The Jamaica Debt Exchange (JDX) has and will make a significant positive impact on the country’s debt situation, and has the potential to turn Jamaica back from the path of increasing indebtedness that it has been on for the past 14 years. However, the JDX alone is insufficient. The government must pursue a programme of disciplined management of liabilities accrued outside of central government, must see through its stated intention to aggressively rationalize the public sector, and embark on comprehensive fundamental tax reforms, if Jamaica is to see real reductions in the country’s debt burden.

So says the Caribbean Policy Research Institute (CaPRI), in the first comprehensive independent analysis of the Jamaica Debt Exchange programme.

Dr. Damien King, CaPRI’s Research Director, presented these findings and recommendations at the Terra Nova All Suite Hotel this morning to a group of private and public sector leaders, with wide representation from the country’s financial institutions.

The study “Achieving Fiscal Sustainability: The JDX and Beyond”, by Dr. King and CaPRI Research Officer Anika Kiddoe, compared the JDX to similar recent debt restructuring programmes in other countries, and found that, contrary to expectations, capital markets do not tend to punish borrowers who restructure their debt, particularly if, as Jamaica has done, they do so pre-emptively. In fact, the pre-emptive nature of Jamaica’s debt restructuring signals to creditors that the government is not unwilling to pay, but is unable to pay, which is a key positive difference for creditors.

Dr. King also pointed out that, contrary to popular belief, it is not excessive government expenditure, nor continued borrowing, that has contributed to Jamaica’s debt burden. But rather, it is the assumption of debts and expenditures outside the central government that has led to the country’s high debt : GDP ratio. In particular the assumption of the debts of collapsed private banks into what became FINSAC, Air Jamaica, and the sugar industry, have been some of the key contributors to Jamaica’s debt burden.

While the study’s findings suggest that Jamaica stands to benefit from the structure, design and timing of the Jamaica Debt Exchange, Dr. King cautioned that there are many other difficult policy measures that government decision makers must take, if the JDX is to fulfil its potential as a turning point in Jamaica’s dismal economic trajectory of the past decade and a half.