As bad as the Greek economy currently is, Jamaica was deemed to be in the worse position four years ago, and the EU member state was advised then to avoid Jamaica’s debt restructuring deal model, by a US economist writing for the Guardian newspaper in the United Kingdom “as the experience of debt-ridden Jamaica shows the damage done when the interests of creditors are given too much weight”.

But while Jamaica’s financial situation has improved since then, Greece’s has worsened. Back in July 2011, when the article was first published, the article said that Jamaica’s debt crisis should serve as a warning to Greece

“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,” warned article author, Mark Weisbrot.

“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 per cent, which is incredibly dismal. Then the country was hit by the US and global recession at the end of 2008, losing export revenue, remittances, and other sources of aggregate demand,” says the Guardian article.

“As the eurozone authorities move closer to the accepting the inevitable Greek debt default/restructuring, there are some who have pointed to the Jamaican debt restructuring of last year as a model,” said the recent Guardian article titled ‘Jamaica’s crippling debt crisis must serve as a warning to Greece’.

“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,” said Weisbrot.

“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 per cent of GDP,” Weisbrot said.

While that may look better than Greece at 166 per cent of GDP, Weisbrot said “The more important number is the interest burden of the debt: for Jamaica it has averaged 13 per cent of GDP over the last five years. This is twice the burden of Greece (6.7 per cent of GDP), which is in turn the highest in the eurozone.

“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 per cent of its Government spending. This crowding out of public investment and social spending has hurt Jamaica’s progress towards the Millennium Development Goals,” said Weisbrot, a US-based economist, co-director of the Center for Economic and Policy Research in Washington, DC, and president of Just Foreign Policy .

As evidence of this, the University of Michigan-trained economist pointed to Jamaica’s health and education sectors.

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

“The Government turned to the IMF, 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,” Weisbrot said.

Jamaica Debt Exchange

“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 3.0 per cent of GDP annually over the next three years,” Weisbrot noted.

“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 per cent of its debt within the next one to five years — which could prove disastrous if there are unfavorable market conditions,” he said.

Creditors before citizens

Weisbrot thinks the policy of putting creditors before the population is fnudamentally flawed.

“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, and other specifics) — the most important issue is the same: how much should a country sacrifice in order to keep paying off its debt?” Weisbrot asked.

“Unfortunately the people making these decisions — the European authorities, the IMF, the Paris Club and allied institutions — look at this issue from the point of view of the creditors,” he said.

“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,” Weisbrot concluded.

There is another point of view, however, that Jamaica is in a better position than Greece becuase its debt is mainly owed internally and not to external creditors, according to Richard Byles, co-chair of the Economic Programme Oversight Committee (EPOC), speaking at a press conference on Monday.

“So, the impact of when they pay is different to when our Government pays. When our Government pays the interest, a lot of it comes back into the economy and that would have less of a stalling impact on the economy compared to Greece, where a lot of the payments are going out of the country to other countries and would have a more dramatic stalling impact on the economy,” Byles said.