A Preemptive Sovereign Insolvency Regime

The prior instalment of this sovereign insolvency blog trilogy concluded that "output foregone" is huge in highly-indebted IMF programme countries with high growth potential, the Financial Times reported. That is because in such cases, IMF programme design prioritises debt recovery ahead of activity. It imposes exorbitant primary surplus targets, wrecking the balance between primary spending and low taxes that is necessary to realise high productive potential. Jamaica is a case in point. After a decade of compliance with IMF conditionality, including primary surpluses of 7-9 per cent of GDP to service old debt, Jamaican output is now only 10 per cent higher than in 2009. Had those IMF programmes merely matched the growth of Jamaica's best-in-class macroeconomic peers over the decade, that number would be 50. Read more