Obama's promise to the Caribbean
Jhana Saunders
Wednesday, January 21, 2009
Jhana Saunders
Yesterday, January 20, 2009, the 44th President of the United States of America was inaugurated. Millions of people, including Jamaicans, withstood freezing temperatures in Washington DC to witness Barack Obama, a black man, take the most important oath of his life. Hope was restored in the people of the United States as joyful tears ran down many faces in the crowd. While this momentous and historic occasion took place for the US, the rest of the globe watched with the hope that not only has change come to America, but to the world.
False promises are a common marketing tool used during a political campaign in an effort to sway voters. But once the race is won, the promises tend to be forgotten. However, as this is a time for change, actions must speak louder than words. Over six months ago it was announced that if elected, Obama would cancel 100 per cent of the entire Caribbean's debt. What makes our region so special that he would make such a big promise? The Caribbean region is significant for its trade activities as well as its geographic proximity to the US, the "first border" according to the new President. The Caribbean also holds some of the world's poorest countries which are heavily indebted and matters have only gotten worse with the global financial crisis. Therefore, according to Obama's foreign policy adviser, he feels it is vital to develop the relationship with those in the Caribbean region that share the same principles of democracy - excellent news for us!
But can he really fulfill this promise? We are at a point in time where the world is in chaos. The US Housing crisis has avalanched into a world-wide financial cataclysm. The United States Federal Reserve (FED) forked over billions of dollars in an effort to save its tumbling economy. For the first three months of fiscal 2009 (which started October 1, 2008) the US incurred a record US$485 billion deficit, surpassing the US$455 billion gap for all of 2008. The inflating deficit could hinder Obama's capacity to revitalise the economy with an immense fiscal spending programme this year. According to the non-partisan Congressional Budget Office, the deficit for fiscal 2009 is anticipated to reach a shocking US$1.19 trillion. This total does not even include Obama's US$800 billion (approximately) in proposed tax cuts and stimulus spending not to mention the wars at hand. Taking this into consideration, is debt relief to the Caribbean a top priority at this time? Not really. So, even if Obama wants to keep his promise to the region, the questions become when will it happen and how much will it help?
Let's take a look at Jamaica's debt. By March 31, 2008, Jamaica's total debt stock made history, hitting the $1 trillion mark by jumping 8.4 per cent (yoy). To external creditors in particular, Jamaica owes about $438.6 billion of which the United States as well as Japan are at the top of the list after multilaterals, which are owed $85 billion. And we just added more to the tab with the current administration's willingness to make deals with multilaterals. Three well-needed loan agreements between the Inter-American Development Bank (IDB) and the Government of Jamaica were signed on Monday totaling US$329 million - the aim being to stimulate the productive sector of the economy. The World Bank also approved a US$100 million loan to Jamaica this month.
Jamaica has seemingly been in luck these days as the United Kingdom wrote off £5 million ($703 million) of Jamaica's debt, over $1.6 billion owed, in an effort to aid our nation. This act of kindness slashed our debt to the UK by about 43 per cent, which looks like a big help, but is meager compared to the $438.6 billion external debt. Looking at our debt to the US Government in particular, Jamaica owes $29 billion, as at June 27, 2008, which isn't much either. So, with the UK giving us a "break" and assuming Obama will keep his word, which seems unlikely since the US is riddled with its own problems, Jamaica's external debt would only decrease 6.77 per cent and a mere 2.97 per cent decline in overall debt stock. It is important to note that Jamaica's greatest debtors are not those who have happened to "give us a bligh", but multilaterals. So, although debt forgiveness is more than welcomed, it would seem that a $29 billion cancellation isn't much of a break at all.
The idea of 100 per cent debt relief sounds glorious and will put a sparkle in any debtor's eyes, but the numbers suggest it would only make a dent. Jamaica still has a long battle ahead; nevertheless as the Jamaican proverb states "every mikkle mek a mukkle". So let's keep our fingers crossed and hope Obama will lighten our load and bring Jamaica one step closer to prosperity.
Contributed by Jhana Saunders, Research Analyst at Stocks and Securities Ltd (SSL). email: jsaunders@sslinvest.com
