Don’t waste our ‘poster-child’ status
Barring divine intervention, Jamaica will not see the economic goal set by Vision 2030. A third of the way through the much ballyhooed national plan, its goal is farther away than it was at its launch. And like its predecessor, the National Industrial Policy, Vision 2030 might as well be consigned to the waste basket.
Development plans without realistic strategies to create competitiveness and attract capital to value-creating enterprise are little more than economic pipe dreams.
It is the injection of capital into the United States economy, not austerity, that led its recovery from the 2008 global economic crisis. Today, the US is the standout economic performer among developed countries.
Sustained fiscal austerity
After achieving nothing but economic anaemia from sustained fiscal austerity since 2008, the European Union is now acknowledging the critical importance of economic stimulus. It has decided to move its stagnant economy from decline to growth with a stimulus package that will generate more than EU300 billion of new investments, representing almost 2.5 per cent of the economic union's GDP.
China, despite its spectacular economic success and its impressive double-digit growth in the decades preceding the global crisis, has responded to its slowing economic growth rate by introducing its own stimulus. National and provincial governments are investing heavily in infrastructure and housing, and bank lending has been hiked to increase economic activity.
Notwithstanding its stellar economic performance, South Korea, too, has recently introduced an economic stimulus in the form of new corporate taxes, which businesses are induced to offset with new investments in the economy.
There are enough examples to demonstrate to our Government that stimulus designed to increase productive investments in the economy is a necessary strategy to create growth. And while the type of stimulus used in one country may not be applicable everywhere, each country has the ability to design a strategy, tailored to its peculiar circumstances, that will achieve the same result. In Jamaica's case, the strategy must incorporate fiscal discipline, reducing the deep debt and preserving confidence in the financial system. It must also take account of the inadequacy of Government's resources.
Giving due regard to these conditions, Jamaica must adopt strategies that will generate a sustained flow of capital to the productive sectors of the economy, including export services. But for this to happen, capital has to be incentivised to behave in that way.
Although both the IMF and the Government have accepted the urgent need to bring growth to the Jamaican economy, there has been an unwillingness to employ the measures that will attract the capital needed to drive that growth.
Inadequate attention has been given to investment incentives. Rather, by virtue of the contractionary nature of the overall fiscal programme, commercial activities have decelerated and an atmosphere of economic miasma has reduced the appeal of investing in the economy.
The 7.5 per cent of GDP primary surplus used for debt repayment is the principal reason for the economic contraction, and there is now a growing consensus that this exceptionally large extraction of value is having a stultifying effect on the economy.
The economic compression it causes is compelling reason why this aspect of the IMF's fiscal programme needs to be changed. Were a portion of it used to stimulate production and growth, the effect would have been different. There would have been increased commercial activity and a broader base would have been built for higher, rather than lower, tax revenue.
As I predicted at the beginning of the IMF programme, in the absence of policies to grow the economy, fiscal consolidation, including the 7.5 per cent primary surplus, has resulted in economic contraction and declining revenues.
This position is gaining acceptance, and there are now many calls for the primary surplus to be reduced. However, the most important challenge for us is not to merely reduce the primary surplus, but to counteract the economic contraction it causes by directing capital to production for the economy to grow.
The effort to meet the high primary surplus target is particularly damaging because it requires deep cuts to the capital spending needed to maintain and build our social and economic infrastructure. This, combined with the already inadequate level of private sector investment, has created a toxic mix which, left unchecked, could blight the country's economic future.
The IMF has invested much prestige in the success of Jamaica's economic programme, and we are seen by many as its new 'poster child'. The Fund should, therefore, be prepared to give special consideration to adjusting its Jamaica programme to ensure the country's economic success, meantime benefiting its own image.
If, instead of applying the entire primary surplus to a programme of rapid debt reduction, a portion was put back into the economy in the form of tax credits for verifiable investments in new capacity for production and export services, it would have the ameliorative effect of increasing commercial activity and generating economic growth.
This would have an enormous positive impact on our GDP, employment, our trade balance and the government's revenue.
It would be an act of both political and economic malpractice for a government, having what amounts to 'Most Favoured Nation' status with the IMF, not to use this position to advance the country's economic interest. There can be no more important interest for Jamaica now than to have a portion of the huge economic sacrifice by the people, referred to as the primary surplus, put to use for investments to grow the economy rather than to accelerate the payment of debt.
Were the Government to succeed in this effort, developed-country status might very well be ours in the foreseeable future.
n Claude Clarke is a businessman and former minister of industry. Email feedback to firstname.lastname@example.org.