Thu | Aug 24, 2017

Some concerns for the Government

Published:Sunday | February 28, 2016 | 2:00 AM

As we wait for our April payday income-tax relief, there are several major issues immediately confronting the new administration. The JLP's win from behind, shredding all the polls, and in which the offer of a big tax break for PAYE sufferers played a decisive role is going to become a case study in political science, not just for Jamaica but around the world. But the razor-thin majority has strengthened my prognostication that we have entered an era of shorter cycles in government with lower margins as escalating expectations make voters, not just here, less patient.

One of my big disappointments with the election campaign was the failure of both political parties to explicitly link their manifestos and platform promises to Vision 2030. Every administration up to the year 2030 really should be building out from Vision 2030 and providing performance scorecards against the targets in this long-term National Development Plan. In Vision 2030, we have achieved by consultation multipartite consensus and a road map for continuity, not only between the political parties vying to form government but among civil society, labour and business, youth and students, and the professions. A responsible Government must build on, and build out, this consensus.

When Vision 2030 was launched in 2009, it said, "This plan has been produced in the midst of a global financial and economic crisis that is the most serious since the Great depression of October 1929. While Jamaica has to respond to short-term emergencies, it cannot lose sight of the strategic and long-term requirements for development. We must continue to plan, even though we operate in a dynamic global context, and deal with the consequences while we grasp the opportunity to prosper."

When you hear about the global financial and economic crisis under which the plan was produced, you might think this was written by the then prime minister, Bruce Golding, who contributed a 'Message'. It is the opening paragraph of Wesley Hughes' foreword as director general of the Planning Institute of Jamaica.

Subsequently, Jamaica has returned to the International Monetary Fund (IMF) for support, and, despite the gloss and glitter of the campaign promises for jobs and growth, and progress and prosperity, the IMF-supervised reform programme is one of constriction under long overdue fiscal discipline. Constriction and stabilisation before we can hope for any serious growth.

 

New government

 

The new government, like the old one, is saddled with the task of pushing on with the IMF-supervised reform programme with very little wiggle room. Any detour from the path would set us back and cut us off from the international financial markets. Which is a good place to start an examination of external threats in a national SWOT analysis at the start of a new administration.

While we focus very heavily on domestic concerns, there are large looming threats coming from beyond the border. Shifts in the global banking system, for example, are pressuring and threatening to exclude our domestic banks.

We have just had to start dealing with the US FATCA. Now we are facing correspondent bank de-risking where the big players in the developed countries under regulatory pressures over money laundering are simply refusing to continue doing business with and for high risk banks like our banks are seen to be. We are dependent on those players for international financial transactions.

While we were fighting politics at home, CARICOM heads of government were in Belize wrestling with the problem. Our foreign minister represented us. The report of the commission of enquiry on our FINSAC'd financial institutions should not be completed to teach us valuable lessons.

Another threat from being small and 'developing', which must exercise the mind of the Government and each citizen is the impact of climate change. We must expect more negative environmental impact - and economic impact - from climate change. We will be going into the 2016 hurricane season, as usual, with very little in the country's disaster recovery fund as we spend money on paying down the Big Debt. Readers may recall that the 2007 general election was postponed from August 27 to September 11 on account of Hurricane Dean.

Oil poses a significant external threat. We are overdependent on the PetroCaribe arrangement with Venezuela under which oil is supplied at concessionary rates with long-term payments. Despite the regular assurances of the last administration that the PetroCaribe agreement is safe, the Venezuelan economy is imploding under Hugo Chavez's Bolivarian socialism, and the Venezuelan opposition, with much less sympathy to the deal, is rising in power having captured the Congress in recent elections and is now aiming at the Maduro presidency.

But there is another oil risk. Falling oil prices is a double-edged sword. We pay out less in foreign exchange for purchasing oil. But if oil economies globally seriously contract or collapse under uneconomically low prices a fragile world will face another financial and economic crisis. At home, as gas prices trend down so does Government revenue from the special consumption tax on the product which is a proportion of cost.

And further on the matter of commodities: Aluminium markets remain flat with negative consequences for our bauxite/alumina industry. Many high-quality jobs have been lost in this sector from cuts in production and outright closures. When Government talks about jobs created, we must ask about jobs lost and count the net gain or loss.

The export banana industry literally died with the passing of Tropical Storm Gustav in 2008 and has only weakly rallied since then. Sugar faces marketing problems in the EU with preferential access set to be completely eliminated in 2017. Even if there is really an employment uptick in BPO and ICT and even tourism, hardly likely on the scale promised by both parties in campaign, those would be very different workers from those employed in the production of commodities.

The Zika virus was on the campaign trail. And I wonder what would have been done about those mass meetings if a serious epidemic had taken root. Beyond the political sniping over the handling by the last administration of chik-V and the deaths of sick preemies, a responsible Government has to organise to deal with the rising risks of pandemics of new diseases.

During the course of the IMF Programme, and indeed from before it, the Jamaican dollar has progressively depreciated. We hear from some quarters that this depreciation makes exports more competitive. Except that the country has not exported very much more. What we do know is that depreciation increases the debt burden in J$, as more of our dollars have to be used to buy the US$ for debt servicing. And the consumer is squeezed into greater poverty as imports paid for in foreign exchange ends up costing more in J$ on static salaries. The increased income tax relief to which this administration has committed on the campaign trail and which helped them to take the Government will go a long way to ease this pressure on the captive PAYE sufferer.

It, not just "the economy, stupid!" Vision 2030 recognised the negative impact of crime and negative social values on the development prospects of the country including the economy.

Government has even more fundamental responsibilities than managing the economy. I was happy to see on both parties' campaign platform a commitment to the most fundamental duties of government everywhere, every time: public safety, law and order, and justice. These are public goods for all citizens without sectoral considerations.

 

Neglected factors

 

Not only are these critical, but neglected factors, of economy, they are the fundamental reason for the State and government in the first place. The new government must provide preferential budgetary support for national security and justice.

The acts of criminal violence on the fringes of both parties' campaign and not motivated by political disagreements, which led to a regrettable loss of lives in a largely peaceful election campaign, should focus our minds on the very urgent imperative of raising the level of public safety and public order, and of significantly improving law and order. Normalised murders continued unabated during the campaign season. And the matter of these massive, loose, roadblock public meetings for electioneering has now been brought under police and public scrutiny.

We must keep a steady eye on our large domestic concerns viewed through the lens of Vision 2030. But we must also focus a steady eye on global megatrends and risks such as those identified by the World Economic Forum in its annual risk assessment reports and which we often neglect in our domestic calculations.

- Martin Henry is a university administrator. Email feedback to columns@gleanerjm.com and medhen@gmail.com.