The state has taken on creditors and gangsters, but the economy is still weak
Sep 9th 2010
JAMAICA has long been one of the world’s most indebted and violent countries. This year the prime minister, Bruce Golding, made two belated attempts at shock therapy. In January the government opened a big debt swap. Four months later, security forces began a search for Christopher Coke, the country’s most feared gang leader. Over 70 people died in fighting in his supporters’ neighbourhood—which is also Mr Golding’s constituency.
Both initiatives were successful. The finance minister, Audley Shaw, says he appealed to creditors’ common sense and patriotism, noting that the choice was exchange or default, and that their holdings’ value would improve with the state’s credit rating. He also threatened to levy punitive taxes on holdouts. “I said if I have to haul us kicking and screaming into single-digit interest rates, I’ll do it,” he recalls.
It worked. Holders of over 99% of domestic debt accepted a cut in coupons from 17% to 11% and an extension in maturities of two and a half years. As a result, the government’s annual interest payments fell by 3.5% of GDP. That made possible new loans from the World Bank and IMF, boosting reserves by 70%. And the currency has gained 5% against the dollar in 2010.
Security gains have been just as impressive. In June Mr Coke surrendered and was extradited to New York. Parliament has set new minimum sentences for gun crimes, toughened bail requirements and extended the police’s powers of arrest. Since the start of June there have been 276 murders, compared with 444 in the same period of 2009. And 24% of this year’s killings have been solved, versus 19% in the first eight months of last year. The diary of Cedric Murray, a gangster shot by police last month, shows that criminals’ morale is slipping. During the May fighting he wrote, “I fired my AK-47 until my fingers were numb.” Two months later, he bemoaned his “wasted life”, and longed for his kids and a “good sleep”.
Yet these successes only underscore the depth of Jamaica’s problems. Private borrowers still pay interest of 17%. A stronger currency has eroded tourism earnings and remittances. Consumer demand is frozen: profits during the year to June at the dominant brewer, Diageo’s Red Stripe, are down by almost half from the year before. And the investment climate remains difficult. “A small man starting a business cannot succeed…unless he is willing to play all sort of games,” says Gordon “Butch” Stewart, the owner of Sandals, a resort chain.
Meanwhile, dissent is growing among police. On September 5th Raymond Wilson, the chairman of the police officers’ federation, griped of low pay and “pigsty facilities”, and said the government was “hell bent on destroying the police force.”
Mr Golding will need more successes to stay in office. His party spent 18 years in opposition before 2007 and a new election must be called by 2012. Lower government-bond yields and deficits win few votes. Nor will Mr Coke’s exit. Most gang leaders are still at large. Voters will need to see more and better jobs, and even fewer violent crimes, to return him to power.