This second debt exchange (NDX) is actually the second time a Jamaican government is being pushed to radically deal with the debt crisis by no less an institution than the International Monetary Fund (IMF) -- one of the pillars of the international capitalist system.
While getting blasted from all quarters for taking too long to sign the agreement, few knew how valiantly the government was fighting on behalf of local creditors, who are strangling the economy with their demand for a pound of flesh.
Well, in the end the government prevailed. The local creditors will not be troubled with a 25% haircut on their principal as the IMF was suggesting (not demanding it turns out) and these creditors are most grateful to the finance minister for standing up for them. The government, in other words, will not be adopting a radical approach to the debt crisis anytime soon. It will continue to kick the proverbial can down the road for as long as it can.
This revelation, thanks to Sagicor boss, Richard Byles, shows not only the servility of the government to the financial sector, it also shows their absolute determination to shift the ENTIRE burden of debt onto the backs of the working poor. Who knows how much these guys from the financial sector contribute to election coffers. The beneficiaries are most grateful.
Consider that the government used 40% of GDP to bail out the financial sector in the 1990s (now part of the debt burden), sold them for a song later on (certainly in the case of NCB; Sagicor (LOJ) was also bailed out) and now these same financial institutions are not only making billions of dollars of profits by just buying government bonds, but they have the government and the people over a barrel. If this not a case for a radical haircut, or nationalization, then what is?
How absolutely disingenuous or naive is it for the minister of finance to be expressing concerns about the “sustainability of the financial sector and maintenance of its integrity” because “it is the very sector which we must rely on for the mobilisation of investments”?
Who is mobilizing for whom? Without the government borrowing from, or the financial sector lending to the government, the financial sector would collapse. Richard Byles said as much: “The haircut would have led to Sagicor writing off J$8 billion, not to mention the other financial institutions.” JMMB for example holds $64 billion worth of government bonds. “Confidence would have been short-lived,” says Byles, “and government would have had to pump money into these institutions and then they would be run by the government.”
That is precisely the option that should be taken. The government has the political responsibility, assuming that it is concerned about the people, to not only repudiate debts which are strangling the lifeblood of the people, but it has the legal authority to set up financial institutions which, as Byles rightly said, can be successfully run when based on confidence.
With the government’s stamp of approval, a financial system which is set up to support the government’s economic plans would have little trouble gaining the confidence and support of the people. It is little secret, as was said above, that many local financial institutions are created and survive because of the government’s voracious appetite for debt. The interest rates charged are the key to their success which means that a handful of people because of their social role, are parasitically creaming the surplus produced by the vast majority of working people. Banks as they operate are little more than Ponzi schemes and succeed because of ‘confidence’.
Those who say that there is no alternative to debt repudiation and point to potential disruption of the financial sector forget that the banks can be legitimately nationalized and created into state banks. NCB was once majority owned by the government. So was Life of Jamaica (now Sagicor). There was the Workers Bank owned by government. And for those who worry about capital flight and capital strike, government has an array of options to deal with this including the creation of a new currency, if necessary.
Finally, the IMF is far more realistic than most and is well aware that there is no basis upon which the debt crisis can be resolved by “growing” the economy. Only a few foolish, so-called economists and financial analysts, including some columnists and politicians, who no one takes seriously, believe that this is possible.
Talk about growing the economy without cancelling the debt is nothing more than a deliberate deception designed to get the working poor to buy into their own oppression.
And, by the way, don’t use the ‘poor pensioners’ argument as a foil: taking care of the old should be a social responsibility of the state just as it is to take care of the educational and health care needs of the population.
The market has failed us. It is time to acknowledge this.
PS: Next time we’ll deal with the foreign creditors.