By Lavern Clarke, Staff Reporter
Motorists have had to fork out more for petroleum products. - File
SIX WEEKS into the Patterson administration's fourth term in office, the Jamaican economy experienced its first shock on news of the oil strike in Venezuela, its largest crude supplier.
But few Jamaicans took notice until a month later when motorists and households started feeling the impact in the form of increased gas prices and electricity bills, and for some increased transport costs.
Petrojam, the local state-owned refinery, is still counting the additional cost of sourcing oil on the open market - some of it lower quality crude that gives less output of finished petroleum products.
The second shock came from the Government itself, which, in a moment of rare candour, told the country in mid-December that two of its critical macro-economic targets - the deficit and the debt - were under-performing with little or no hope of getting them back on track.
The roll-over effect was felt immediately when the international rating agency Standard & Poor's placed a negative watch on the debt, replacing the stable outlook. The local stock market flip-flopped and investors started moving their money into US dollars, helping to fuel demand that has seen the dollar trading as high as $53.30.
But inflation targets of seven per cent remain on track.
Dr. Wesley Hughes, director-general of the Planning Institute of Jamaica (PIOJ), says the primary challenge is the 8.4 per cent fiscal deficit, the expanding size of which flows from 'a triple whammy' on the budget - slowed revenues and increased spending to correct fall-outs from the floods and pay wages; a fall-off in tourism expenditure; and a slowdown in the world economy.
Asked why the Government failed to plan for the floods, despite their regularity, Hughes said there are contingencies in the budget for disasters, but perhaps "not enough".
The Opposition has analysed the gap in the total $223 billion national budget at between $23 billion and $26 billion, but Finance Minister, Dr. Omar Davies, is yet to challenge or confirm the figure.
The deficit's original target was 4.4 per cent, while the debt, when measured as a ratio of Gross Domestic Product (GDP), has slipped from 133 per cent to a projected 141 per cent.
"One of the main factors driving the deficit is the size and obligation of the debt payments which take up over 60 per cent of revenues," said economist Dr. Omri Evans. "After Government collects revenues, it has to borrow 15-18 per cent more money just to meet its loan obligations," the economist said.
The debt, projected at $555 billion, rose because of the borrowing to fill the revenue gap, while Government's activity in the market, alongside the additional 'five per cent of deposits' now required of banks and financial institutions, served to keep interest rates up as banks sought to increase the cost of their funds to compensate for loan earnings lost.
Crime also continues to be a "drag on economic activity" and a serious concern to businesses because of the associated security costs and the limits on the productive day, with Hughes noting that preliminary calculations indicate that the cost is above one per cent of GDP, amounting to more than $4 billion per annum.
The PIOJ head insists that if nothing else, the past three months have seen "a deeper and better understanding among the populace on the challenges we face".
But president of the Private Sector Organisation of Jamaica (PSOJ), Oliver Clarke, notes that there are concerns among big business that Government has failed to define its vision for the country, and its role for the future; that there is no move to reduce the size of Government, including at the local level; the country is suffering from extremely bad management; and there is no concerted effort to crack down on corruption despite the new laws.
The December admissions propelled Opposition and Government forces into a verbal tug-of-war and later a formal debate on whether the economy was in 'crisis' and required a change of the economic model.
Dr. Davies insisted in the House two weeks ago that the economy was not in crisis, noting that to place such a label on the situation could serve to paralyse rather than galvanise corrective action.
"I'm looking hard to see if there is anything that they (Government) have set out to do, in which they have shown creditable performance," says Dr. Evans. Clarke said he would offer no rating as there was little to assess the Government on within the 100 days.
Dr. Evans predicts, at the very least, continued stagnation in the economy, given the impact of the Venezuelan oil crisis, the threat of war in oil-rich Iraq and the additional call the increased oil bill will make on revenues; as well as falling receipts from tourism because of heavy discounting.
World oil prices are now ranging between US$31 (Brent futures) and US$33.60 for light crude, coming from the low to mid-20s.
"There will be no growth this year," said Evans.
But Hughes says the figures are indicating a likely one to two per cent growth at the end of the fiscal year, based on a projected GDP of $394 billion at purchaser's value. The target had been 2-4 per cent.
In relation to the third quarter for 2002, there has been a one per cent growth, according to figures provided by the Statistical Institute of Jamaica (STATIN). This Hughes noted, is slightly above the PIOJ's own estimate. "We project that October-December is going to be positive also," said Hughes.
There is every indication that the country will be going through a period of new adjustments, but up to now Davies has refused to even hint at his programme leaving the country with little to buy into at this point, and the markets uncertain about how drastic the measures will be.
Hughes, a chief adviser to the Finance Minister and the Government, says the island must agree on what needs to be done.
"People may not readily accept adjustments," he said this week. "But problems are not only there to be analysed, but analysed and solved."
In mid-December when Davies presented the $13.5 billion supplementary budget, it was accompanied by increased taxes on areas such as motor vehicles, gas stations, and additional Customs penalties - to net $205 million. Dr. Evans says Government is likely to cut with a deeper tax package in April, since the revenue gap is too large to be filled by expenditure cuts alone.
