Former Prime Minister P J Patterson.
March 16, 2025
TIGHTEN THE GUARD RAILS!
We need a constitutional debt brake to prevent profligacy
In 2009, during the global financial crisis, when many countries were borrowing massive amounts of money, German Chancellor Angela Merkel — who I admire for her astute and proactive leadership skills — spearheaded the debt brake (Schuldenbremse) which is a constitutional rule to severely limit the amount of money Germany could borrow. This to ensure the country’s long-term financial stability. I believe Jamaica needs a constitutional debt brake.
In a nutshell, Germany’s constitutional debt brake does not allow for borrowing which exceeds 0.35 per cent of gross domestic product (GDP). World Economics noted that Germany’s GDP stood at US$5.762 trillion in 2024. The constitutional debt brake means Germany can borrow a few billion dollars, while federal states are entirely prohibited from taking on new net debt. Germany, therefore, has to fund itself through means of taxation, exports of goods and services, etc, and not necessarily through extra borrowing.
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Germany has the strongest economy in Europe and is one of the strongest globally. Jamaica needs a constitutional debt brake in tandem with the strict fiscal rules adopted over the last 13 years.
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PROFLIGATE SPENDING
Those who have seen The International, a 2009 film starring Clive Owen and Naomi Watts, may remember this eye-opening line: “You control the debt, you control everything.” The thriller centres on the intersecting troubles of an Interpol agent and an American district attorney. They work together to investigate corruption within a fictional bank based in Luxembourg. The bank and its owners service organised crime and corrupt governments as a banker and as an arms broker. By any means necessary is the bank’s clandestine motto. The bank’s ruthless managers, consequently, assassinate potential threats, including their own employees. There are many lessons in the film, including the debilitation caused by crippling debt.
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In my The Agenda piece on January 12, 2025, entitled ‘Future can’t be as the past’, I said, among other things, “Shortages, outages, and stoppages,” think Edward Seaga, were the rule and not the exception. Jamaica could not pay her bills and we were the laughing stock of the region. Then, Jamaica owed money to almost every Jack and Jill, including countries with severely repressive regimes. Iraq’s was one. Frequent devaluation of the local currency, biting austerity, suffocating inflation, rampant crime, capital flight, and the mass migration of many of our best and brightest — some 20,000 after Manley’s infamous “five flights a day” ultimatum — were the order of the day. While Manley and the People’s National Party (PNP) were at Jamaica House in the 70s, Jamaica was literally brought to her knees.”
The catastrophic dive of the Jamaican economy in 1973 was, among other things, the result of the taking on of excessive debt. As our debt skyrocketed, our exports also plummeted; national productively flat lined, social fallouts followed with institutional degradation and the stunting of the potentials of thousands of Jamaicans. I have provided copious evidence here previously. This severely costly and hugely traumatic chapter was repeated in the turbulent years while P J Patterson was prime minister and Dr Omar Davies was the minister of finance and planning. The mistakes of the 70s and 90s must never be repeated. Our best safeguard is a constitutional brake like Germany’s.
The grim reaper of developing economies is debt which cannot be adequately serviced. No Administration should ever have the power to put Jamaica back into the sinkhole of suffocating debt.
Dr Omar Davies’ now-infamous “run wid it” speech — which set off a national firestorm of criticism in the aftermath of the 2002 General Election when he implied that, despite clear danger signs, some government spending had been done with an eye on another electoral victory for the PNP — was a most frightening admission of profligate spending, which well-thinking Jamaicans must never forget. I am convinced that the best way to never forget terrible and traumatic experiences is to institute measures to make repeats near-impossible. I also strongly believe the best way to prevent profligate spending by any future Jamaican Administration is the institution of a constitutional brake on borrow per cent of GDP, as in the specific case of Germany. Common sense says that we would have to tailor our own benchmarks to match our realities.
NO STRAITJACKET
I anticipate that some are going to say, “But, Higgins, Jamaica now has an Independent Fiscal Commission (IFC), which operates as a permanent agency tasked with assessing the Government’s fiscal policies and performance against macroeconomic objectives, so why do you want to put the Government in an almighty straitjacket?”
A little background and more are important here: The IFC and the Fiscal Advisory Committee (FAC) started operations on January 1, 2025 and took on the responsibilities previously held by the Economic Programme Oversight Committee (EPOC). The primary objective of the IFC and FAC is the further strengthening of Jamaica’s institutional economic framework.
As I understand it, the IFC and FAC do not have the power to switch on a constitutional debt brake if a future Government were to go off on a frolic of suicidal borrowing as happened especially during the years when Patterson was prime minister. Recall that when Patterson took the keys to Jamaica House in 1992 our debt was just about $60 billion, in a mere 14 years Jamaica’s debt skyrocketed to just under $830 billion. No future Government must ever have the power to ever repeat the great injustice of suicidal borrowing which happened in the 90s. It has taken Jamaica nearly 20 years to repay the lion’s share of the debt which the Patterson Administration piled onto the backs of Jamaicans during the 90s. Those who think that a constitutional debt brake would be the equivalent of a huge straitjacket on the operations of our Government need to put this in their pipe and smoke it: Jamaica is obliged to repay her debts. This obligation is clearly set out in our constitution. So since our elected representatives have the power to commit us to debt, which we must repay, why should there not be a provision to prevent them from borrowing mountains of it, which will plunge present and future generations into abject poverty?
I have lived in this country all my life, except for the times that I have journeyed overseas for various reasons. I live here by choice. I have seen a lot happen in this country and I have seen and read a fair bit about especially our politics. Over many years, I have noticed that some who have done great damage to this country have hastily retired to cooler climes as soon as they are booted from office. We who live here are then left to pick up the pieces of their incompetence.
It is imperative, therefore, that we tighten the guard rails so that those who see Jamaica and her resources as an opportunity to pillage and then flee, and also those who are tempted to manage national affairs with callous disregard and gross incompetence will not be able to do so. A constitutional debt brake is vital to our long-term national macroeconomic viability.
The IFC is responsible for providing the public with an informed and independent opinion on the soundness and sustainability of Jamaica’s fiscal positions and policies and the FAC, which is headed by the former EPOC Chairman Keith Duncan, oversees the operations of the IFC. Again, neither the IFC nor the FAC has the power to switch on a constitutional debt brake on a future Government. By future Government, I am referring to one formed by the People’s National Party (PNP), which has a history of suicidal borrowing.
Let us not fool ourselves, at some point in the future the PNP will get back the keys to Jamaica House. The reality is, citizens in especially Western liberal democracies like ours do not often stay married to one party for more than, at best, five parliamentary cycles.
Anyway, Mark Golding, leader of the Opposition and PNP president, has said the PNP is committed to fiscal responsibility. He also told this newspaper that he is a socialist. And socialists are known globally for their addiction to tax and spend, crippling borrowing and the redistribution of resources often in the absence of prior production. I am not quick to believe that a leopard will change its spots.
During the last three years, Golding has been up and down the highways and byways of this country promising a new heaven and Earth. Up to the time of writing this piece he had not indicated how he would fund his promises. Rural folks say, “A promise is a comfort to a fool.” I agree. I don’t believe a future PNP Government will safeguard the fiscal stability of the last 13 years. They simply don’t know how. Fiscal responsibility is not in their DNA.
ONCE BITTEN
Those who suffer with convenient memories would, doubtless, have relegated these facts to the back of their brains/minds: “By 2013 Jamaica’s public debt had reached a historic high of about 147 per cent of GDP, making it one of the most-indebted countries in the world,” said the International Monetary Fund (IMF). We were, therefore, forced to start to think and behave reasonably after decades of foolishness and irrationality. We were forced to fast-track the economic recovery programme started by Prime Minister Bruce Golding and Finance and Public Service Minister Audley Shaw in 2010.
Prime Minister Portia Simpson Miller and Minister of Finance and the Public Service Dr Peter Phillips were faithful to the implementation of the economic recovery programme, albeit under the watchful eye of the IMF. The Administration of Prime Minister Andrew Holness, first with Dr Nigel Clarke and now with Fayval Williams as the minister of finance and public service, are working hard to prevent a repeat of past mistakes. But we must do more than depend on the goodness of persons.
Aldous Huxley, renowned writer, philosopher, and author of the celebrated book A Brave New World and several other acclaimed works, famously said: “Most human beings have an almost infinite capacity for taking things for granted.” I agree.
Some Jamaicans don’t understand and some take it for granted that Jamaica was precariously perched on a giant precipice just 13 years ago. How did we get there? Debt!
We borrowed our way into near financial ruin. Most of the borrowed money was imprudently if not carelessly used; hence, we have little to show for it today. We fell asleep at the wheel for several decades. Recall that several international and respected publications had labelled Jamaica as a basket case. Recall, too, that we were dubbed the “poor man” of the region.
“The biggest legacy we can give to future generations of Jamaicans is low debt!” Dr Peter Phillips, former finance and public service minister, Opposition leader, and PNP president, told the country this in July 2019. He is absolutely right!
Sound, that is how the IFC recently and publicly described the Government’s debt and macroeconomic projections/forecasts, which are outlined in the Fiscal Policy Paper for the 2025-26 financial year. The IFC also told the public that achieving the 60 per cent debt-to-GDP ratio by the 2027-28 financial year is achievable; the economy is likely to return to growth this fiscal year; and that the inflation projection (5.6 per cent) and deficit targets (primary at 5.1 per cent of GDP) are credible. We are headed in the right direction.
Journalist Wilmot “Motty” Perkins often said on his radio show that, “Jamaicans had a propensity to choose the worse of possible options,” a reference to the governance record of our two major political parties. I believe a critical mass has graduated from that tendency of national self-harm. Still, we need a constitutional debt brake, changeable only by a two-thirds majority in both houses of Parliament.
Garfield Higgins is an educator and journalist. Send comments to the Jamaica Observer or higgins160@yahoo.com.
