THE recent meeting of Prime Minister Golding and President Obama at the G8 meeting in Canada appears to signal a welcome “reset” of US and Jamaican relations. In many ways, President Obama has faced similar issues to his summit counterpart, Prime Minister Bruce Golding.

Like Golding, according to President Obama’s special adviser, David Axelrod, from his first day in office Obama has been in a fire fighting mode rather than one of focussing on fixing long-term problems eg education, that he campaigned on. In fact, the crisis has worsened many of these problems.

In an excellent editorial in late January, “What do Mr Obama and Mr Golding have in common?”, the Business Observer outlined the similarities.

“United States President Barack Obama was elected to change many of the policies of the previous eight years… An already difficult situation was compounded by the intensification of an unprecedented global economic crisis and an unwinnable war in Iraq and Afghanistan.”

“Prime Minister Bruce Golding was elected to change many of the policies of the last 18 years with a very small majority” and “assumed office with an economy suffering the ravages of the global economic crisis”.

Both are now suffering from the consequences of financial crisis that did not occur under their watch. The consequent extremely high fiscal deficits make it difficult for the respective leaders to meet campaign promises eg free health care.

The impact of Jamaica’s financial crisis must still be addressed

In a recent speech in Jamaica, the retiring executive director for the Caribbean for the Inter-American Development Bank, former Barbadian Central Bank Governor Winston Cox, noted.

“It would be unfair to Jamaican policymakers and economic managers to ignore the contribution of the global economic crisis to current economic difficulties. But your present situation, especially with respect to high debt, high interest rates and burdensome fiscal deficits, is grounded in the severe economic setbacks of the 1990s when your financial sector was in meltdown. Jamaica led the way in demonstrating to the world that unregulated financial innovation as an end in itself, and not as a means to efficiently allocate resources, leads to disaster. A decade later the world showed that it was not paying attention.”

He added: “The recent emergence of unregulated investment schemes promising impossibly high monthly rates of return and with the potential to cause social and macro-economic instability and hurt the financial sector shows that Jamaica has also forgotten that lesson.”

Cox correctly argues that Jamaica has not yet recovered from the cost of the financial sector meltdown, “as high as 44 per cent of GDP”. He observes that from as early as 1999, some local economists have argued that Jamaica has exhibited the classic features of a “debt trap”, adding wryly that this is something “your international partners have recently confirmed”.

Applauding what he describes as the recent “mature efforts to address this situation”. Cox argues that the debt overhang has to be eliminated “so that resources now absorbed in debt service can be diverted to improving your infrastructure and funding productive investments, to education and health and security, to improving the quality of your human capital which in turn will increase productivity and lead to economic advancement.”

Additional resources can only come from further savings on interest

However, as the Prime Minister observed at the G8, whilst the additional resources provided by G20 countries through the IMF and other multilateral agencies were welcome, “the conditions for accessing these funds require deflationary fiscal and monetary policies that left beneficiary countries with no room to effectively address the development dimension of the fight against crime”.

It can be no accident that Jamaica, along with Haiti and Columbia, were the countries invited to put their case to the World’s most powerful industrialised nations. Columbia, regarded as a potentially failing state in 2002, has turned around its security situation and economy with the help of US$4.4 billion in aid under Plan Columbia. Haiti’s terrible tragedy has mobilised a decade-long commitment of over US$10 billion towards its rebuilding, including the full cancellation of all Haiti’s debts to international financial institutions.

The key question is what level of help is reasonable for Jamaica to expect now that a decision appears to have been taken that America’s third border can no longer be ignored. In my interview during his trip to Jamaica, US Department of Commerce Deputy chief of staff Rick Wade, a close friend of President Obama, argued that “if Haiti is fixable, I certainly think Jamaica is fixable, and I think Haiti is fixable.”

In response to a direct question on what Jamaica can expect in terms of help from the US, however, Wade observed that despite the arrival “soon” of a US Ambassador to Jamaica, “any assistance from the US is going to be a partnership between the US government and other multilaterals”.

Wade is undoubtedly correct that America’s fiscal crisis, not to mention that of smaller traditional donors such as the UK, means that Jamaica should not expect significant bilateral economic support. Nevertheless, as Prime Minister Golding observed at the G8, Jamaica will require additional resources for the social intervention necessary following the dismantling of the criminal networks, resources “that we don’t have”.

However, there are a number of things the US Government could do to help Jamaica help itself, including authorising OPIC (Overseas Private Investment Corporation) backed private equity funds to address what Wade described as our “binding constraints” in areas such as energy, or perhaps the redevelopment of downtown Kingston. The commitment of someone of the stature of former President Bill Clinton, already working in partnership with Denis O’Brien on Haiti, to bring private sector investment to Jamaica, would have enormous value in reaching America’s top private sector decision makers.

Finally, the multilaterals will need to go well beyond the Jamaica Debt Exchange to help Jamaica finance the social intervention programmes we need over the next decade. As it does not appear likely that anybody is going to give Jamaica the money as an outright grant, they need to help us find a way to save at least a further US$100 million a year (perhaps by way of guarantees or other methods) to further reduce our still extraordinarily high interest costs. The goal would be to finance US$1 billion in social intervention costs over the next decade as suggested by Minister Shaw. In reality, we will need to do even more as we are facing the prospect of a double-dip recession in 2011, with its likely negative impact on revenues.