Finance Minister Dr Omar Davies last night shrugged off a warning from the little-known Washington-based Council on Hemispheric Affairs (COHA) that Jamaica might have to follow Argentina’s example of debt renunciation.

But Opposition spokesman on finance Audley Shaw embraced the alarm bell sounded by COHA, saying that if Jamaica continued on its present economic path, it would not be ‘if’ but ‘when’ the country defaulted on its debt.

“The Jamaican economy has suffered numerous challenges and setbacks in the increasingly competitive global environment. Ultimately, if Jamaica cannot solve its problems by conventional means, it may be persuaded to take the Argentine road of debt renunciation,” COHA said in its front page report titled ‘Jamaica, Economic Report’.

But Davies saw no possibility of Jamaica renouncing its debt.

“The people who assess us have a different perspective,” he told the Observer. “I don’t know who these people are. They have their views, but I believe that the creditors and the credit rating agencies and those who lend us money are the best judges as to whether the economic performance is what they expect.”

The finance minister was referring to the optimistic outlook on the Jamaican economy by traditional rating agencies like Moodie’s and Bear Stearns.

But Shaw saw merit in the warning and repeated the Opposition’s call for the Government to immediately start using PetroCaribe funds to reduce expensive debt instruments.

Shaw again urged the administration to seek a US$1-billion loan from multilateral agencies to retire some of the expensive debt, float a bond offering six per cent to seven per cent interest to Jamaicans in the Diaspora and enter into a partnership with the private sector to reduce interest rates to single digit.

COHA is an independent, non-profit, tax-exempted US research and information organisation founded in 1975 to promote awareness of hemispheric issues and encourage formulation of rational political and economic US policies towards countries in the region.

The analysis was prepared by Michale Sheckleford, a Jamaican national and COHA research associate. It was published yesterday and placed on COHA’s website.

Argentina defaulted on bonds worth US$81 billion in December 2001, causing some 500,000 creditors to surrender those bonds for new ones worth approximately 35 cents on each dollar.

COHA said yesterday that Jamaica may be forced, ultimately, “to walk the Argentine road of debt renunciation in order to keep it from going under”.

“The Jamaican economy suffers from serious debt, high inflation and uneven growth rates,” the report said, adding that “current economic policies, such as exchange rate devaluation and debt-servicing, only exacerbate Jamaica’s economic downslide”.

“To resolve this crisis, the Government must implement measures aimed at sustainable growth, such as improving the quality of education and facilitating credit access for small borrowers,” the report said.

COHA said that the “crisis” currently affecting the Jamaican economy, with respect to high debt, interest rates and burgeoning trade deficits, is grounded in the severe economic setbacks of the 1990s.

“This decade was characterised by negative or otherwise abysmal economic growth and high levels of unemployment,” the report stated.

“With regard to government loans, domestic interest repayments are four times greater than foreign interest repayments. This played no small part in causing domestic debt to amount to approximately 37 per cent of expenditure and 54 per cent of tax revenues, in part because of the high, as well as fluctuating interest rates on government treasury bills.

“External debt now amounts to 60 per cent of Jamaica’s GDP and is governed by the floating exchange rate. Clearly, the current debt situation is very bleak. Economic growth has been stifled by crowding out private loans as a result of the heavy debt-servicing obligations,” the report added.