Here we go again
Claude Clarke, Contributor
It is not very often that one gets the opportunity to make a fresh start. The Jamaican Government's return to the International Monetary Fund (IMF) last year presented such an opportunity. The foundations of world capitalism were shaken by the global financial crisis. Rigid Washington consensus dogma had been turned on its head and the IMF was being led by reform-minded French socialist Dominique Strauss-Kahn. The fund was never more amenable to a flexible, development-oriented approach in its engagement with developing countries.
With a new government in place, Jamaica had an opportunity for a new beginning, not seen since Edward Seaga came to office in 1980, strategically positioned on the right side of the Cold War divide.
Such rare occurrences are opportunities to do what might not be possible in normal circum-stances. For Jamaica, it offered the opportunity for deep economic reform to reverse years of dysfunction and decline. The Government's decision to engage the IMF, though late, was, therefore, correct. The IMF-supported Jamaica Debt Exchange (JDX) programme was a necessary and successful step towards that reform and could potentially influence a culture change in the way we see and use capital. But if economic reform was the objective, the JDX could only have been a first step, in that while it addressed the pressing problems of the cost of servicing the Government's debt and the need to change the direction of interest rates generally, it needed to be followed by monetary, fiscal and institutional measures to stimulate and drive productive growth for economic recovery to take place.
Budget debate lacking
One would, therefore, have expected that the Government's budget that followed the IMF agreement would be centred on the policies and initiatives needed to foster productive expansion and development. However, the Budget has now been presented and the parliamentary debate completed, with no plan or promise of a plan capable of leading the country towards development. Stripped of the now familiar little trinkets (special populist benefits) thrown to a gullible public, the Budget seems to be no more than an arrangement to organise the Government's fiscal accounts so as to ensure that the IMF's debt is serviced, even if the country's development is sacrificed in the process.
While it is necessary to put the Government's books in order, organising our economic affairs simply to service foreign debt at the expense of the development of our economy is not only unconscionable, but unworkable and unsustainable. It will only guarantee the further impoverish-ment of our people and create the conditions for us to return to the IMF before long.
Like any bank, the IMF's first responsibility is to itself: to ensure that its loan is repaid. It is aware that taxes could already be consuming as much as 30 per cent of GDP; and with the low level of services delivered to the taxpayers in return, Jamaica is well beyond its taxable limit. Its best chance to have its debt repaid is, therefore, to ensure that Government spends as little of its revenue as possible on the services for which it collects taxes, leaving as much as possible for what is called a primary surplus (a cruel euphemism if there ever was one) to service debt.
The fund also knows that it is in its interest to ensure that the Jamaican dollars available to the Government can be exchanged for as much foreign currency as possible to service and repay its foreign debt. It will, therefore, be happy for the Government to practise monetary policies, which will have the effect of revaluing our currency - a suicidal act for an economy struggling to increase its economic output, employ its people, and compete with the world.
Inflation still high
Already, we can see the evidence. In the year since the negotiations with the fund began, the Jamaican dollar has appreciated significantly against the basket of our trading partners' currencies when inflation differentials are taken into account. Although we have been con-gratulating ourselves for stabilising the exchange rate, we have not stabilised inflation, which is now running at more than three times the average of our trading partners. We have lost competitiveness as a result, and will continue to fall behind our competitors for as long as this economic arrangement remains in place.
Our Government needs to recognise that while the IMF's responsibility is to see that its debt is repaid, a government's duty is to secure development for its people. Instead of using the opportunity to reshape our economy for develop-ment, this Government has chosen to continue most of the same destructive monetary policies that were practised in the 1990s - policies that eroded our productive competitiveness and created the economic crisis that led us into the present debt trap. Is it that this new Government does not understand this and does not recognise that by following the same policies it is operating on a type of kamikaze autopilot? Doesn't it know that a stable currency is of no economic benefit unless it is competitive?
The single most damaging consequence of the economic failure of the last two decades is the erosion of Jamaican productivity: the result of the failure to keep our inflation in line with that of our trading partners, leaving our currency and economy chronically uncompetitive. This Government has continued along the same course. No attempt has been made to bring domestic consumption within the limits of our productive output and to hold inflation to levels that would justify a stable exchange rate. The result is that the productivity of our economy has continued to dwindle, and everything the country produces is increasingly uncompetitive and incapable of creating the inter-national and local demand needed to provide economic opportunity and employment for our people. Surely, it must have occurred to someone in the administration that the most important prerequisite for economic recovery is productive competitiveness.
The Government's ignorance of the fundamental importance of productive competitiveness to our social and economic well-being is revealed in its exclusion from the national Budget. As has been the practice over several admini-strations, this Government continues to treat the Budget as an exercise in balancing books, not as an instrument of economic development. When development-oriented macroeconomic policies are implemented, supported by sensible trade policies and institutional reform, private capital can finance our development. Apart from investments in infrastructure, it is not necessary, as the prime minister seems to believe, for Government to do so.
The Opposition, while identifying the absence of a development dimension to the Budget and proposing several important programme ideas, has given no indication that it knows what policies and strategies are required to rescue the economy. Is it that both sides of our Parliament are oblivious to the central role that macroeconomic policies play in creating the conditions that make economic development possible? Big projects and special programmes, no matter how impressive, cannot have the far-eaching effect on development that enabling, encouraging and facilitating macroeconomic policies can.
It is only through development-oriented macroeconomic policies that a productive fervour can spread through small and medium-size businesses, bringing employ-ment opportunities to a level of the economy that cannot be reached by large business operations, and at the same time provide the competitive basis on which large businesses will be able to grow.
Our out-of-control crime is a major disincentive to business and predictably, much was said about it in the Budget Debate. There was no shortage of concern and righteous condemnation of criminality. Calls for political co-operation, social and economic intervention, and strong policing abounded. But absent from the thinking of our leaders is the recognition that it is the failure of government to organise the economy in a manner that provides opportunity and reward for enterprise, thrift and honest work that lays the fertile soil in which crime is spawned and on which it thrives. They fail to acknowledge the glaring truth: criminal enterprise and the murder and mayhem it brings have become entrenched in our society because our unproductive economy has become dependent on it.
In an article published in The Gleaner in November 2008, I suggested that the real threat to Jamaica posed by the global crisis was the likelihood that the resultant contraction of our economy would give rise to an increased role for criminal enterprise to fill the financial gap, principally from drug trafficking and money laundering. The murder and mayhem that typically accompany these activities seems to be what accounts for the frightening record surge in murders and general lawlessness we have been witnessing since the beginning of last year.
Our economy is in a deepening crisis caused by the failure to produce and to provide opportunity, employment and security for our people. We have been producing declining levels of real economic value for many years now. In the five years ending 2008, the economy grew cumulatively by four per cent. The main value-creating sectors - agriculture, manufacturing, mining and tourism - handicapped by their relative international uncompetitiveness, together contributed nothing. However, the domestically consumed services sectors, which for the most part do not contend with foreign competition, were able to grow by over five per cent.
The real value-producing sectors of the economy are the fountain-head from which all other economic activities flow. They represent the base from which sustainable employment is created and economic independence secured. Above all, they represent our only hope for breaking free from the tyranny of the criminal dons and their garrisons in which too many of our people have been imprisoned for far too long. The Government's IMF budget has ignored them, and soon we could all pay the price.
Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to email@example.com.