HAS THE Government gone totally insane to call off talks initiated by domestic creditors to ease its crippling debt burden? How could this ever make sense? Is this "yet another example" of its bungling and "the incompetence of the Ministry of Finance"?

These are some of the questions which have been raised as a result of the announcement by Finance Minister Audley Shaw on Tuesday that the Government had decided not to go any farther with talks with local financial interests to come to an agreement about debt owed to them. But this issue again highlights the importance and, indeed, tyranny of the international market and the pivotal role of exogenous factors.

For years I have stressed the overwhelming impact of the global environment and of globalisation and have chided us for our parochial approach to discussing local economic issues. I bemoaned the fact right after the national debates leading up to the last general election that no journalist raised any question about the global economy in any of those debates. The political leaders argued and debated as though things were totally up to them and "dem run things", and that it was simply a matter of who was brighter, had better policies or was more managerially competent.

Grading standards

So , Standard and Poor's downgrades Jamaica to a triple 'C' rating because it interprets what should be an innocuous approach by local creditors to the Jamaican Government about some restructuring of debt owed (the market does not like the word "restructuring" for it suggests default), and it interprets that as some kind of distressed arrangement.

The Government points out that this rating is palpably unjustifiable and investment houses and seasoned players in the international credit markets themselves agree with the Government, but that is not enough to eliminate the damage done by this leading rating agency.

The rating agencies might have been chastened by the recent global financial meltdown, but they are still powerful and lethal, especially when they pronounce on developing economies. The Government had to make a judgement call as to whether it was worth going ahead with the discussions and risking another downgrade from another rating agency or from Standard and Poors itself.

Clearly, it made the decision that the risks associated with continued discussions with domestic financial interests were outweighed by the costs, however magnanimous, patriotic or well-meaning was the gesture.

First, before any definitive criticism is made of the Government's action, it has to be acknowledged that we do not know the exact nature of the proposal which had been made by the local creditors nor whether the concessions made to Government were sufficiently attractive. We cannot assume that the Government had the best possible deal or that it would necessarily be in the interest of the Government or country. Not all renegotiated debt deals are propitious.

Definitive assessment

The only way we could make a definitive assessment of whether a good, auspicious deal was frivolously rejected would be if we had details of the deal and, therefore, could make an intelligent and reasoned assessment of it. What we can safely make a judgement about is whether the market, including the crucial international market, would have any jitters or concerns about any renegotiation or deal being contemplated.

Empirically, we have seen what Standard and Poor's has done and this was based largely, though not exclusively, on its interpretation of the negotiations going on. What is to ensure that Moody's and Fitch would not have followed suit? Jamaica could not take that risk. News came on Wednesday that Fitch had given Jamaica a higher rating that Standard and Poors (A B rating) and had welcome Jamaica's decision to return to a borrowing relationship with the International Monetary Fund (IMF).

Interestingly, the Ministry of Finance in its terse statement on Tuesday noted that "the proposed stand-by agreement with the International Monetary Fund will ensure stability in our balance of payments". In other words, says the Government, we will stay in those waters rather than ride the choppy seas of debt restructuring, renegotiation, liquidity management programme, whatever name you want to put to it.

It is clear that the Government's thinking is that it is better for us to stick with the known - the IMF and its credibility and cache - rather than the unknown of secret negotiations with creditors, while the international market anxiously looks on. Again, the Ministry of Finance's pithy statement acknowledges that "discussions in the market about this initiative raised concerns about the Government's debt strategy".

So while on the surface it was well-thinking, forward-looking, out-of-the-box thinking domestic creditors who came to the Government and said "let's make a deal", the market could well have the feeling that they were nudged or encouraged to do so. And precisely because one was not privy to exactly what proposals were being exchanged, all kinds of speculations could affect confidence, that crucial factor in the market.

Said the Finance Ministry statement: "Cabinet, after careful consideration of the proposal and mindful of the uncertainty in the market, has decided that the Government will not be pursuing this proposal (at relieving the government's short-term debt service costs)".

The statement strikes me as saying two things - That the proposal was carefully assessed and weighed in light of the uncertainty created in the market and it was concluded that the proposal was not worth the risk. Life is about trade-off. We don't live in an ideal world and this is what all the idealists have to realise.

Real-world calculations

One important maxim in philosophy is that, "You can't derive ought from is." What is. There is the ideal and then there is the real. The two don't always meet - in fact they rarely do. Politicians and policymakers have to deal with the real world and have to make calculations that fit that real world, not the ideal world of progressives and those on the Marxist Left like my good friend Lloyd DaGuilar who want debt repudiation.

I deplore the fact that rating agencies have the kind of power and sway that they do. The have squandered their credibility in the recent financial meltdown by giving prejudicial, conflict-of-interest, and, indeed, corrupt advice. But make no mistake; when they pronounce on small developing states like Jamaica their words taken seriously by the market.

Rating agencies

The market knows they hold no brief for us, unlike their big clients in the United States. Rating agencies like Standard and Poor's now have to overcompensate for their gross misjudgments and disastrous advice given since the subprime mortgage crisis leading to the financial meltdown in the United States.

The credit rating agencies are the watchdogs for the international capitalist system and they punish and bring in line those countries which attempt to show any creativity in dealing with their debt problem. So it is not a matter of whether we should do anything about our burdensome debt: It is, to put it bluntly, whether we will be allowed any freedom to do anything.

This is the stark reality and no amount of huffing and puffing is going to change that. I am no reactionary or defender of the global capitalist system. I see its flaws and how the international economic system is structured to protect the interests of the few against the masses; how it is structured to protect the interests of the big players and big capital against the interests of justice and development.

I am saying that risking a further downgrade by any of The Big Three rating agencies would cause more hardships on the backs of our workers - our teachers, our nurses, our unemployed, our elderly, our children and our youth, than the hardships caused by paying out the 57 cents out of every dollar. Yes, I am pained - deeply pained - about the fact that we are spending so much of our budget and gross domestic product to repay debt. We need some debt rescheduling urgently. But the market is king in this era of market globalisation and neo-liberalism; if the IMF, World Bank, Inter-American Bank and the rating agencies are not pleased with us, dog nyam wi supper.

It's not a matter, as some put it, of not paying the debt, restructuring it and to hell with what the market or Standard and Poor's think. The fact is that the market is omnipotent and ultimate in a capitalist economy and, therefore, you won't have any money to buy raw materials for your factories, medicines for hospitals, essential foods to eat, or money to pay for your electricity or gasolene.

If the Government does not cater to the interests of the market while finding creative ways to carve out policy space to deal with its constraints, you are talking about total economic collapse. I resent - I deeply resent - that this is the reality, but I have to live with that reality, as I have, as an adult, to deal with other ugly realities of this world.

Urgent reforms are needed in the global economic system. Official development assistance has been declining since the 1980s (though there have been some spurts). The developed countries have continued to renege on their commitment to devote 0.7 per cent of their GDP to official development assistance. If they had met that commitment, countries like Jamaica would have resources to deal with its debt crisis. And remember we are suffering from a fallout caused by a greedy casino capitalism made in and exported from the developed world.

It is a crisis not of our making (though we were in crisis before).

The Government made the strategic decision to call off the talks with creditors seeing what had already happened with our bonds since Standard and Poor's reckless rating. No Government could be so silly as not to want debt relief. But the Golding Administration has shown that it understands the power and sensitivities of the international capital market and its potential to heap far greater havoc on us than is being wreaked by our admittedly crippling debtpeonage.

Ian Boyne is a veteran journalist who may be reached at ianboyne1@yahoo.com, or columns@gleanerjm.com.