Chris Tufton, Contributor
SUPPORT HIM or not Omar Davies is as determined as they come, a personality trait that should not be frowned on by any individual in today's world, and particularly if you end up with national leadership responsibilities in exceptionally challenging times. And challenging times these are! With over a decade on the job as Finance Minister, Dr. Davies now has the benefit of history, unlike any other Finance Minister before him in post-independent Jamaica, to reflect and analyse the quality of his stewardship and to conclude one way or another how things have turned out. That is, of course, from his perspective. The truth is, like most of us would, the longest serving Finance Minister will no doubt have no difficulty accepting his achievements and would most likely have a convincing argument to explain or justify his failures. It's a mistake we all tend to make, justifying away what we would rather not accept.
VICTIM OF OPTIMISM
Just listening to the Minister in any interview session and you would get the impression that things are on the up. In that respect, one could say Omar Davies is an eternal optimist. Nothing is necessarily wrong with that, except if this optimism defies reality, placing the optimist and those he is trying to convince diametrically opposed by experiences and later through expressed sentiments. Let's face it, at the end of the day, it's the reality on the ground that matters most, not what is said but what is experienced. In the case of politics, from the people's perspective, it's about jobs, housing, health care, schooling and personal security, not about announcements of targets and intentions to achieve. And so, if from the people's perspective the reality on the ground does not reconcile with the announcements, the consequence of Omar's optimism is, over time, an erosion of the credibility of the optimist. Eventually, the conclusion drawn is that it is the optimist who is the source of disappointment and frustration. As time elapses and the experiences mount, so do the disappointments and eventually it becomes more difficult for this exuberant optimist to be credited with any achievement, even those that should genuinely be assigned to him. This is Dr. Davies' biggest dilemma. The Finance Minister is a victim of his own optimism, and his unwillingness to accept publicly that a number (not all) of his policies have failed, is reinforcing the perception of the Minister as a naive or disingenuous policy maker.
NEED FOR MOU
Approximately a month ago Minister Davies was interviewed on the radio morning programme, The Breakfast Club and for the first time that I can remember the Minister appeared to have accepted that there might have been weaknesses in the Government's macroeconomic strategy, as it relates to the financial sector collapse (and I put it no stronger than that).
The Minister then quickly eroded that credible admission by insisting that the signing of the recent Memorandum of Understanding (MoU) with the trade unions and public sector workers is not an indication that the Government's strategy has failed.
How could it not be! The MoU is essentially an agreement asking workers to make sacrifices by holding strain on wage demands, in this case at three per cent, and this is so even if they demonstrated improvements in productivity beyond three per cent and even if inflation, projected this fiscal year to fall below nine per cent, is at a level where it reduces the real income of those workers.
The Minister should help us to understand if things were good with the economy why would there be need for this holding strain? Or is the Minister saying it is the workers who are the source of the failings in the economy? It is true that the agreement allows workers to benefit by being guaranteed job security. However, the question should be asked, shouldn't job security be a function of productivity?
Similarly, is the Government not responsible for creating this mess in the first place, by engaging in a trend of mass employment in the public sector just prior to general elections? And is this not an employment practice that has more to do with winning elections than with improvements in efficiency and effectiveness of the public sector?
The Minister appears not to believe so, or at least refuse to admit this, but the consequences of election spending on the taxpayer are obvious and are felt on the ground when resources to deal with the daily essentials become scarce, as they are now. This is the reality the Minister appears unwilling to accept.
ELUSIVE ECONOMIC EXPANSION
What of the lack of economic expansion in the economy over the last decade or more? Shouldn't the end result of any macroeconomic strategy be economic expansion, income generation and job creation, to identify a few? If so, why have we had less than one per cent annual average growth over the last decade?
In his usual style, the minister will argue that the private sector is complacent in not taking advantage of investment opportunities. He will likely fail to mention the hostile and unfriendly macroeconomic climate that has been the norm over the last decade, particularly the exceptionally high interest rates. However, those who compete for loan funds understand this to be an important issue.
The Minister has always argued that he is protecting the dollar, but this is a policy that is usually accompanied by uncompetitive interest rates. In our case, this policy has greatly undermined the capacity of key sectors in the economy, such as small businesses, a key engine of job creation and growth in any country. The net effect is high unemployment levels, particularly among first-time job seekers; almost twice the rate of the national average, and an exodus of tertiary level graduates to more economically successful economies as shown by a recent World Bank study. That's the reality on the ground the Minister seems unwilling to accept.
JUSTIFYING THE DEBT
And what of the debt? In 1991, Jamaica had a total public debt stock of $43 billion. In 2004 that figure had climbed to just over $680 billion.
The Minister will argue that this is as a result of FINSAC, which increased the debt stock at the time by 40 per cent. He correctly argues that the alternative would be to allow thousands of depositors, most of whom are poor Jamaicans, to risk losing their life savings. The Minister, on the other hand, fails to address the causes of the financial sector debacle.
He fails to identify the macroeconomic environment and the failure of the Government to have had in place a stronger regulatory framework to deal with the Government imposed rapid liberalisation programme. Instead, the Minister chooses to focus on corrupt business practices, as the main cause of the financial meltdown. The effect of his argument is an incomplete story and a less credible one.
Again, the reality on the ground is that poor Jamaicans are now asked to pay back the debt incurred partly by FINSAC either through increase taxes or the deprivation of important amenities. One has to wonder, therefore, if depositors were ever saved from losing their life savings or was this just a postponement or rescheduling arrangement, now that they are forced to pay higher taxes and user fees to facilitate debt repayment.
Basic analysis of this situation leads to the obvious conclusion, that debt delayed is debt to be repaid, with interest! Technically, therefore, the Jamaican taxpayer, even those with no deposits in these failed financial institutions, are now having to bear the burden of paying principal plus interests on FINSAC-related debt. That's the reality on the ground the minister seems unwilling to accept.
The 2004/5 budget will see 69 cents of every dollar spent going towards debt servicing. The $328 billion budget, a 17.5 per cent increase over last year, is just nominally higher, after inflation of approximately 15 per cent is factored. With close to 70 per cent of the budget going to debt servicing, Dr. Davies has an understandably tough balancing act to play towards ensuring that priority is given to the most critical sectors of the economy, while maintaining fiscal deficit targets.
BACKTRACKING ON EDUCATION
Already, the Minister's credibility is on the line from the breach of an agreement between the Government and the Opposition in regards to the allocation for education. The Government had committed to increasing the education budget over the next five years by at least one percentage point per year to an eventual 15 per cent of the overall budget.
Indications suggest now that this year's allocation to education has actually declined to approximately nine per cent of the overall budget after portions allocated for youth and culture are taken out. The reality on the ground, therefore, is that the education system is not likely to see any improvements this year.
THE BALANCING ACT
In the end, one could argue that it is unfair to place the failures of the Government at the feet of the Finance Minister. After all is said and done, the principle of collective responsibility applies and therefore Dr. Davies is merely acting and pronouncing on behalf of his Cabinet colleagues.
This is a fair argument, but Dr. Davies should always try to balance the desired objectives of the Government with an acceptance and admission of people's realities on the ground. This would go a long way to ensuring his and his government's credibility over time. In the short term the Minister is well advised to balance his projections of growth for the coming fiscal year (which I believe are achievable) with being straightforward about the consequences of controlling the fiscal deficit.
For if the Minister intends to live true to his word to achieve targets set for inflation, the fiscal deficit and economic growth, he should also accept and communicate to Jamaicans that this will mean, at least in the short to medium term, less money for roads, hospitals, schools and the fire service.
It will be like walking a tightrope, but the Minister owes it to the Jamaican people to be frank. Otherwise, the Minister will find himself courting greater levels of disappointment and frustrations among the people in the not too distant future.
Dr. Chris Tufton is a lecturer at the University of the West Indies and president of Generation 2000, an associate body of the Jamaica Labour Party. Please direct your comments at CCTufton@yahoo.com
