Delroy Chuck SOMEHOW I get the impression that the government is desperately trying to get the economics right, but does it know how? Sitting in Parliament last Tuesday, 17th February, listening to the Minister of Finance, Dr. Omar Davies, projecting the likely outcome for this fiscal year, while setting another set of targets for next year, he seems a very worried man. Normally, Dr. Davies is very effervescent, positive and combative, but he was most restrained as he sought to explain why the government failed, once again, to achieve its targets.
ECONOMIC STAGNANCY
Yet, in spite of the 14 billion dollars tax package, an additional 90 billion dollars to our national debt, which will take it closer to 700 billion dollars, inflation of 15% for the fiscal year, more lay-offs in the private sector but none in the public sector and, generally, negative economic factors, Dr. Davies and the Government are still confident that the budget can be balanced in two years time, inflation kept to single digit and the economy can grow by 2-3% annually. Well, anyone who has followed the story of Government budgets for the past 10 years and more, will easily remember that virtually nothing the government has promised has been achieved. Let us never forget that we were treated to a glorious unveiling of the National Industrial Plan, in which the economy would grow by 6% annually from 1996, but the reality is that the economy has not even grown 6% in almost 8 years since then. Something is awfully wrong with the economics. The economic model, with its wonderful, but failed forecasting, is just not working.
INVEST IN THE ECONOMY
Interestingly, Dr. Davies and Government spokespersons are now encouraging the private sector to come out of Government paper and invest in productive activities. Well, no one needs to tell the private sector how to invest , it knows what is best for itself. When it is more beneficial to invest in the real economy instead of the safety and comfort of Government paper, then sensible investors will know when to make the change and take the risk. What the Government needs to do is to provide the attractive environment for small investors to make decent returns from job creating and productive investments that will definitely develop and expand the Jamaican economy.That is not happening. Even now government paper, stocks and bonds are attractive investments.
For more than a decade now I have argued in this column that until Government gets the interest rate to a single digit, then there will be no increased production, and we can forget any meaningful economic growth, it is just not possible. During that time, hundreds of businesses, factories and institutions have downsized and capsized, forcing thousands out of jobs. Still, Government pursued its reckless economic policies, and presently, continues with its high interest rate policy. To be sure, it is Government's insatiable appetite for loans and crowding out of the private sector that ensure that interest rates are held at a high level. For interest rate to come down, Government needs to downsize, but is it really willing to do so? Even in the present crisis, do we get the feeling that Government intends to drastically cut expenditure and downsize the public sector?
In everything, timing is the key. When the inflation rate was in single digit, can anyone explain why interest rate was in excess of 20 per cent? which means that the real returns on one's money was in excess of 10 per cent. Now, look at the absurdity and inconsistency. With inflation at 15 per cent, the Government is trying to bring the interest rate down, and in fact, the latest treasury bill rate is priced at 17 per cent, which means that after tax, the purchasing power of one's money will diminish. Obviously, with inflation in double digit, shrewd investors will shift their money to real assets and stocks, which is exactly what is happening and explains why the stock market is reaching to higher and higher levels. It won't be long before pressure is put on the exchange rate. With an inflation of 15 per cent, for our market to even regain its competitiveness to last year's level, the exchange rate needs to devalue by a similar amount.
INSTRUCTIONS FOR PROGRESS
At the same time, I strongly believe that if we are to make economic progress, the Government will simply have to continue to keep interest rate down, return the economy to a single digit inflation rate, cut the budget deficit, and curb its appetite for loans. Well, that will only be possible if Government reduces its expenditure significantly and actually cut the size of the bloating bureaucracy, none of which it is prepared to do. Can anyone therefore understand why there is not much hope of rescuing our failed economy under the present economic model? Yet, this is the model that we are being asked to join and support, through the Memorandum of Understanding, and the private sector initiative, Partners for Progress.
As far as the Government is concerned, it still intends to continue with its statist policy of big Government, huge Government projects in housing and roads, more taxation, more loans, high interest rate, and basically, further crowding out of the productive sector. The present policies cannot work. Big Government can only survive if we have a strong private sector that is creating wealth, providing jobs and growing the economy, which is simply not happening. It is the private sector that provides the taxes for Government to function, and if it is downsizing, then pray? How can one join and support an economic model that is taking the country, slowly but surely, towards an economic blackhole, in which everybody will be gobbled up?
Call me negative if you must, but show me where I am wrong. While politics and religion can be successful through acts of faith, powerful exhortation, and social engineering, economics succeeds only on sound business principles, which is what the Government needs to practise if we are to rescue our failing economy.
Delroy Chuck is an attorney-at-law and opposition member of parliament. He can be contacted by e-mail at Delchuck@Hotmail.Com.
