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High-risk governance

Published:Sunday | April 25, 2010 | 12:00 AM
Robert Buddan
Wesley Hughes
Pauline Knight
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Robert Buddan, Contributor

A number of governance problems are evident in making Jamaica's latest Budget. Six days after the minister of finance presented the Budget for 2010-2011, a sympathetic newspaper said there was doubt Jamaica would pass its first quarterly International Monetary Fund (IMF) test, which this Budget was primarily geared towards. It worried that there was "serious cause for concern about the Government's economic management in these perilous times. If the finance ministry cannot get the Budget figures correct, what confidence can we have in passing the first IMF test?"

What governance problems caused such doubt over Government's economic management? The newspaper thought the ministry had a weak team. It found fault with everyone and everything but Audley Shaw. It blamed civil servants Wesley Hughes, Derick Latibeaudiere, Don Wehby and others. But its point was taken. The ministry had been destabilised by firings and transfers in and out that unbalanced its competence and compromised its professionalism. In the end, it could not deliver critical economic and financial data on time and up to date. If we do not have that data, we do not know what we should about the economy and where it is going. We are guessing.

Incredible budget?

Omar Davies, the Opposition spokesman on finance, took a very different line. He thanked the civil servants and specific persons such as Hughes, Latibeaudiere and Bryan Wynter for their work. But he too found it incredible to have a budget predicated on out-of-date figures. He complained, "The worst example of this was seeking to compare the expenditure out-turn for 09/10 with the Estimates tabled for 10/11". Dr Davies also saw danger of not passing the IMF test. He pointed out, "It is in the country's interest not to fail this (or any other) test, but we are unable to participate in monitoring if we do not know what is the total stock of arrears. We need to know this."

Budget debates tend to revolve around social and economic data. But social data have not been forthcoming either. Dr Davies pointed out that the Survey of Living Conditions (SLC) had not been published for two years. How can we plan for people's lives when we don't have the numbers about how they are living? The SLC has been a vital and regular publication of the Planning Institute of Jamaica (PIOJ), except for the last two years. And, why has the able Dr Pauline Knight not been appointed director general instead of acting director general of the PIOJ while Dr Hughes is busy as financial secretary? The whole infrastructure of planning and finance seems to be in disarray.

Shock therapy

The problem is made worse by the fact that the GOJ has negotiated an IMF agreement that is 'more IMF than the IMF'. The IMF programme is for structural adjustment. The GOJ has gone for a programme of rapid and compressed structural adjustment, the kind of shock therapy that other countries have tried with high risks. Even the IMF seems alarmed over the GOJ's ability to pass its tests.

What is this shock therapy? The leader of the Opposition presented KPMG's recent comment on the Budget, which said, "Reductions in spending on education, health care, water and transport, hurt our long-term economic growth prospects and create a less-educated, less-healthy and less-productive society".

It is estimated that the current budget will contract aggregate demand by some $450 billion or 37.8 per cent of GDP. The shock therapy aims to balance the books at the cost of social balance in the shortest possible time. It is not just risky social policy, it is risky economic policy.

Portia Simpson Miller pointed out that such an outcome is the exact opposite of what Jamaica needs if it is to grow out of the recession.

How does the IMF feel about this shock strategy? It warned of great risk. Portia Simpson Miller read from the IMF's Article 4 report on Jamaica of January, 2010:

"The risks of policy slippage are high. The primary surplus targets are high by international standards, and their achievement is by no means assured. Significant slippage could occur."

Bear in mind that the Government and its Ministry of Finance and Planning does not display the capacity and competence to provide up-to-date figures. The IMF further points to the importance of the right administrative requirements for the kind of programme that the Government has embarked on. It said, "Moreover, the fiscal effort is to be underpinned by structural fiscal reforms that may take more time than expected to yield budgetary savings, given the risk of delays in implementation, such as capacity constraints, possible legal hurdles and uncertainties related to their costs."

The report added that "even if the authorities, that are the Government of Jamaica, achieve the projected fiscal adjustment, the debt-to-GDP ratios will remain high, unless economic growth picks up substantially".

Election schedule

The leader of the Opposition, therefore, had cause to wonder, "Why did the Government not choose the Extended Fund Facility instead of the Standby Agreement? The Extended Fund Facility would at least have given the country more breathing space (a longer time) to reduce the deficit. What is the rush and why are we going at a rate that will wreck the ship of state and plunge the majority of our people into abject poverty?"

Why, indeed! The Opposition did not answer its question. Might we be prescribed this shock therapy to fit the Government's election schedule? The IMF agreement is for 27 months, which ends just in time for the next constitutionally due elections. Is it that the Government has chosen this shock adjustment to balance the books in time for elections?

There are clear and present dangers. The ministry does not have the capacity. It is weak. The risks of policy slippage are high. We could fail IMF tests with punitive results. US sanctions loom in the 'Dudus' crisis. And there are growing risks of social instability. Again, we can turn to the IMF.

The leader of the Opposition reminded of its warning that, "Significant slippage could occur, particularly given that a high degree of social and political consensus will be needed to sustain fiscal adjustment over the medium term."

This is where the Opposition has been particularly strong. It has been critical of the harsh policies and the harsh language which combine to hurt people's sense of dignity. Calling people extortionists, unpatriotic, dishonourable, downtown and saying they are living above their means, all because they have asked for the wage and salary increases they were promised, has been insensitive. The sudden JDX strike against pensioners, without due consideration, only made matters worse.

It makes you wonder if Hughes and civil servants are the real problem and if it is not the political strategy behind the shock programme without the supporting capacity and competence in finance and planning. The Caribbean Policy Research Institute (CAPRI) has come out in praise of the JDX and advises that Government "must pursue disciplined management of liabilities", "aggressively rationalise the public sector" and embark on "comprehensive fundamental tax reforms". I shudder in wondering if these vague-sounding prescriptions are not veiled disguises of more shocks coming against the poor.

Robert Buddan lectures in the Department of Government, UWI, Mona. Email: Robert.Buddan@uwimona.edu.jm or columns@gleanerjm.com.