Here is the update:
Over 40 years, Jamaica has been “rescued” on countless occasions. In the 1980s, the island became almost a byword for “structural adjustment”. Jamaica is one of the most indebted countries, spends twice as much on debt repayments as it does on education and health combined, and looks set to miss several millennium development goals (pdf). After four decades of austerity, the country has a few lessons for the likes of Greece, Portugal and Ireland.
The IMF has announced a $1bn (£650m) loan to “help” Jamaica meet huge debt payments due in coming years. As usual, the loan is to be accompanied by four years of austerity – precise details still pending, though a pay freeze, amounting to a 20% real-terms cut in wages, has been agreed.
This austerity will be applied to an economy that has effectively not grown since 1990. Huge debt has been a constant burden, with foreign debt payments of more than 20% of government revenue every year. When the financial crisis hit, the island was pushed into full-scale recession, before being pounded by Hurricane Sandy last year.
It seems nothing good is pending, economic growth is negative, and the debt to gdp ratio is 143%. I take it we can agree this is one case where stimulating nominal demand will not bring much in the way of dividends? Do we agree? Last year the inflation rate was over ten percent and the (nominal) exchange rate hit new lows. Do note the country ran a primary surplus last year and is attempting to move toward a balanced budget, so does anyone wish to pin this mess on fiscal austerity? Or is their austerity and its observed failings a symptom of other policies which went badly wrong?
The measured government budget deficit is about 6.1% of gdp, but I suspect if you start the calculation in 1990, in “cyclically adjusted terms” Jamaica will appear to be running a huge surplus and a very tight fiscal policy. After all, I do see unemployment estimates in the range of 13 to 14 percent. Isn’t that a classic sign of deficient aggregate demand?
I do wonder if we can agree on this case. And if we agree on this case, which more general lessons might we draw about the difficulty of inference from data…?
Addendum: This is a post about Jamaica and also about macroeconomic inference. If you are tempted to write a post in response, criticizing me on the grounds that I am postulating a historical equivalence between the United States and Jamaica, or if you try to cover your tracks with semantics, by suggesting that I am “implying” such an equivalence, or implying some other mistake, or if you are committing any number of other fallacies or equivocations in response to this post, put on the dunce cap and go to the back of the class. Please consider this a general warning to be attached to everything written by me on this site.
Extra: Ashok Rao offers good commentary on Jamaica (and India).