Thu | Sep 21, 2017

It’s all about the economy

Published:Saturday | February 20, 2016 | 2:05 PM
Professor Densil Williams
Christine Lagarde was re-elected managing director of the International Monetary Fund last Thursday.
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As Jamaica prepares to vote on February 25, the singular most important determinant of the election outcome should be the economy. Since independence 53 years ago, the Jamaican economy has not performed to its potential, mainly because of bad economic management by the political class coupled with a consistent struggle between labour and capital to find equilibrium.

With weak leadership, individual self-interest generally supersedes the national good and creates the typical haves-vs-have-not dichotomy. This dichotomy makes sustainable economic growth an almost impossible task for a small country such as Jamaica. The haves-vs-have-nots chasm creates structural barriers to education, innovation, entrepreneurial developments and social consciousness, which are key ingredients to drive sustainable economic growth, especially in this highly complex global economic system, where knowledge is the most valuable resource for small countries like Jamaica.

Therefore, as we move closer to February 25, what we need to hear is clear articulation of strategies that will ensure that the economy is not reversed from the current trajectory, but be enhanced to provide stronger performance in the near term and beyond.

It is no secret that the macroeconomy in Jamaica was in a terrible state prior to the IMF agreement of 2013. The data revealed that the exchange rate was highly overvalued, as evidenced by the widening current account deficit coupled with the high level of inflation differential between Jamaica and its main trading partner, the USA; the net international reserves were way below the desired level of 12 weeks of imports; the international bond market was almost closed off to Jamaica, with Jamaican bonds trading at junk; foreign direct investments were at their lowest in over a decade; the country's competitiveness ranking slipped drastically from 60 in 2006-2007 to 94 in 2013-2014; the Doing Business index also showed a drastic slip, settling at 94 in 2013-2014.

Significantly, Jamaica's debt burden was running at more than 150% of GDP and its fiscal account was showing deficits in the dangerous double digits of more than 10%, and wage-to-GDP hovering around 12%. With these conditions, there was no way that Jamaica could have expected to see any signs of real growth in its macroeconomy and to create sustained prosperity for its citizens. This dismal performance had to be arrested.

Performance

The country went into an extended fund facility arrangement with the International Monetary Fund (IMF) in 2013, with the singular aim of reversing the terrible performance described above and create a more enabling environment that can lay the foundation for long and sustained periods of economic growth that will generate real prosperity for all.

The adjustments required by the IMF to correct a lot of the structural deficiencies that were built up over 40 years of reckless management of the economic affairs of the country were not painless. They brought significant pain, especially to the working-class persons in our society. However, with those painful adjustments, it is no secret that all stakeholders, nationally, regionally, and globally, have recognised that the economy is in a better shape in 2016 than it was in 2013. A lot of the structural imbalance has now been cured or is in the process of being cured, laying the foundation for real economic growth.

Positive trajectory

As a country, we now have to determine if we want to keep on the positive trajectory or change course. Let me be very clear: I am not for one minute assuming that the current Government is the only group capable of keeping us on this trajectory. I will leave that for the people to decide.

The argument I am putting forward is that whoever forms the next government on February 26 should not squander the painful sacrifices we, the people, have made to help us to reach to 2016 where we can see signs of progress on the horizon. We cannot go back to a pre-2013 scenario in Jamaica's history. This is a powerful message we will be sending on February 25. The persons who lead after February 25 must be seized of this important signal.

So, after the cacophony of February 25, what we will need going forward is sober leadership that will ensure that the hard-fought gains of stability that have been returned to the macroeconomy are not eroded but strengthened and entrenched in our economic management programme for the future. Deficit financing and running those very high debt-to-GDP ratios we had in 2013 will have to be a thing of the past. Anyone who proposes such strategy in this election cycle must be punished severely when we go to the polls.

What we need to hear are clearly thought-out strategies that will help us to manage in the confines of the neo-liberal programme under the tutelage of the IMF. Whoever forms the government after February 25 will have to make the adjustments agreed to under the IMF programme. This idea that an early election is called because of so-called bitter medicine is about to be administered is a non-issue. We have agreed to some clear structural and quantitative targets under the programme with the Fund, and if we do not deliver on them, we will be in deep trouble, no matter who leads the government.

There is no neat way of bypassing the IMF programme and seeing Jamaica achieve prosperity any time soon. The programme must be completed and the gains entrenched.

Densil A. Williams is professor of international business and executive director at Mona School of Business and Management, UWI, Mona. Email feedback to columns@gleanerjm.com and densilw@yahoo.com.