Finance Minister Audley Shaw and his boss, Prime Minister Bruce Golding, owe the country a far fuller and more substantive explanation than their terse statement on Tuesday, for the Government's rejection of a debt-restructuring plan put forward by the private sector.

"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," said Mr Shaw of the administration's decision.

The more obvious implication of the finance minister's statement is that the Government was frightened off by Jamaica's downgrade by Standard and Poor's (S&P) in lowering its rating of Jamaica's sovereign debt by one notch, to CCC+.

S&P's misunderstanding

But the administration, and others, insisted that S&P misunderstood the debt initiative and was wrong to interpret it as a distressed action by the Government and, therefore, a trek towards a technical default. The downgrade in those circumstances, and against the backdrop of an imminent US$1.2 billion loan from the International Monetary Fund (IMF), was unwarranted and premature.

If the administration genuinely holds those positions to be true, its apparent acquiescence and retreat, in the absence of sound technical explanation for its decision, would be puzzling. And there is the risk of the behaviour being interpreted as an administration with no foundation or principle, easy to succumb to pressure from the powerful.

That, from our perspective, would be unfortunate for it would weaken the ability of the Government to mobilise the country to support the tough actions that will be required to pull Jamaica through its economic crisis.

As we understand it, the proposal that has now been rejected was for the Government to redeem domestic debt, falling due over the next year or two, at existing coupon. New debt would then be issued at a lower rate, which would mean some easing of Mr Shaw's fiscal pressures. Given that this was not an initiative proposed by the Government and not being pressed by the administration, it would not, its proponents held, be a default.

Market-determined interest rates

Some of the Government's unofficial advisers argued, instead, for an aggressive lowering of interest rates. Their position was that since nearly 60 per cent of the country's $677 billion of domestic debt was at variable rates, the same savings could be achieved with lower rates.

The recent lowering of rates by the central bank may have helped to inform the Government's decision, except that Jamaica's interest rates are market determined. In this environment of global instability there is no certainty how the domestic market, even with an IMF agreement and new action on the deficit, will, over the medium term, price the Government's debt.

On the face of it, locking in creditors at lower-than-current rates would seem to make sense. It also appears to us to have the advantage of signalling to the wider society an acceptance among asset holders, usually accused of being spared the pressures, that the burden of adjustment is to be shared.

If, as the Government argues, S&P mis-understood, it could be beyond us to make Jamaica's case to the global community. In any event, at times there are positions that just are non-negotiable, as Edward Seaga insisted in confronting the IMF in 1986.

In the circumstances, the Government should reveal the technical arguments for its action.

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