The Jamaica Debt Exchange: Perspective of Jamaican Businesses

The Jamaica Debt Exchange has succeeded in slowing the rate of ‘crowding out’ private sector borrowers from financial institutions as government’s demand for funds has been reduced. However, for the JDX to achieve longterm success there must be some immediate accompanying measures including stability in monetary policy; creating an efficient market for interest rate and significant reduction in the cost of financial transactions.

The Jamaica Debt Exchange Programme (JDX), was designed primarily to save the government billions of dollars in interest cost and, secondly, to improve the growth of businesses in Jamaica. The JDX was introduced against a background of frequent public criticisms of Jamaica’s high nominal interest rate regime and high government borrowings. The main concerns were:
• Crowding out local businesses in need of funding;

• Government borrowing at high interest rates pushed up financing costs to businesses, making them uncompetitive;

• The high nominal interest rates at which government borrowed kept interest rates high for all borrowers, resulting in the threshold level for business investments to be extremely high resulting in less than robust growth of businesses.

Hence the JDX, by reducing the amount of borrowings by government at lower levels of interest would achieve the following goals: Save the government in interest cost and reduce the level of ‘crowding out’; reduce the cost of financing to businesses as well as lowering the threshold level for investments. The inherent assumption therefore, is that lower levels of nominal interest rate will lead to increased investments by businesses. But
does that relation always hold? After all, weren’t the economies of South East Asia built on high interest rates?

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