Why Peter cannot pay
I am conflicted over this Government-public sector worker wage dispute. I could never have imagined that the Government would have dared to seriously suggest a 10% wage increase to public-sector workers over two years - after five straight years of a wage freeze.
In fact, I confess that for sometime, I thought it was 10% over one year! Let's be blunt: 4% in one year and 3% in another is, in practical terms, still a wage freeze: It's like having seven years of a wage freeze. What earthly difference can that do to the average public-sector worker's wage? Call it another two years of a freeze and done, and then say, realistically, you can get an increase in 2017 when we have a little more fiscal space.
Finance Minister Peter Phillips has come under fire for talking bluntly in his broadcast to the nation last Tuesday night. "What the Government has offered in the wage negotiations is what we can afford at this time. While we appreciate the demand for a higher rate of increases, at this time we simply cannot afford it."
Some union reps have been hopping mad. How can we continue to negotiate when the minister of finance has made it crystal clear that Government has made its final offer? Gone are the days of playing cat-and-mouse games with wage negotiations. It's serious time now. We are in a solemn agreement with serious people - the International Monetary Fund (IMF). In fact, give the minister some credit: He is actually holding off the IMF, which really wants him to cut the public sector and send workers packing. It was not just a threat and a ploy when Horace Dalley, who is directly responsible for the negotiations, said recently that if the Government were to accede to the demands of the unions, 15,000 workers would have to go home.
Many would not have taken the time to read or even know about the eight reviews of Jamaica's IMF programme, which the Fund published on the day Phillips addressed the nation. In that 77-page review, it says: "Public-sector reform is a key to the fiscal consolidation effort over the medium term. The authorities aim to reduce the wage bill from a projected 9.9% of GDP in FY (fiscal year) 2015-16 to 9% of GDP in FY 2016-17. To date, this ... has been driven by nominal wage freezes and the authorities aim to secure continued moderate wage increases in the context of ongoing wage negotiations ... ."
But that is not good enough for the IMF. The Fund is very clear: "There is, however, a need to refocus attention on modernising the public sector and transitioning to a smaller, more effective civil service." That means cuts, not the slow attrition policy of the Government. Now you think Peter Phillips is playing hardball with his meagre 7% in year and even leaner 3% in Year Two? He has been pushing back against the IMF folks who are saying, be bold and use your scissors. The Gleaner has been making the same call in editorial after editorial. So this tells you one thing: It is possible to put up some resistance to IMF recommendations.
Is there room for further resistance, for further concessions? Should we aim at the revision of the 7.5% primary surplus which is where a lot of the discussion has been focusing? I was one of the early persons who called for such a revision. But I have to reckon with the fact, as pointed out to me first by that sharp neo-liberal economist Damien King, that the figure was not picked out of a hat and is actually carefully calculated in sync with a 103% debt-to-GDP ratio by 2020, down from the approximately 140% now.
But if we adjust the primary surplus target, we will reduce our debt at an even slower rate, and our debt burden is a major constraint on our growth which everyone agrees is crucial. You see, there are no easy, painless options, and our discussion on this matter has to take this into consideration. That is why I say I am conflicted.
I can agree that the Government's wage offer is almost meaningless to public-sector workers. It won't make one difference. I know that. But I have enough economic sense to know that granting wage increases which will fuel inflation and a higher debt is inimical to the interests of those same public-sector workers, particular the poorer ones. It's a real dilemma.
As Peter Phillips himself said in his broadcast last week, "Unfortunately, there are still many of us who do not make the link between the reduction of the debt and the public-sector wage bill and the ability of the Government to provide social services and capital investments, which will allow the country to progress."
He pointed out that the share of the public-sector wage bill has grown from 21 cents out of the dollar in 2010 to 31 cents last year - despite five years of wage freeze.
We can't use sentiment when we are seriously discussing this issue. We can't keep kicking the can down the road. Nor can we engage in foolishly populist arguments about macroeconomic stability not being felt by the masses at this time. Yes, the ordinary man in the street might not be enjoying the fruits of all these glorious figures that Richard Byles and Brian Wynter keep trotting out every month, but we must not exploit people's pain and ignorance about economics to score political points.
It is an objectively good thing that our balance of payments deficit has improved from 13.4% of GDP in 2011-2012 to 5.3% in 2014-2015, the lowest in two decades. It is objectively good that our official rate of inflation at the end of last fiscal year was 4%, the lowest in nearly 50 years. It is good that last year, foreign direct investment amounted to US$700 million, the second highest in the English-speaking Caribbean. It is an objectively good thing that while we were paying 60 cents out of every dollar to pay down the debt in 2010, today we are paying down 42 cents; and that our net international reserves, which stood at US$800 million in 2013, are now over $2.4 billion.
These are not things to sniff at. But the Government has to reckon with the contention that its economic reform programme could be literally counter-productive if not adjusted. Growth is a major objective of the programme itself, and while macroeconomic stability is necessary for that it is not sufficient. I go further: We have to ensure that this macroeconomic stability is not pushed at the expense of growth.
There have emerged some rational voices raising questions about the Government's approach to economic reform. One is Opposition Leader Andrew Holness. In his first 'From Poverty to Prosperity' town hall meeting two weeks ago in Kingston, Holness made a nuanced, measured and highly responsible statement on the IMF programme. I was very impressed. He said unequivocally: "The IMF programme is necessary to create stability in the economy. Disciplined management of the country's financial affairs should have been a culture and practice of all governments. It shouldn't take the IMF to tell us that." But he went on: "We believe the primary surplus target is too high, unrealistic and will become increasingly unattainable as the programme progresses." Peter Philips can't just dismiss that as populist propaganda.
Holness has made the point that the failure to produce meaningful growth will be the greatest threat to the IMF programme, not the demands for higher wages by public-sector workers. In fact, the IMF, itself, in its 77-page review last week says plainly: "Despite the improved business and consumer sentiment, concrete evidence of a robust growth pickup is yet to be seen." And then the IMF itself warns, "Without a significant improvement in economic activity, social support for reform and the tight fiscal stance may falter." Danny Roberts, who has really emerged as the sharpest, most informed union voice challenging neo-liberalism in Jamaica, would be pleased to see that.
Danny has drawn empirical examples from Greece, Portugal and South Africa to critique Government's tight primary surplus target and public-sector wage to GDP strictures. He would be happy that the IMF, itself in its review, admits that the 7.5% primary surplus target is "ambitious", referring to it as "this very high primary surplus". We must have serious, unemotional, evidence-driven discussion on the very limited choices that face us.