Committee for the Abolition of Illegitimate Debt

It’s hard to imagine a worse disaster for Greece. It is worth a closer look at what has been done to Jamaica, not only as a warning to Greece, but to shed some light on the damage that can be done when “the international community” is willing to sacrifice a country for the sake of creditors’ interests.

Jamaica – a middle-income developing country of 2.8 million people – has one of the worst debt burdens in the world, with a gross public debt of 123% of GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. .

At first glance this looks better than Greece (166% of GDP) but the more important number is the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. burden of the debt: for Jamaica it has averaged 13% of GDP over the last five years. This is twice the burden of Greece (6.7% of GDP), which is in turn the highest in the eurozone. (It is worth keeping in mind that the burden of the debt can vary widely depending on interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. , and on how much is borrowed from the country’s central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx – Japan has a gross public debt of 220% of GDP but pays only about 2% of GDP in annual net interest, so it doesn’t have a public debt problem.)

Not surprisingly, a country that is paying so much interest on its debt does not have much room in its budget for other things. For the 2009/2010 fiscal year, Jamaica’s interest payments on the public debt were 45% of its government spending. This crowding out of public investment and social spending has hurt Jamaica’s progress towards the Millennium development goals.

Jamaica’s coverage rates for detection and treatment of tuberculosis declined from 79% in 1997 to 43% in 2006, the worst decline of 77 countries for which data was available. The net enrollment ratio in primary school declined from 97% in 1991 to 87% in 2006/2007.

Jamaica’s long term development failure is striking, and has a lot to do with its debt burden. For the 20 years from 1988-2008, real income per person grew by just 14%, which is incredibly dismal. The the country was hit by the U.S. and global recession at the end of 2008, losing export revenue, remittances, and other sources of aggregate demand.

The government turned to the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org , which had already had a terrible track record in the country with almost continuous programmes from 1973-1996. Unfortunately the 2010 IMF prorgamme called for policies that would be expected to worsen the recession, including a reduction of the fiscal deficit, as well as real decreases in spending on health, education, and childhood development.

In February of last year the Jamaican government reached agreement with creditors on the Jamaica Debt Exchange, which restructured Jamaica’s debt with the support of the IMF. The restructuring extended the average maturity of the debt and lowered interest rates enough to reduce the government’s interest burden by about 3% of GDP annually over the next three years.

This would be quite substantial if Jamaica had a debt burden the size of Greece or Ireland, but unfortunately it still leaves the country with unbearable interest payments. There was no reduction in the principal, and Jamaica will have to refinance some 46% of its debt within the next one to five years – which could prove disastrous if there are unfavorable market conditions.

Jamaica’s debt burden is outrageous, and needs to be drastically reduced. It is difficult to imagine the country making much progress in economic development while so much of its resources go to interest payments.

While the situation of every over-indebted country is different – in terms of the burden and structure of the debt, whom it is owed to (international or domestic creditors, official creditors such as the IMF or World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, and other specifics) – the most important issue is the same: how much should a country sacrifice in order to keep paying off its debt?

Unfortunately the people making these decisions – the European authorities, the IMF, the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

and allied institutions – look at this issue from the point of view of the creditors.

But a responsible government will make its decisions on the basis of the needs of its people – for employment, economic growth, and better living standards. It is this conflict of interest that underlies the debt crises we are looking at in most over-indebted countries.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, DC. He is also president of Just Foreign Policy.