Jamaica has announced this morning that they have plans to partake in another debt swap, in hopes of combatting their current economic crisis. A general rule for indebted nations is to keep debt payments under 25% of GDP, lest a country barely affords the interest payment let alone the debt itself. Jamaica’s debt is currently 140% of its GDP. Therefore to try and lower its current rates Jamaica has announced that it will (for the second time in three years) swap their debt to a lower-cost deal. It has been noticed that the nation’s funds are already stretched too thin, when roughly “55% of government spending goes towards paying the nation’s debt, while 25% goes on wages. That leaves just 20% for everything else – including education, security and health.”
Another reason for the urgency of the swap is so that the country does not fall through on a negotiation with the IMF, wherein Jamaica would get a loan provided they use the loan to reduce their debt. The island has had significant trouble with a decrease in tourists, as the “global financial crisis has cut visitor numbers severely.” With a main staple of their economy dwindling, it’s hard for private investors to see hope for real growth anytime soon.
President Woodrow Wilson said in 1913 that Caribbean and Latin American states “deserve nothing but the administration and applause of the world, [for] they have had harder bargains driven with them in the matter of loans than any other peoples in the world.” It’s curious that 100 years later, Jamaica remains chained by debt. It also certainly suggests something about debt and primary commodity traps.