Jamaica Case Study

WORKING FOR THE SOCIAL JUSTICE COMMITTEE

Writing the country profile for Jamaica and exploring the development and impact of the huge foreign debt that has accumulated in the country were one of my first tasks for the ‘Social Justice Committee’. Working for the ‘Social Justice Committee’ has allowed me to research and encourage greater awareness of social issues that plague the developing countries in an environment surrounded by talented, young ‘justice-enthusiasts’ who are keen to share their broad knowledge of social issues and engage in debate about these issues. The case study of Jamaica I created was interesting because I was able to use a variety of sources, from information by the IMF to Civil Society Groups to a 2001 documentary film exploring poverty in Jamaica, in order to gain a comprehensive and unbiased description of the sources of Jamaica’s economic problems as well as attempts to alleviate the problems. I was shocked to discover that, despite the country’s debt problems and the government’s resulting inability to confront more pertinent issues of domestic poverty, Jamaica has been the recipient of World Bank ‘Climate Investment Funds’. While the debt situation in Jamaica continues to be problematic and to inhibit the country’s ability to address social and economic issues, organizations like the ‘Social Justice Committee’ have made substantial efforts to bring attention to the impact of the debt burden on poor countries and encourage global action such as debt cancellation, which provides the best hope for these countries to remove themselves from poverty.

By Tara Param

1.COUNTRY PROFILE

Country: Jamaica
Population: 2.7 million
Capital: Kingston
Major Language: English
Major Religion: Christianity
Life Expectancy: 71 years (men), 76 years (women)
Monetary Unit: 1 Jamaican dollar = 100 cents
Main Exports: Bauxite, alumina, garments, sugar, bananas, rum
GNI per capita: US $4,800
Leader: Queen Elizabeth II (Head of State)
Portia Simpson-Miller (Prime Minister)
Present Value of External Debt: $13,245,898,200 (US$)
Portion of Debt Owed To Whom: $4.5 billion owed to IMF, World Bank and the Inter-American Development Bank

2.PAYING BACK THE DEBT

Jamaica is the fourth most indebted country in the world, but how did this happen?
Since Jamaica peacefully secured its independence from British colonial rule in 1962, in politics, it has been able to sustain relatively stable democracy. However, Jamaica’s economy suffered from its colonial legacy, creating a reliance on exporting cash crops such as sugar, cocoa and coffee.

Jamaica was initially very reluctant to accept loans from the International Monetary Fund, the IMF, because these loans typically require the donor country to implement strict austerity measures. Jamaica’s Former Prime Minister Michael Manley in a post-independence speech stated, “The Jamaican government will not accept anybody, anywhere in the world telling us what to do in our own country. Above all, we’re not for sale”. It was this non-IMF platform that won him the election in 1976. However, amidst growing economic problems, Jamaica was faced with a lack of alternatives.

The only solution Jamaica saw to its growing economic problems was external borrowing, and Jamaica was forced to sign its first loan agreement with the IMF in 1977. Developing countries were advised that if they borrowed money and invested in modernizing their economies, this would cause their economies to ‘take off’ making repayment of loans much easier. Although there was some initial success, the 1970s oil crisis increased the amount Jamaica had to borrow, while the global recession led to shrinking revenues and panic among Western banks, which began calling in their debts. As a result of these factors Jamaica’s national debt tripled as a percentage of GDP between 1973 and 1979. Almost all of Jamaica’s debt is external, sourced from institutions such as the World Bank, the IMF, and the Inter-American Development Bank.

The debt accelerated once again in the 1980s, as Jamaica sought loans from the IMF to pay back existing creditors and keep the country running. IMF loans required implementation of Structural Adjustment Policies (SAPs), which involved remodeling the economy in areas such as public spending, trade policy, and regulation. These SAPs required devaluation, removal of price controls, de-regulation of import controls, tighter monetary and fiscal policy, deregulation and privatization. However, implementation of SAPs is usually accompanied by, at least initially, a worsening of the distribution of income, which led to a decline in living standards in Jamaica during this time. Imposing strict austerity measures, including slashing spending on public services, has had a directly negative effect on Jamaica’s ability to provide social services to its citizens. Education standards fell and fees were introduced to many vital public services that previously were free.

The IMF are controlled by developed countries in the West and therefore the IMF took advantage of the indebted government’s need, by demanded a system which effectively replaced locally made product with imports from the developed countries, causing Jamaica’s industry to decline. Jamaica’s dependence on imports has increased their debt burden, making the country less competitive in the international markets.

Today, Jamaica is one of the most indebted countries in the world. Figures from the World Bank Global Development Finance indicators show that the Jamaican government spends 28 per cent of the country’s revenues from exports on debt repayments, the highest amount of any developing country. The recent global recession has further exacerbated Jamaica’s problems. Jamaica is now borrowing more money from the IMF to stay afloat. Despite the unmanageable size of Jamaica’s debt, Jamaica has never been considered for debt cancellation because it has been deemed ‘not poor enough’.

3.WHAT IS HAPPENING NOW?

Although Jamaica is one of the most heavily indebted countries in the world, it has recently been the recipient of climate loans, which have exacerbated Jamaica’s already debilitating debt burden.

The ‘Climate Investment Funds’ (CIFs) are funds to help developing countries pilot low-emissions and climate-resilient development. However, there has been widespread criticism from civil society actors around the world about the funds. Many argue that the World Bank is not the appropriate channel for climate finance because of its poor reputation in the past in the area of climate change. The World Bank has actually increased lending for fossil fuels and continues to finance dirty technologies. In addition, the lack of input of developing countries in the design and promotion of the CIFs has provoked further criticism. The lack of guarantee from the World Bank that the funds will be additional to previously agreed development aid has created fear among the developing world. While the use of loans rather than grants risks increasing Jamaica’s already heavy debt burden.

The UK has lent Jamaica a $10 million climate loan intended to help Jamaica deal with climate change, however many civil society groups argue that the World bank and the UK government should be cancelling Jamaica’s debt, rather than contributing to it through these climate loans. It is widely acknowledged that rich industrialized countries are historically responsible for climate change and that poor developing countries should be given the same opportunities to industrialize without setting limits on their abilities to develop. Developed countries should take responsibility to address climate change, as they are in a better position to do so, allowing Jamaica to deal with its domestic problems.

Africa has also been the recipient of huge amounts of loans to cope with the impact of climate change. The money will be spent on schemes to install solar power plants and encouraging investment in low-carbon transport. These loans cause the debt problems in these countries to worsen. Loans should be focused on ensuring that these indebted countries can deal with these debt problems and help them to provide better social services to their citizens.

Following the recent financial crisis, many of the most heavily indebted countries are already in a vulnerable economic position, and these loans for climate finance have the potential to push these countries further towards economic collapse. It has been discovered that only one sixth of the pledged funds from the World Bank will be delivered as grants and over one third of CIF funding is channeled to the private sector. It has been found that, all too often, public funds intended for climate and development purposes in the poorest countries are being used instead for subsidizing high and middle income countries’ private sectors. It is important that countries such as Jamaica are provided with means to address their excessive debt situation. By contributing to Jamaica’s already unsustainable debt burden, these loans have debilitated the Jamaican government’s ability to provide basic rights and services to its citizens.

The debt situation today in Jamaica continues to be alarming and continues to restrict economic growth by drawing heavily upon resources that could be put to more productive use. In order to improve the economic situation, policies aimed at sustainable growth, such as a greater investment in education, have to be implemented to increase human capital and the labor force’s productivity.

LINKS/SOURCES:

“Jamaica’s Debt: Exploring Causes and Strategies.” CaPRI. Mar. 2008 <http://eurodad.org/uploadedfiles/whats_new/reports/capri_debtreport.pdf&gt;.

“BBC News – Jamaica Country Profile.” BBC News – Home. 10 Jan. 2012 <http://news.bbc.co.uk/2/hi/americas/country_profiles/1190968.stm&gt;.

“Country Information: Jamaica.” Jubilee Debt Campaign UK. Apr. 2011 <http://www.jubileedebtcampaign.org.uk/Jamaica+4109.twl&gt;.

“Jamaica | Data.” Data | The World Bank. <http://data.worldbank.org/country/jamaica&gt;.

Williams, Carey. “Third World Debt Crises – The Jamaican Experience.” About.com Economics. Web. <http://economics.about.com/cs/moffattentries/a/debt_crisis_3.htm&gt;.

“Why Debt Repudiation Is a Common Sense Approach to Jamaica’s Economic Crisis.” Jamaica Resist. 29 Oct. 2011 <http://lloyddaguilar.blogspot.com/2011/10/why-repudiation-of-jamaican-debt-is-not.html&gt;.

“UK Lends ‘climate Loan’ to Heavily Indebted Jamaica.” Global Justice Campaigners Tackling the Causes of Poverty. 4 Nov. 2011 <http://www.wdm.org.uk/climate-change/uk-lends-‘climate-loan’-heavily-indebted-jamaica&gt;.

“Storm on the Horizon? Why World Bank Climate Investment Funds could do more harm than good.” Eurodad: Nora Honkaniemi. Feb. 2011 < http://eurodad.org/uploadedfiles/whats_new/reports/climate%20briefing-1.pdf&gt;.

“World Bank Climate Funds: “a Huge Leap Backwards”” Bretton Woods Project. 1 Apr. 2008 <http://www.brettonwoodsproject.org/art-560997&gt;.

“Jamaica’s Debt Burden Is Also Yours.” Jamaica Gleaner News. 8 Apr. 2009. <http://jamaica-gleaner.com/gleaner/20090408/lead/lead10.html&gt;.

Handa, Sudhanshu and King, Damien. “Structural Adjustment Policies, Income Distribution and Poverty: A Review of the Jamaican Experience”. Centre for International Studies. 1996 <http://idl-bnc.idrc.ca/dspace/bitstream/10625/33344/1/115762.pdf.&gt;

“Jubilee Debt Campaign UK : Country Information : Jamaica.” Jubilee Debt Campaign UK : Home : Drop the Debt. Apr. 2011. Web. <http://www.jubileedebtcampaign.org.uk/Jamaica 4109.twl>.

“About Life and Death”. A Film by Stephanie Black. 2001

Sheckleford, Michale. “Jamaica: Debt, Economic Performance and Labour Productivity.”. Council on Hemispheric Affairs. 6 Sept. 2006. Web. <http://www.coha.org/jamaica-debt-economic-performance-and-labour-productivity/&gt;.

 

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