Mon | Sep 24, 2018

Economic growth and the primary surplus

Published:Friday | December 19, 2014 | 12:00 AM
Minister of Finance and Planning Dr Peter Phillips listens as Prime Minister Portia Simpson Miller speaks in Parliament. - File

Aubyn Hill, Guest Columnist

The uniquely steep primary surplus that the International Monetary Fund (IMF) was able to get the Government of Jamaica (GOJ) to agree on is fast becoming the negative moniker for the entire Extended Fund Facility that Dr Peter Phillips signed on behalf of us Jamaicans in May 2013.

The fact that the IMF was able to persuade our political and economic leaders - the minister of finance and the governor of the central bank, for instance - to accept what is probably still the highest primary surplus target it has ever set for a nation state, was bolstered by what was also probably the third-highest debt-to-GDP ratio (about 147 per cent at the time) in the world. That kind of drastic debt overhang demanded drastic action. The primary surplus imposed on the Jamaican people has proven to be drastic indeed.

Jamaica's history with the IMF was somewhat patchy and the Washington-based lender-of-last-resort to poor and debt-laden countries was doubtful of Jamaica's political fortitude to stay the course - in the same way, one guesses, it was towards Greece and Spain around the same time. Jamaica had no fortress Germany, led by a stern Angela Merkel, in a functional economic and political union - CARICOM is irrelevant, unfortunately, in most things - so the IMF took on the role of stern taskmaster and the primary surplus has become one of its biggest stick of discipline.

Meeting this Jamaica-specific elevated target has released a deadly sucking sound from the Ministry of Finance. The ministry has been siphoning out every dollar it can from already impoverished taxpayers of all kinds and from institutions such as the National Housing Trust on the one hand, while on the other it has cut back severely on capital and even recurring spending and have delayed extensively GOJ payments to its suppliers and contractors. Individuals and businesses are suffering - and the suffering is particularly acute and painful for Christmas 2014. There is no money around, is the pervasively painful refrain. This is a sad Christmas carol, indeed.

The government made us a hard bed

There is no doubt in my mind that we had no choice but to negotiate an IMF deal. Our leaders had exhausted every source of lending with their perennial profligacy over more than 20 years or so before the last IMF deal. Whether or not we needed to agree to a 7.5 per cent primary surplus target is now settled; we did agree. Do we still need that very high primary surplus target is now not as certain. The debate is on, given the strain and pain it is causing most of the population of the country and the hurt it is inflicting to our economy - and especially its critical growth-restricting effect.

While the Jamaican exclusively high primary-surplus debate will continue, what needs no debate is the fact that the Portia Simpson Miller-led administration dropped the ball on economic growth - apparently entirely reflexively, since it had no idea whatsoever what to do with it. Dr Phillips follows the IMF debt-repayment playbook assiduously and has been given high marks for backbone, if not for financial innovation, not least for standing up to powerful Cabinet colleagues.

The prime minister and her Cabinet behaved as if economic growth and meeting the IMF targets were mutually exclusive. Indeed, the impression has been fostered that passing the IMF tests is in itself the panacea to our economic woes. With that mindset, the Government completely disregarded the scalpels for economic growth it had in its own hands. It seemed not to understand how legislation and regulation could be used to create new economic spaces for growth. It never used these tools to guide the private sector or to give incentives to invest. The Government seemed to have understood fully that it could use its legislative power to meet IMF requirements. It knows how to follow the IMF debt-repayment recipe, but the Government does not appear to know a thing about planning for and executing policies that will encourage and foster economic growth.

No growth means primary surplus will hurt and may falter

One thing is certain, this primary surplus target is going to take the Shakespearean 'pound of flesh' from off Jamaicans chest and our Portia will not be able to stop the IMF and its primary-surplus target from sucking out a lot of Jamaican's blood - unlike what lawyer Portia in the Merchant Of Venice was able to stop with her famous "A pound of flesh, but not one drop of blood" declaration. Alas, our Portia has no such legal or economic antidote to the IMF's demands.

The Government has no plan to use its energy policy and changed energy mix and its speedy execution to drive growth; no plan to use low-hanging fruits, like fostering agricultural production to reduce imports and grow exports; and while the business processing outsourcing (BPO) space is progressing, enough real active drive has not been undertaken to propel this sector higher and faster.

Meeting the IMF's primary surplus target is turning out to be the easy part of our economic change equation. It is accompanied by serious economic pain. Regrettably, the Government appears to have little or no clue about achieving robust economic growth. Growth is the real pain reliever when it is done right and pushed down into the lives and pockets of ordinary - largely poor - Jamaicans. Without substantially faster and sustained economic growth there is a good probability that we will falter on the IMF programme.

Aubyn Hill is the CEO of Corporate Strategies Limited and Chairman of the Economic Advisory Council of the opposition leader Email: Twitter: @HillAubyn. Facebook: