Debating the question of 'cheap money'

Published in the Jamaica Gleaner: Sunday | August 12, 2007

Vantage Point with KEITH COLLISTER

In no way did I mean to say (if I even said) that the minister stated that the Inter-American Development Bank (IDB) would not lend money to Jamaica for projects.

Journalists generally have to meet very challenging late deadlines. A quick quote uttered into a mobile phone during a short advertising break midway through a debate is particularly vulnerable to such miscommunication.

Thus, I did not say, or if I did, I certainly did not mean to say, contrary to how I was quoted in yesterday's Saturday Gleaner that "the minister stated that the Inter-American Development Bank would not lend money to Jamaica for projects."

No cheap money

In fact, what my notes reveal is that Dr. Davies argued that from his 14 years of experience with multilaterals, "there was no cheap money as Mr. Shaw referred to", which is a slightly different thing.

This mild misquote in Saturday's Gleaner may, however, be quite useful as it has given me a further opportunity to address the issue of multilateral financing in Jamaica, at a particularly interesting time.

For some strange reason, we have chosen in Jamaica to make the issue of the availability of "cheap funds" from the multilaterals as some kind of political football.

This is actually a replay of the issue in the budget debate, when Mr. Shaw proposed borrowing from the multilaterals such as the IDB, the World Bank and the CDB as part of a debt-management strategy designed to save interest costs. I actually covered this issue extensively in a Gleaner article at the time, but the issue appears to require some repetition.

It is not cheap money that is available from the multilaterals but slightly cheaper money, for lending to projects. More important, however, than exactly how cheap the multilateral money is, which I believe is subject to some negotiation and like everything in life the availability of which funding is not guaranteed, is the possibility of increasing the diversity of Jamaica funding sources, which is particularly important in the current hostile international financing environment.

With respect to the question of availability, however, it should be noted that the local IDB representative here recently described the institution as extremely "open for business" for the explicit purpose of borrowing money on Jamaica News Network, and promised the IDB would have a much speedier approval process than had existed in the past.

Recent events

This issue of the availability of international multilateral financing is particularly important for Jamaica in the context of recent events in the international capital markets. The mortgage subprime debacle and the recent credit crunch in the U.S. raise the issue of whether Jamaica has capital market access at all at this time.

In any event, international capital-market access for a sub-investment grade borrower like Jamaica is always similar to the issues involving a Jamaican initial public offering -sometimes a company such as a Supreme Ventures can raise money on our local stock market and sometimes it can't.

This is not to say that I think the minister meant that Jamaica does not currently have international capital-market access due to the emerging global credit crunch when he commented during the debate that we were "tapped out" in terms of borrowing. I suspect he merely meant that borrowing more money could not be the way forward for Jamaica clarification on this issue would be helpful.

To repeat the key point in my previous Gleaner article on this same issue, Mr. Shaw merely seems to be arguing that the multilaterals would look favourably on a proposal to borrow money to finance projects such as education transformation, as opposed to borrowing by way of Eurobonds on the international capital market for other purposes. As money is fungible, and both parties agree much more needs to spent on education, it is a mystery as to why further debate on this issue continues other than for purposes of political point scoring.

In one of his few attempted counterattacks of the debate, Dr. Davies revived the already settled issue of the non-availability of IMF funding from the budget debate, and the even more rhetorical issue of going back to the IMF, which no one that I am aware of is arguing for as we do not currently have a balance of payments financing problem. In my view, Minister Davies raising the issue again of whether Mr. Shaw wrote or spoke to the IMF is merely (and always was even during the budget debate) an attempt to score debating points. My own view is that even though the IMF has essentially said, in line with its current policies, that we are "not poor enough", we should continue to argue with them that we deserve to be an exception due to our exceptionally high debt-servicing ratio, and thus, I see no harm in continued communication and lobbying on this issue.

One of Mr. Shaw's few debate errors was to say that rating agency Standard and Poors and Bear Stearns had both downgraded Jamaica's debt. He was apparently referring to Bear Stearns moving Jamaica's debt from a buy "outperform" to a sell "underperform" as a result of Jamaica missing its fiscal targets - a point frequently mentioned by Mr. Shaw during the debate - when in fact, only Standard and Poors is a rating agency, and it has not "downgraded" Jamaica. Nevertheless, this error is likely to only be of interest to people such as the clearly highly intelligent readers of this column, as opposed to the majority of the watchers of the debate who are likely to be much more interested in who had the better vision on how to achieve faster job creation and economic growth.