Is Peter really going for growth?
Peter Phillips has taken his gamble on this $7-a-litre gas tax, expressing faith that the continued fall in global oil prices will minimise the impact on consumers and the economy, and knowing it is one of the most efficient means of collecting $6.4 billion in new taxes. Plus, the Opposition is not quite street-ready at this time to fight this $7-a-litre problem, weighed down with its own ton of problems.
Many Jamaicans were already mad, cross and angry that they were not benefiting from the reductions in global oil prices at their pumps and were bawling for Government to intervene to ensure they got some release. Rather than coming to their rescue through Petrojam, fuel has been added to their fire with this new gas tax.
We can always argue about where the $10 billion in new taxes should come from. Or whether there should be any new taxes at all. Far more important to discuss is where are we going economically and how we will get there. And what are our options broadly? Opposition Spokesman on Finance Audley Shaw and Opposition Leader Andrew Holness will have to do more this week than merely rant and rave over these "wicked taxes" by "this wicked, uncaring Government".
We want a serious discussion on not just growth strategies, but what is possible in this real world of limited options. Too much of our discussion about economics in Jamaica amounts to nothing more than fantasy and wishful thinking. It is infantile and puerile. We talk as though we have economic sovereignty. We don't. We have squandered that right and now it's outsourced. When we design our fantasy shopping list, do we give a thought to the fact that it is the International Monetary Fund that is paying the bill? What negotiating space do we have?
My view is that all this talk about measures to induce growth has to factor in this stringent demand for a 7.5% primary surplus. It is that constraint which determines why so much of this Budget has to go for debt and why we can't have all the capital and developmental programmes we should ideally have. My own view is that the Government should try to urge the IMF to revise that target. I don't know whether the Government has pressed this point and the IMF has not been relenting, or if our negotiating team is convinced that our debt situation is too severe for any relaxing.
Keep in mind that even after this IMF programme ends, we would still be nearly 100% of debt to GDP still a stranglehold to decent growth. So the reasoning could well be that that it is our crushing debt burden that necessitates this high primary surplus requirement, and it would be kicking the can down the road to ask the IMF to reduce it. I know Damien King holds that view. (You should get his interesting, co-edited book that he and David Tennant released recently, Debt and Development in Small Island Developing States).
I agree with Bruce Golding that if we are to achieve the levels of economic growth necessary to deal with our development challenges, we have to have an "IMF-plus" programme. The IMF programme is necessary, but not sufficient. My problem is that some in Fantasyland speak as though we have a viable non-IMF path or they seem to believe it is we who are calling the shots. I reject two extremes: That of putting up no resistance to IMF neo-liberal orthodoxy or pretending that we are the ones who are dictating to the IMF.
I believe that if the political directorate and its technocrats are not seized of the limits of this IMF programme, if they have drunk the Kool-Aid and really believe that this programme by itself will solve our problems, they won't have the intellectual and emotional stamina to challenge IMF recommendations.
But let us not fool ourselves, on the other hand, that very little or nothing has been achieved under this programme and that it is anti-growth. If you read Claude Clarke's doom-and-gloom pieces, there is very little recognition of the concrete things that have been achieved. He makes the good the enemy of the best. Last Thursday, Peter Phillips provided enough refutation for his recycled Jeremiads.
Phillips also effectively countered those who have sneering at the passing of IMF tests, as though that has nothing to do with growth. People keep asking, "What about growth?" apparently oblivious to the fact that fiscal prudence has to precede, and is the foundation of, growth.
The passing of IMF tests is not alien to growth. I have been very vocal in critiquing IMF policy. I have no doubt the IMF strategies by themselves are not sufficient. But I am not disingenuous enough to pooh-pooh the successful passing of IMF tests as though that's nothing.
I was happy to hear Andrew Holness say recently that he was not saying passing IMF tests was not important . He was simply saying it was necessary, but not sufficient. That was refreshing to hear. I hope he won't go back to playing to the gallery when he speaks this Thursday. Claude Clarke wrote in his article last Sunday: "Growth must, therefore, come from an economic policy environment that attracts capital to production and is conducive to increased productivity of both labour and capital. Regrettably, these areas have attracted little attention in the Government's economic programme."
But as Phillips countered in his budget presentation on Thursday: "It is the passing of IMF tests that has made Jamaica more and more attractive to investors, both local and foreign. It is the passing of IMF tests that have helped to create the present favourable economic environment in which business confidence is at one of its highest levels since they have been conducting the business surveys. It is the passing of IMF tests that enabled Jamaica to re-enter the global capital markets and secure the lowest rate of interest ever secured by Jamaica."
And why consumer confidence is growing and why the Global Competitiveness Report, Forbes magazine and the international credit rating agencies have given us favourable ratings. Start failing these tests and see what happens!
Look at the hard data. Our crippling debt, which has buried so much of our prospect for growth, has been reduced from 145% of GDP when we started the IMF programme, to 139%, and is projected to reach 130% next year March. Inflation this fiscal year is the lowest in 40 years and not just due to global oil prices, as Pessimist-in-Chief Claude Clarke was eager to point out. Our net international reserves stand above US$1.9 billion. We have achieved a balanced Budget. The balance-of-payments deficit is declining, as is the current account deficit. Unemployment has declined.
There can be no growth if these macroeconomic indices are going in the wrong direction. Provide the kind of sophisticated critique that Golding gave of the IMF programme in his CIN lecture two years ago, but this silly talk about "all we are doing is passing IMF tests" betrays either economic ignorance or mischief. If we don't pass these tests, we're back to high debt, high deficits, exchange-rate depreciation, high inflation, high unemployment, capital flight, reduced investments and civil unrest. The bitter medicine is, indeed, bitter, and life in the real world, as opposed to Fantasyland, is hard, but we just have to face it. The Government last Thursday tabled its Growth Agenda Policy Paper, but critics won't bother to read it, and they don't want to be confused by information.
It does not matter to them that $30.5 billion in this Budget is set aside for non-debt capital expenditure. It does not matter that a social spending floor has been established to ensure that real spending on critical programmes in health, education, social security and youth employment is maintained each year. Peter Phillips mentioned a number of infrastructural, investment projects. He talked about the Development Bank of Jamaica's being on course to disburse over $3.3 billion to the SME sector. Within the constraints of a tight IMF programme, it is commendable that the Government has managed to maintain the levels of social and capital projects to strengthen human capital.
We can find areas to criticise in this Government's economic management, rather than to talk nonsense about nothing being achieved. We assault common sense and credulity when we say, as my long-time friend, Claude Clarke, said in last week's article that, "The Jamaican Government had the opportunity to make the case for combining fiscal discipline with growth-inducing policies to improve our economy and honour debt. But chose not to." That myth Peter Phillips laid to rest on Thursday. I hope neither Audley nor Andrew will seek to resurrect it this week when they speak.