Delroy Chuck THE NEW Eurobond loan of 200 million (253 million US dollars) is a bitter-sweet event. To the Government and its supporters, it is an occasion for gloating, a reprieve, and a temporary relief before the need for new loans. To the nation builders and those who believe we need to create wealth and produce our way out of debt, loans and fiscal deficit, the new loan is another sure step, an increased burden, on the path to bankruptcy.
I sit in Parliament and listen in amazement, on many occasions, when the Minister of Finance, Dr. Omar Davies, reports the successful conclusion of new loan arrangements, and the Government side beats the desk with glee, to celebrate another solid achievement. We spend much more than we earn. We do so by borrowing our way into a deepening debt crisis, with no end in sight. The necessary fiscal prudence, belt-tightening and, quite simply, tough expenditure cuts that could repair our fiscal accounts are just not part of the menu of options for a Government steeped in the politics of distribution, handouts and scarce benefits. If this Government lacks the courage, then we need another one, to take the hard, painful and unpalatable decisions to cut spending, trim the bureaucracy and significantly reduce interest rates.
LET US NOT FOOL OURSELVES
Let us not fool ourselves with our fiscal accounts in tatters, every new loan is another nail in our economic coffin. The new Eurobond loan is another burden to our debt portfolio, without any tangible benefit to the ordinary citizen. Get real, new loans are not incurred for new activities such as to fix schools and hospitals, repair roads and gullies, or to invest in new productive activities - they are needed, desperately needed, to pay interest on old loans, pay monthly salaries and partly discharge the old indebtedness to contractors who have long supplied goods and services to the Government.
Curiously, we must ask, how did we come to this sorry state? Some of us did have the foresight to anticipate the consequence of this foolish economic model. For over 10 years I have warned of the inevitable outcome of the high interest rate policy and its uselessness to defend the exchange rate. I refer readers to previous columns, all published during the month of December 1993. In my column of 21st January 1998, I wrote: "The Government must surely understand the natural consequence of continuing this high interest rate policy. It is a policy that cannot help the economy. It only helps to redistribute wealth to the wealthy, further impoverishes the poor and will eventually bankrupt the productive sector. Why should anyone with available money do anything but buy (government) bonds or treasury bills and sit back and enjoy the high interest payable?"
That policy, sadly, still continues. Can high interest rates really protect the currency? I have argued repeatedly that we are using and wasting good money to protect a currency that must inevitably find its right value - whatever that maybe. Surely, if experience cannot teach us, let the facts demonstrate that the high interest rate policy has not worked. I refer readers to the Total Public Debt chart, see AL Edwards' column in Friday's Financial Gleaner, and note that our national debt has increased from 144 billion dollars in 1993 to 601 billion in 2002/03. During that time our dollar has devalued from 22 to one to its present level of 60 to one, and rising. It is simply not true, as the Government seeks to assert, that FINSAC was the main cause of our indebtedness, as by 2000/01, our total indebtedness had already reached the then astronomical heights of 380 billion dollars. Our indebtedness is likely to reach 800 billion dollars this year and, at this rate, a trillion dollars next year.
When if ever are we going to realise and accept that the high interest rate policy is the medicine that is killing the patient? Still, I must not give up. As I drive around Jamaica, I am stunned and inspired by the striking beauty and quaintness of the countryside, the undulating mountain range and lush river valleys, the rocky coastline and attractive beaches, the friendliness and hope of our people, and the nation's enormous potential for peace and prosperity. I return to Kingston and the solitude of my study to contemplate the way forward. I know our problem is in the economic management of our country. I know the prolonged high interest rate policy is too costly and devastating and, in the long run, its stated aim to protect the currency cannot be achieved. I know we need a managed devaluation to allow the currency to reach a state of economic equilibrium. And, I wonder, why can't others understand.
I do not support devaluation, I repeat again, as an economic strategy but simple economic sense dictates that when a product, including a currency, is overvalued it is only a matter of time before market forces take it to its right value. I now plead that if we are to come off the present, sure, slow, path to bankruptcy, then the Partners for Progress, in particular the Government, need to understand how market forces work curb the high interest rate policy, the insatiable appetite for loans and the continuing expenditure binge, otherwise we perish.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at delchuck@hotmail.com.
