Livshits, while he expects "the same procedure could be considered with relation to sovereign creditors - both multilateral and bilateral".
Alexander Livshits"I am aware that Jamaica already has an experience of dealing with the Paris Club of sovereign creditors having signed seven restructuring agreements between 1984 and 1993 for a total US$1.1 billion in sovereign debt," stated Livshits.
The London Club is an informal group of international private creditors while the Paris Club is a group of public lenders that negotiate over sovereign debt.
In 2000, the London Club agreed to write off 36.5 per cent of Russia's US$32-billion, Soviet-era debt and reschedule payments over 30 years following a seven-year grace period. Then, Russia's debt-to-GDP ratio was 100 per cent.
Jamaica's debt ratio stood at 115.8 per cent on April 1.
At the end of July 2009, Jamaica's external debt stock stood at US$6.28 billion ($559.3 billion), or approximately 44 per cent of its total debt.
But the restructuring external debt can only go so far in shrinking the annual burden of debt on the Government's coffers.
Interest payments on external debt for the current fiscal year is projected at $47 billion, or 27 per cent of total payments and just under half the projected fiscal deficit of $94.5 billion. Amortisation is even lower at $27 billion or 18 per cent of total debt repayment.
The former Russian minister went further to suggest that new borrowing be capped and restricted to borrowing cheaper money.
"There should be a special Government decision or, better, a law establishing a long-term framework for new borrowing," he said.
Ultimately, Livshits believes that Jamaica will only rid itself of a heavy debt burden in the medium term if it has economic growth while pointing to projects that will lead to cheaper energy.
"One of the most important means of debt management is stimulation of economic growth by means of taxation, tariffs, custom duties, etc," Livshits said. "The engine of economic growth - strategic national projects like cheap energy generation based on LNG or coal and/or construction of maritime transport hub."
The Port Authority of Jamaica has been undergoing massive expansion over the last three to four years, while liquefied natural gas has been targeted as the alternative fuel to be used to replace more volatile and expensive petroleum-based fuels.
The Government has not yet opened the process of bidding on the development that will include the construction of a regassification plant while port development has been decelerated due to the downturn in the economy.
Incidentally, the recession is one of the reasons Livshits believes the Government should avoid selling its stakes in companies.
"Privatisation of public companies (divestment) at the bottom of the crisis always seems to be rather premature and ineffective," said Livshits. "One of the ways that might be contemplated at the moment is some form of lease to private owners with eventual buy-out."
He did, however, include the disclaimer: "But ultimately public companies should not generate new public debt."
Air Jamaica, which is now on the auction block, racks up over US$100 million in losses annually, most of which the Government will have to take on.
In other areas of expenditure, Livshits, like Prime Minister Bruce Golding, believes public sector job cuts are unavoidable, although the degree to which this will take place may vary between them.
"I am afraid it is impossible to avoid serious downscaling of administrative expenditures," he said, rather than the "hardly avoidable" pronouncement by Golding a few weeks ago.
He added: "The most difficult, but inevitable task for public debt manager is cutting budget expenditure. It involves revision of all investment projects. Some of them may go on, some delayed, some cancelled for good."
The former Russian minister made other recommendations, including:
. Increasing General Consumption Tax (GCT) - now at 16.5 per cent - by four to five percentage points; and
. Replacing a flat income tax with a progressive one, where a suggestive rate of 40 per cent would apply to the most properous individuals income.