Question: How has Jamaica fared in the wake of the recession?
Bruce Golding: We faced a particular challenge because even before the recession we had serious economic difficulties. We had accumulated 11 years of fiscal deficit, we were heavily indebted. We are a very small and open economy so that we are particularly impacted by what is called "exogenous shock," which is external influences. And therefore, we were particularly hard done by the recession.
We took the decision that we needed to fix that. And therefore, we introduced very, very tight fiscal measures to reduce our budget, to cut our deficit, to rein in our government borrowing—because we were borrowing so much that we were crowding out the private sector. In a sense, we were doing what we needed to have done even before the recession, without the recession. But we felt it was even more important to do that now and to position ourselves so that once the recession had passed, we would be in better shape to attract investment and to secure economic growth.
It has been tough. I give you an example. Bauxite alumina counts for more than 50% of our export earnings. And because of the global recession, three of our four refineries had to shut down. You can understand the devastating effect that that has had. But what we have done, we have used the time—a crisis as an opportunity and we have used that opportunity to put in place a proper fiscal framework. We have... we have reduced our dependence on credit and we are pursuing a fiscal responsibility program that I think will [...] to our growth and development once the recession is over.
We are a little concerned that the recession is... the recovery is so slow. And the recovery is likely to be elongated and therefore it’s going to take time before we benefit from all the sacrifices that we have made, but we believe that it is a good investment for our future.
Question: Jamaica's debt load reached 126% of GDP last year. Is that dangerous?
Bruce Golding: The size of the debt is one thing, the cost of the debt is even more important to us. We have borrowed significantly, both externally and on the local market. We were borrowing on the local market at an average rate of 17% with various instruments commanding rates as high as 28%. And the cost of servicing the debt—not so much the size of the debt—is what impacts on our fiscal ability to do the basic things that government needs to do; provide proper security, provide proper education, proper health care and so on.
So what we have done has significantly reduced the cost of that debt. We did a debt exchange program on the domestic debt, on the domestic portfolio of our debt, $700 billion Jamaican, some $7-$8 Billion U.S. That has significantly eased the pressure on our budget. Rates on government paper have fallen from more than 20% to now 8%. So that has given us some space.
Where we have been a little disappointed, is that as we rein in government, as we pull government out of the economic space, that space ought to be taken up by the private sector. But the private sector has still not fully recovered from the effects of the recession. Investors are still risk-averse. They are still reluctant to plunge in. Not until they are certain that the recession is at an end. They have been talking to the United States, as you know, about the possibility of a "double-dip" recession. I don’t think that’s going to happen, but I think that investors are waiting to see when would be the right time, when would demand have recovered sufficiently to make investments secure. And we are at the tail end of that. So, we will have to wait a bit longer, but I think that way we are well-positioned for investment.
In the meanwhile, what we are doing is, we are seeking to spearfish particular investment projects that, hopefully, could kickstart our recovery, and could lead the way for others, particularly with major companies. The largest telecom provider in the Caribbean, for example, Digicel, is undertaking a major investment in downtown Kingston as part of the redevelopment and renewal of downtown. We’re going after projects like that because those can seed the recovery and those can ensure that the recovery can come sooner than it otherwise would have.
Recorded on September 25, 2010
Interviewed by David Hirschman