Stop the claptrap
The Jamaican economic complexities are the topic of the day. It is being driven by multiple interests who all have a vested stake that is directly linked to their pay package. The suggestions have ranged from the reasonable, worthy of exploring, to pure stupidity.
Let us accept some realistic statements. The economy is highly indebted. The debt-to-GDP ratio is now 132.82%. This ranks us fourth in the world behind Japan, Greece and Italy. Another given is that we have not had any meaningful growth for decades. The most acceptable way to bring down the debt to GDP is to grow the GDP, while maintaining or reducing the national debt. We have been reducing the national debt. It was at 145% two years ago.
Recently, a son of Jamaica who earned an international reputation for scholarship in economics expressed his thoughts on breaching the cycle of slow growth. Dr Peter Blair Henry, dean of New York University's School of Business, is reported in Global Finance Magazine in July 2015 addressing what was the most important factor in boosting global prosperity. His response: "Global trade is possibly the single most important factor that boosts global prosperity. Embrace market-friendly reforms. These would include counter-cyclical fiscal policy, sound money and open markets. We lack clarity around fiscal and monetary policies. We have to address income inequality by addressing education. If we commit to substantial reforms, we have a very bright future ahead."
Jamaica has been tinkering with fiscal and monetary policy. We have allowed the dollar to decline. Boost the net international reserves. Pay down the debt with revenue generated by onerous tax policies and raise all service fees by, in some cases, thousands of per cents at one fell swoop. All of these do not facilitate growth.
The depreciated dollar is negated by the importation of inputs to support our manufacturing sector. It has not made our exports more competitive. What would be the result if we made real tax concessions to facilitate entrepreneurship? The Government has gone in the exact opposite way with its actions on the junior stock market. No more 10-year tax holiday; only five years.
What if we were to designate zones for entrepreneurs to locate businesses where electricity was subsidised and security was a national cost to facilitate a 24-hour production cycle? What if we provided a retooling concession to the existing manufacturing sector? Obsolete equipment results in low productivity. We need growth now.
Examine the suggestions
In the absence of real growth, we have been squeezing every dollar from the economy to pay down the debt. It cannot last much longer without the real risk of social arrest. Let us examine some of the suggestions that have been made to slow the pace of debt reduction and provide money for growth. Cut the primary surplus target from 7.5% to 5.5%, or even 4%? Not really workable in the long term, as our stack of debt is growing daily.
We need to borrow for everything: oil, raw materials for manufacturing, bottles, paper, motor vehicles, construction material and fixtures. Name it, we borrow to acquire. No growth in the GDP, plus sustained borrowing with a reduced pricing surplus, leads to an explosion of debt to GDP. That is the formula that led to Japan having the highest debt-to-GDP ratio in the world at 246.14%. The difference with Japan and Jamaica is that Japan earns the hard currency to pay for imports; we do not.
In addition, we borrow at ridiculous rates of interest. PetroCaribe funds being refinanced at 7%. No wonder the international financiers were ready to lend us US$4.5 billion. We were only seeking US$2 billion. This Government must be the inside joke of the financiers. Here comes Jamaica, they say. Let us make some windfall profits. US Treasury bills pay less than 3% interest. We pay 7%.
When wage negotiations are being undertaken and sensible people make mind-boggling assertions, one can only hope for some outcome of sanity. Let me state an axiom of truth. Jamaica is broke. To suggest we stop paying down the humongous debt by reducing the primary surplus to 5.5% or 4% to provide money to pay a bloated public sector, whose productivity is facilitated by some 250 underperforming government entities, is to defy economic logic and embrace populist electioneering claptrap.
Some of this reasoning is to be found also in the recommendation to stick up the local debt holder by way of the financial institutions. The financial institutions are, in large part, custodians, not owners, of the debt. This debt has been attacked at least two times in recent years: NDX and JDX. The money provides a necessary supplement for the 60% of the pensionable population who have nothing. Now you wish to do it to them once more! Social unrest awaits.
Make the hard choices, but the right choices. We borrowed and squandered for decades. Time come now. Pay up.