Editorial: The logic or politics of economics
A little over three decades ago, with the politics of the Left having asserted itself over the logic of economics, the Manley Government was advised that there was an alternative to the International Monetary Fund (IMF); or, an alternative to any discipline at all.
There was talk of alternative production plans, the government attempted to scrape loans from any country with similar gripes and had a little to lend, and the finance and other ministers were sent trekking to Arusha in Tanzania, and other places, to huddle with like-minded people to figure out how Jamaica might circumvent the rationality of markets and the laws of arithmetic. In other words, how we might earn less and spend more.
The Jamaican Government in 1979, with the endorsement of a vote by the National Executive Council of the People's National Party, walked out of its pact with the IMF and spent much of the time, alternatively, digging itself deeper into an economic hole. The past two years have largely been dedicated to the latter effort, and, ironically, led by a PNP government, we have been making a decent job of it.
There are many voices, like newly unmuzzled oxen echoing the past, preaching the abandonment logic and urging the Government to take a course of action whose ultimate outcome would be the entrenchment of stagnation and poverty, or, at best, a marking of economic time. Their fundamental argument is for the Government to relax its fiscal discipline, lower its primary balance target of 7.5 per cent of gross domestic product (GDP) and give public-sector workers something closer to the 30 per cent wage increase they have demanded.
The argument misses, or is ignorant of, the fundamental reason for the target: Jamaica's debt, which used to be nearly 150 per cent of GDP but is now around 139 per cent. That 7.5 per cent of GDP is not an arbitrary number. It is what all the debt models indicate will bring Jamaica's debt to 100 per cent of GDP by 2020 and help create the environment for sustainable growth.
Such ratios matter. First, the less the Government borrows, the more resources it frees for private consumption and investment, which is likely to be more efficient in expanding output and job creation. This is a virtuous circle that encompasses a lower requirement for government borrowing.
Further, should Jamaica not lower its debt, it will be deemed a risky country to which to lend and the higher the returns demanded by those willing to assume that risk. In the event, significant public-sector pay rises, beyond the seven per cent now on the table, will ultimately mean higher borrowing requirements, unless the Government cuts spending elsewhere - like excising 15,000 public-sector jobs, reducing some services, or investing even less in public infrastructure.
These, as Jesus Gracia Aldaz, Spain's minister for international cooperation, acknowledged last week, are not easier choices for politicians to embrace. When the logic of economics overcomes the dazzle of politics, they can prove beneficial. Spain made the hard choices and is emerging from its economic crisis, and is projected to grow as much as six per cent this year. Spain, we believe, is a better example to follow, rather than the Greece of Tsipras and Varoufakis, to which the unmuzzled oxen would wish to draw us.