EDITORIAL - Be wary of Samuda's $1.6b debt plan

Karl Samuda, the industry and investment minister, will forgive our surprise at his announcement in Parliament this week of the intention of the state-owned Factories Corporation of Jamaica (FCJ) for a $1.6-billion bond issue to finance the construction of 200,000 square feet of factory space.

The space, Mr Samuda said, is required to house information and communication technology businesses which, presumably, want to set up in Jamaica. Apparently, renting these companies factory space will be an incentive for them to invest.

That may not seem bad idea. Jamaican governments have in the past encouraged the establishment and/or expansion of industries with subsidised factories. The current circumstances, however, demand that any raising of debt by the Government be vigorously defended and an airtight case established before Mr Samuda's plan be allowed to proceed.

Indeed, Mr Samuda outlined the proposal as Prime Minister Golding and Finance Minister Shaw were seeking to convince the legislature of the absolute necessity of the ostensibly voluntary rescheduling of more than $700 billion in domestic debt, on which the Government has lowered interest rates and extended tenors. This restructuring is expected to "save" more than $40 billion in annual interest payments and ease the Government's fiscal pressures, which stem largely from a debt of $1.3 trillion, or nearly 140 per cent of gross domestic product, and requires 60 per cent of taxation income to service. In other words, Jamaica's current debt profile is unsustainable.

Significantly, even as he spoke of the FCJ's strategy, Mr Samuda was touting the divestment by the agency of property valued at $43.4 million and that the sale of another $572 million of real estate was in train. After that, the Government would still have another $4 billion worth of properties to divest.

This sell-off was in keeping with the impression formed by this newspaper and others, based on past statements by Mr Samuda, as to the broader policy declarations of the Golding administration that the Government wanted to get out of the business of building and owning commercial real estate.

What Mr Samuda appears to have clarified on Tuesday was that it is not so much that the Government wants to leave the business outright. Instead, the FCJ would no longer build, hold and rent factories but develop them for sale.

Contingent liability

That is a job better suited to the private sector, even if the idea, as Mr Samuda suggested, is to use the divestment proceeds to finance the new properties. But not only is the FCJ a government entity, it plans to finance its venture with borrowed money which, undoubtedly, would be guaranteed by the Government, thereby becoming a contingent liability of the state. Soon, given the ways of Jamaica, the $16 billion would become part of the official debt stock.

That Mr Samuda declared that the space is needed and that it would generate jobs should not be sufficient to convince Mr Shaw and Mr Golding of the appropriateness of this borrowing. They, like the public, must demand more, and far better particulars. To do otherwise would make a folly of the debt-swap programme.

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