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Will there be a JDX 2?

Phillips says ‘no haircut’ but points to liability management programme

BY ALICIA DUNKLEY-WILLIS Observer senior reporter dunkleya@jamaicaobserver.com

Tuesday, January 15, 2013    

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FINANCE Minister Dr Peter Phillips yesterday refused to give credence to whispers that a second Jamaica Debt Exchange programme (JDX) is being contemplated, pending an agreement with the International Monetary Fund (IMF), but said the "issue of voluntary liability management operations in relation to the debt" is still the subject of deliberations.

"Remaining under discussion is the issue of voluntary liability management operations in relation to the debt. Let me make it clear, since there are lot of rumours around, no haircut is contemplated. Cabinet is committed to the sustainability of the financial sector and the maintenance of its integrity; this is critical going forward as it is this very sector which we must rely on for the mobilisation of investments," Dr Phillips told a special media briefing at Jamaica House.

The briefing was called following the special three-day Cabinet retreat which ended Saturday.

"At the same time, we are engaged, and will be engaged further in voluntary and necessary debt liability management because sacrifices will have to be borne by all," the finance minister told reporters.

He, however, refused to go into details as to whether this would constitute a second JDX programme with word being that some financial institutions have been drafting models based on a second such programme.

Responding to a query as to whether this was a JDX 2, the finance minister said: "... I think the sensitivities of this issue are such that misinterpretations, misunderstanding or misrepresentation, witting or unwitting, would be too great a risk to take, but I have said what I have said."

Prime Minister Portia Simpson Miller, in defending Phillips' comment on the issue, said the Government was not being close-mouthed but rather acting on principle.

"It is not that the minister is holding back or that I am holding back, we have to understand that in light of the negotiations, we cannot indicate specifics until we have a conclusion and I crave your indulgence and ask for understanding," Simpson Miller said.

Information Minister Sandrea Falconer, cautioning the press at the start of the meeting, made it clear that the Administration would not be baring its soul at this point.

"We have heard the discussions and we must remind you that the IMF negotiations are ongoing and we don't want to prejudice the negotiations and the outcome so, therefore, we need to understand that there is a limit to what we can discuss," she said.

The original JDX was launched in 2010 under the previous Jamaica Labour Party Administration and achieved substantial cost savings for the Government in reduced interest and amortisation on domestic debt. The JDX was the then Bruce Golding-led Government's response to the country's rising debt. It involved the swapping of the bulk of public sector domestic debt instruments in exchange for securities, carrying lower interest rates and longer tenures. The lower rates were expected to yield an average rate on domestic debt of 12.25 per cent and save the Government $40 billion in its first year of implementation.

Also yesterday, Minister Phillips said the Government would have to "settle definitively on the entire range of prior actions" before an agreement with the IMF was signed.

He said the most critical of the measures unanimously agreed on is the programme to reduce the country's debt stock, which presently stands at $1.7 trillion, and which is the major obstacle to sustainable growth and development. The Debt Reduction Programme, he said, will begin by increasing the primary surplus for the next fiscal year from the originally planned 6.3 per cent to 7.5 per cent of GDP (Gross Domestic Product) and which level of primary surplus will be maintained through the entire period of the programme up to 2016/17.

"It is clear that these measures will require sacrifice from all sectors of the society. However, it is the price we will have to pay for macro-economic stability and growth. The Cabinet insists that these burdens must be equitably shared and that as far as possible the most vulnerable in the society will be protected," said Phillips.

The finance minister said the final medium-term economic and financial policy programme will include a specified floor for social expenditures. "Put another way, we are going to commit as part of the programme that there will be a minimum level of expenditure on social programmes, including PATH (the Programme of Advancement Through Health and Education), educational assistance, health services and the like," he explained.

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