The destruction of Jamaica’s economy through austerity
By Pete Dolack
Published on July 1, 2015
A small country immiserates itself under orders of international lenders; unemployment and poverty rise, the debt burden increases and investment is starved in favor of paying interest on loans. If this sounds familiar, it is, but the country here is Jamaica.
So disastrous has austerity been for Jamaica that its per capita gross domestic product is lower than it was 20 years ago, the worst performance of any country in the Western Hemisphere. In just three years, from the end of 2011 to the end of 2014, real wages have fallen 17 percent and are expected to fall further in 2015, according to the country’s central bank, the Bank of Jamaica.
Such is the magic of austerity, or “structural adjustment programs,” to use the official euphemism of the International Monetary Fund and World Bank.
A new paper from the Center for Economic and Policy Research, “Partners in Austerity: Jamaica, the United States and the International Monetary Fund,” reports that the amount of money Jamaica will use to pay interest (not even the principal) on its debt will be more than four times what it will spend on capital expenditures in 2015 and 2016. And despite a new loan, the country actually paid more to the IMF than it received in disbursements from the IMF during 2014!
As a further sign of the times, the current pro-austerity government of Jamaica is led by the National People’s Party, the party of former democratic socialist Prime Minister Michael Manley. Prime Minister Manley took office in 1972 on promises to combat social inequality and injustice, and he is credited with enacting legislation intended to establish a national minimum wage, pay equality for women, maternity leave with pay, the right of workers to join trade unions, free education to the university level, and education reforms that enabled students and teachers to be represented on school boards.
He also became an international figure advocating for progressive programs to be implemented elsewhere. Naturally, this did not sit well with the United States government. When Prime Minister Manley stood with Angola against the invasion by the apartheid South African régime and supported Cuban assistance to Angola, he defied a warning from U.S. Secretary of State Henry Kissinger. The CIA presence in the Jamaican capital, Kingston, was doubled.
A Jamaica Observer commentary noted parallels between the overthrow of Salvador Allende in Chile and unrest in Jamaica later in the 1970s:
“The imperialists applied the same ‘successful’ Chile model of destabilisation in Jamaica. They applied the same strategy of ‘making the economy scream,’ creating artificial shortages of basic items, promoting violence, including the savage murder of 150 people in a home for the elderly. Violence erupted in Jamaica as was never seen before in the ‘shock and awe’ tactics mastered by the imperialists whenever they want to create fundamental change in someone else’s country. Manley and Jamaica yielded under the pressure and eventually took the IMF route.”
Replacing human development with austerity
The conservative who took office in 1980 reversed Prime Minister Manley’s programs. By the time that Prime Minister Manley returned to office in 1989, he had moved well to the right under the impact of changing world geopolitical circumstances and the dominance of neoliberal ideology. As an obituary in The Economist dryly put it, “He did as the IMF told him, liberalised foreign exchange and speeded up the privatisation of state enterprises.”
The one-size-fits-all program, a condition of IMF and World Bank loans, includes currency devaluation (making imports more expensive), mass privatization of state assets (usually done at fire-sale prices), cuts to wages and the prioritization of the profits of foreign capital over a country’s own welfare. The 2001 film Life and Debt, produced and directed by Stephanie Black, depicted a country on its knees thanks to “structural adjustment.” The film’s Web site sets up the picture then this way:
“The port of Kingston is lined with high-security factories, made available to foreign garment companies at low rent. These factories are offered with the additional incentive of the foreign companies being allowed to bring in shiploads of material there tax-free, to have them sewn and assembled and then immediately transported out to foreign markets. Over 10,000 women currently work for foreign companies under sub-standard work conditions. The Jamaican government, in order to ensure the employment offered, has agreed to the stipulation that no unionization is permitted in the Free Trade Zones. Previously, when the women have spoken out and attempted to organize to improve their wages and working conditions, they have been fired and their names included on a blacklist ensuring that they never work again.”
The film shows the destruction of Jamaica’s banana industry and the decimation of its milk-production capacity because the country is forced to open itself to unrestricted penetration by multi-national capital, while those corporations continue to receive subsidies provided them by their home governments. The Life and Debt Web site reports:
“In 1992, liberalization policies demanded that the import taxes placed on imported milk solids from Western countries be eliminated and subsidies to the local industry removed. In 1993, one year after liberalization, millions of dollars of unpasteurized local milk had to be dumped, 700 cows were slaughtered pre-maturely and several dairy farmers closed down operations. At present, the industry has sized down nearly 60% and continues to decline. It is unlikely the dairy industry will ever revitalise its growth.”
Poverty and unemployment continue to rise
Austerity continues its course today. The Center for Economic and Policy Research’s “Partners in Austerity” paper, written by Jake Johnston, notes that conditions in Jamaica are worsening — unemployment, at 14.3 percent as 2014 drew to a close, is higher than it was when the global economic crisis broke out in 2008 and the 2012 poverty rate (latest for which statistics are available) of 20 percent is double that of 2007.
Jamaica currently has a debt-to-GDP ratio of 140 percent, an unsustainable level that has risen. Yet it is required as a condition of its latest IMF loan to maintain an unprecedented budget surplus of 7.5 percent. Thus the paper declares the country is undergoing the world’s most severe austerity because this surplus, the highest dictated to any country, must be extracted from working people on top of what is extracted for interest payments.
Jamaica has re-financed its debt twice in the past three years, and its latest IMF loan, agreed to in 2013, comes two years after previous loans were cut off because the government said it would pay promised wage increases to public-sector employees. The debt exchanges lowered the interest rates and extended the payment period, a combination that does not necessarily mean less interest will ultimately be paid out. Without debt relief, there is no exit from this vicious circle. The “Partners in Austerity” paper says:
“Crippled with devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing. But it is also the case that, after billions of dollars of previous World Bank, [Inter-American Development Bank] and IMF loans, much of its debt is actually owed to the very same institutions that are now offering new loans.” [page 2]
Financing schemes, whatever negative consequences it might ultimately have for the debtor country, are lucrative for investment banks. For example, banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt. Yet the foreign debt continued to grow. In one example during this period, a brief pause in Argentina’s payment schedule was granted in exchange for higher interest payments — Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring, Credit Suisse First Boston, racked up a fee of US$100 million.
Less for public needs
As a result of the new austerity measures, Jamaican government spending on infrastructure has fallen to 2.6 percent of gross domestic product, as opposed to 4.2 percent as recently as 2009. Moreover, the government is required to siphon $4.4 billion over four years from its National Housing Trust to replenish government coffers drained to pay off the loans. The trust, a legacy of Prime Minister Manley, is mandated to provide affordable housing, and yet it is the same National People’s Party that is raiding it under IMF orders.
The country’s economic difficulties would be still more severe if it were not for aid from Venezuela and investments from China, according to “Partners in Austerity.” The paper reports:
“Venezuelan funding comes through the Petrocaribe agreement, where Jamaica receives oil from Venezuela, paying a portion up front and keeping the rest as a long-term loan. Jamaica pays a lower interest on the Petrocaribe funds than it does to its multilateral partners. According to the IMF, net disbursements through Petrocaribe totaled over $1 billion over the last three years, averaging 2.5 percent of GDP per year. … A significant portion of the Petrocaribe funds are being used to refinance domestic debt, in support of the IMF program. Additionally, a portion of funds takes the form of grants and is used for social development, bolstering support to the neediest who have been most impacted by continued austerity. … Without the Venezuelan and Chinese investments staving off recession, it’s likely the IMF program would fail due to serious public opposition.” [page 13]
It is possible to provide aid that actually assists development rather than as a cover for exploitation, as Venezuela demonstrates.
Why do disastrous “structural adjustment” programs continue to be foisted on countries around the world despite the results? Undoubtedly many who prescribe “structural adjustment” continue to believe in neoliberalism in the face of all evidence. But this ideology doesn’t fall out of the sky; it is an ideology in service of the biggest industrialists and financiers, presenting the inequality and excess of capitalism as natural as the tides. But anything made by humans can be unmade by humans.
Pete Dolack is an activist and writer who currently analyzes the ongoing economic crisis, and the political and environmental issues connected to it, on the Systemic Disorder blog. He has been active with several groups, currently with TradeJustice New York Metro.
He is the author of the book It’s Not Over: Lessons from the Socialist Experiment, an analysis of the 20th century’s attempts to create alternatives to capitalism that proposes to draw lessons for emerging and future movements seeking answers to the political and economic crises of today, due to be published by Zero Books in late 2015.
Article picture: ASSY via Pixabay