In Jamaica, on 5-6 September the governments of Jamaica, the Caribbean and their Venezuelan partner in PetroCaribe will celebrate the 10th Anniversary of this exemplary developing-to-developing country (South-South) social and economic programme of energy security.

The trade in oil, converted to long-term, low-interest rate loans, has been invaluable in powering the production of goods and services in the Caribbean real economies, burdened by mountains of debt.

PetroCaribe provided financing on terms conducive to growth and supportive of social programmes. Practical, quickly implemented and untied. Negotiated and agreed among equals and ratified as bilateral and multilateral treaties.

Within the past few weeks, Jamaica raised US$2 billion on external private capital markets. It is repayable over variable periods extending up to 2045, and at interest rates, which, if compounded would double roughly at 10-year intervals. Finance at interest rates significantly higher than the near-zero per cent benchmarks.

Of the US$2 billion, US$1.5 billion was used to redeem Jamaica’s long-term debt obligations on a portion of US$3.25 billion total outstanding to Venezuela. It is reported that some 70 per cent of the resources from the PetroCaribe Development Fund (PDF) is used to service some of Jamaica’s current debt obligations.

The balance of US$500 million will be used to pay domestic bondholders some J$62 billion due in this financial year ending March 2016.

Here are some points to be considered:

o Venezuela is a fellow developing country and such debt relief to other developing countries is not the norm in debt rescheduling, whereas it is for developed country governments acting within the rich country grouping of the OECD Development Assistance Committee (DAC).

o The debt incurred by Jamaica was for the supply of oil, indispensable for production in the real economy.

o The Jamaican dollar has been devalued by some 80 per cent against the US since 2005; that the carrying charges and principal on this US$2 billion (as for all other US dollardenominated debt) will increase in line with projected Jamaican dollar depreciations; that the structural trend of the Jamaican economy is for low growth, with a new and additional drag due to its ageing demographic.

o At around the same time, the foreign press reported the first-time government hedge based on an oil price at US$66 bbl. It is reported as costing US$20 million for 15 months ending in early 2016. And at a time when world market oil prices yo-yo between the US$40-50 bbl mark and LNG is competitive.

o The Jamaican government’s medium-term debt management strategy (MTDS) envisages buybacks and debt-for-equity transactions (in the health and environment sectors). The relative merits/demerits of combining a debt-for-equity/buyout of the 49 per cent PDVSA shareholding in Petrojam may well have been considered.

o The United States in the 1990s converted outstanding debt of some US$311 million under the Enterprise for the Americas Initiative (EAI) followed up under the Tropical Forest Conservation Act (TFCA). In these debt-for-nature swaps (debt-to-equity), the Environmental Foundation of Jamaica was established and continues to be so financed. Additionally, in the 1980s some US$107 million was “relieved” on the debt owed, including to private banks.

o Petrojam is jointly owned and managed by entities of the governments of Jamaica and Venezuela (51%/49%). Venezuela’s PDVSA Petroleo is the counterparty in the oil trade.

o At the same time, Prime Minister Simpson-Miller in addressing the UN Security Council, was urging the ‘international community’ to reschedule the multilateral debt of the Washington-based financial institutions owed by Small Island Developing States (SIDS). Difficult, but not without the precedent used in the case of heavily indebted poor countries (HIPC), for Guyana and Haiti.

These are only some of the considerations that should form any serious assessment of managing Jamaica’s debt stock and its debt servicing capacity.

On balance, why borrow high to pay off low? Present value and opportunity cost concepts cannot be decisive. Idle cash balances for such a transaction, maybe. But the cupboard is bare. The Capital Development Fund set up to manage the capital gains from bauxite mining has been depleted.

There being no disposable surplus from domestic investment, recourse was made to external commercial markets thus continuing the cycle of growing what has become a roller-coaster ‘debt industry’. It attracts the country’s best and brightest but adds little to productivity. The IMF has studies on this.

Who can see so far into the 2030s? What are the political calculations subordinating the range of purely financial risks modelled by the IMF and financial experts in determining sustainability? The quite technical and erudite models leave completely out of their calculus, the ‘black swans’ of natural disasters, that though imagined are not programmed as imminent.

The empirical evidence is there. It is stark, right here in the Caribbean and in New Orleans. Should there be a natural disaster is there the resilience necessary to foster recovery? Or, given the pressures already building from getting the debt ratios right, does it augur a recovery beyond the country’s fragile institutional capacity in the short and medium-term?

The impression is given that the Washington-based financial institutions (IFIs) have weighed in with supportive advice. The IMF in particular seems to be concerned about “balance”. This is neither clear nor reassuring, given the over-weighted foreign currency exposure. Was it lower interest rates on external debt (but at large exchange rate risk) for much higher interest rates on domestic debt (both J dollar and US dollar denominated)?

Imagine! Jamaican bondholders take no risk, credit indexed — simply by insisting on US dollar-denominated government paper within the domestic economy and at rates above general inflation levels. The ironclad constitutional guarantee of the founding fathers — first and foremost, “willingness” to honour debts, backed up by ensuring the “ability” to meet obligations at the due dates. Music to the ears of external creditors.

The terms of trade do not run in Jamaica’s favour. Comparative advantage in the production supply chain is missing. That is the reality. The talk of “competitiveness” is a feel-good cliché. That and other such terminologies are really fit for think tank circumlocution, not for the hard slog of creating and maintaining capital, not even to get a logistics hub on the ground.

For this reason, it would be in the national interest were the government to present in Parliament by way of a Ministry Paper, the salient features of the transactions, the pricing mechanisms of PetroCaribe, the oil hedge and the reasons; the clarification and agreement on the definition of public sector debt (as between external and domestic); the reconciliation of the different definitions of public sector debt used to calculate the ratio of total external debt to GDP; the future of PetroCaribe, including the use of its annual inflows to service commercial debt obligations.

The financial services sector has garnered more than its fair share of the country’s wealth. From foreign to indigenous back to foreign the sector has been the intermediary of the significant net outflow of surplus capital.

Over the past 50 and more years, governments consistently have mismanaged fiscal and monetary policies. The issuance of debt instruments at exorbitant interest rates has resulted in ever-rising levels of purchasing power inequality. It could not be otherwise. For every debtor there is a creditor. And if there is a ‘debt surplus’ so to speak, there is a ‘credit surplus’.

Whether middle level managers or unskilled staff, those on fixed incomes have had their purchasing power trashed by inflation, Jamaican dollar currency debauchery and way into the future its grinding depreciation.

Jobs and pensions are constantly at risk, perhaps more so under the euphemisms of IMF “reforms” and hard-to-reschedule multilateral policy loans. The stabilisation and adjustment programmes come with recycled regularity — new growth ‘enhancements’ and ‘unlockings’, adding to the debt stock, fiddling with the structural blockages to productivity. And a public sector of institutions struggling to keep abreast of this modern, complex world dominated by science, technology and economics.

How to get the public sector institutions functioning in ways that deliver the goods and services that improve national welfare? For instance, the Planning Institute of Jamaica (PIOJ) in the three page Ministry Paper of 2014 (latest one) presents its 2013 Annual Report which informs that it manages “a combined portfolio of approximately US$3.1 billion (J$312.4 billion) in loans, grants and technical assistance from International Development Partners (IDP)”.

A narrow discussion of the merits/demerits of the recent financial transactions involving PetroCaribe, important in and of themselves, but separate the discussion on the debt strategy linked to the PIOJ’s portfolio of programme and project finance does not lead to substantive policy understanding and implementation.

Instead, the to and fro exchanges are distracting. The more pressing set of issues are put on pause — how to get the real economy on a growth path through increased productivity and social cohesion. The IMF, World Bank, IDB and their cohorts are complicit in fostering this distraction.

The continued focus on and orientation of the financial services sector, as glamorous and indispensable as they are to a modern economy, (its roadshows and the cool vibes shown in the media), are nurturing a “debt industry” deleterious to steady, incremental growth and institutional coping mechanisms.

A Ministry Paper on PetroCaribe might just light the fuse for serious rebalancing.

Anthony Hill is a retired Jamaican ambassador