IN a well timed address to the rotary club of Kingston last Thursday, Head of Delegation of the European Union (EU), Ambassador Marco Mazzochi Alemanni, noted that the EU’s Debt Reduction Programme focuses on the two key areas of macroeconomic support and security and justice.

He wryly observed “Some have said that this amounts to Debt and Death. Well, so be it. These are the twin evils haunting Jamaica.” Perhaps not coincidentally, the first paragraph of the still unsigned Partnership for Transformation agreement (supposed to be between the government, private sector, unions and opposition) calls on Jamaica to deal with its “debt and death” crisis.

The Ambassador reminds us that “Neither Jamaica nor the EU had to wait for the IMF or the Global Financial Crisis to understand that these are the two critical issues facing Jamaica, and to focus on them. But it is clear that the global crisis brought added momentum and, ultimately, the need to have recourse to other multilateral sources of funding as well.”

In support of this statement, he noted that the EU programme had been designed in partnership with the Government about two years ago, the centrepiece being the Debt Reduction and Growth Enhancement Programme, or DRGEP.

Critically, “these are joint programmes of the Government of Jamaica and the European Union — not something imposed from the outside. The programmes draw from the Government’s own strategies and policies, setting benchmarks for future years based on its own projections.”

IMF Stand — By Arrangement (SBA)

Commenting on the IMF SBA, the Ambassador, in addition to applauding the debt management strategy adopted, correctly noted “What is less well understood is that this is not just a one-off saving of J$40 billion, but rather a yearly saving in interest payments of many more billions.” In this comment, he appears to be referring to estimates of eventual total savings from the debt exchange of between $125 to $150 billion.

He continued “We are now seeing the inception of a virtuous circle, with investors putting capital in new ventures besides just buying government paper.”

The EU’s Budget Support Programme has always been intent on assisting the Government of Jamaica “in re-profiling its debt stock”, and called for “new debt legislation as a basis for an improved debt strategy”, according to the Ambassador.

In fact, most of the key initiatives outlined as the second fiscal consolidation plank of the IMF programme — fiscal responsibility, tax reform, public sector reform, divestment of public entities — have also been part of the European Union’s budget support programme with Jamaica for over two years.

In the area of tax reform, the EU programme, like the IMF SBA, requires significant reform, with the aim of improving fairness, transparency and revenue.

On Fiscal Responsibility, the EU has been advocating new Fiscal Responsibility Legislation for over two years, with clear conditionalities linked to its progress. There are also conditions linked to improving ministries’ budget execution and performance.

On divestment, progress in the Government divestment plan was identified by the EU as critical to improving Government finances.

In the area of Public Sector reform, the EU calls for Medium Term Expenditure Frameworks for key ministries, paving the way for further much needed reforms.

“The onset of the global financial crisis made the above issues all the more urgent, necessitating recourse to the IMF, for which the Government has our strong support. We also welcome the decisive contributions of other multilaterals.”

EU support for Jamaica

He noted that the EU is by far Jamaica’s biggest grant donor, disbursing approximately J$9.5 billion last year, with the bulk of this funding implemented through budget support programmes, rather than projects.

He noted that budget support differs from the usual project approach in some fundamental ways :

“Such programmes are aligned with the government’s own strategies, releasing funds directly to the Government’s treasury when specific, pre-agreed benchmarks are achieved. Irrespective of specifics of the programme, government is held accountable for three key things — the implementation of their overall strategy, for the way public funds are managed, and for maintaining policies geared toward macroeconomic stability.”

Whilst noting that the EU contributions, for a total of around US$ 250 million (over the life of the three year programme) are dwarfed by the IMF’s US $1.3 billion and the substantial funding from other multilaterals, he quotes Minister Shaw’s common sense remark that “we like the EU money, because we don’t have to give it back”.

The ambassador made an extremely important call for greater transparency on how all this funding is to be used. “However, greater clarity on exactly where these funds will be channeled would be appreciated. Indeed, it is not yet clear how funding will be apportioned between, inter alia, international reserves, filling the fiscal gap, the Financial Sector Stability Fund and targeted, sectoral budget support projects.”

Whilst admitting the pain of proposed measures such as the public sector wage freeze, he observed that the EU are assisting the Government in providing for those hardest hit. “But there will be sacrifices ahead for all. “

He quoted approvingly from Minister Shaw’s recent interview in the Financial Times in late February on the Jamaica Debt Exchange, where Shaw noted “It is time for us to stop apportioning blame. We need to look into the mirror and step up.”

Strong management needed to stay the course

The Ambassador argued there was a need for strong management of the government’s to ensure it stays on course with sufficient momentum to carry it through.

Quoting Prime Minister Golding as saying that the IMF SBA represents, ” a decisive journey towards good governance, solid economic development and the restoration of hope”, he added that “The global crisis and its impact on Jamaica is, indeed, affording the country with a unique opportunity to squarely face the structural problems that have been piling up over the years. Alarms had been sounded, but they had not been heeded. Now they are.”

He concluded that Jamaica is now “at a crossroads in this journey”, and that the EU will “act as a trusted partner and counsellor”. Encouragingly, he promised that although “There is still a long way to go, and the road is difficult ahead. We will stay at your side, for as long as you want us there.”