Aubyn Hill, Financial Gleaner COLUMNIST
Financial pain has arrived with a biting urgency and it is pervasive - it's everywhere.
The bitter medicine prediction, which sunk Andrew Holness' chances of being prime minister at the end of 2011, has arrived with noxious potency under the leadership of prime minister Portia Simpson Miller.
She was politically savy and astute enough not to promise the kind of economic medicine she is now obliged to administer, albeit at the hands of her Minister of Finance Dr Peter Phillips.
Over the weekend, Phillips was stark in his caution to businesses and investors not to continue to depend on trading government paper in order to make (easy) money. Commercial traders were chided to get into the productive areas of our economy and stop thriving on the importation of foreign goods.
Phillips was clearly making the case that these importers are hurting our balance-of-payments position and using income from poor and getting-poorer Jamaicans to finance jobs for workers in the countries from which these importers buy the non-productive consumer goods they sell locally.
Minister Phillips wants companies who have had large government-paper portfolios to change their business models by looking at societal and individual needs, and then take ideas from concept to production to meet these needs.
Maybe he plans to tax consumer imports some more as inducement to importers to follow his production advice. No one could call this is bad advice given the unsustainably large excess cost of imports over the revenues we earn from exports.
Dr Phillips also took full aim at banks.
"Bankers will have to return to the business of banking rather than just simply purchasing (government) paper," he said at a press briefing last week at his ministry.
Given the severe and very unprofitable result of JDX, NDX and NDX2 on banks, this was a bitter pill from the minister to the banks and bankers.
His comment is pregnant with realism, however. Maybe the bitterest pill of all to our local banks and bankers is what the minister did not say and hardly anyone wants to discuss.
NUMBERS SPELL CONTRACTION
The numbers for the fiscal quarter ending in June 2013 are not pretty in economic contractionary terms.
Let us go to the bottom line and we find a primary surplus of 23.6 per cent, which is well beyond the quarterly trend of 7.5 per cent which the country is required to maintain to meet our IMF target.
Most economic observers believe the IMF target is too high because it extracts too much money from economic activity. The large positive surplus for the June quarter is therefore super-contractionary.
Serious economic pain, indeed - bitter medicine to swallow.
Of the total revenues of J$87 billion for the GOJ for the period, tax intake was short by J$830 million against a budget of J$87.86 billion.
Non-tax revenue was J$493 million, or seven per cent higher than the J$6.66 billion projected. That positive variance was more than offset by the J$571 million (-58 per cent) underperformance in grants against a budgeted amount of J$971 million.
The real story is in the expenditure shortfall of J$5.6 billion (-5.7 per cent) against a budgeted spend of J$98 billion. In a weak economy, that is a real sapping punch to economic activity in the country for the quarter.
The IMF-directed and GOJ-injected fiscal contraction is causing economic pain of a very serious kind. External loans of J$11.22 billion helped to reduce the overall fiscal deficit for the quarter.
Business and investors please be aware that the pain driven by economic contraction and the very tight fiscal strictures is going to get worse and more pulsating before it gets better.
Buckle up for the unpleasant ride.
KEY TO RELIEF
There has to be a point to all this pain and discomfort. The billions of dollars of losses suffered by financial institutions and individual investors in government bonds in the last couple of years should be enough to let them give investing in government paper a very wide birth for a long time.
We all know that the Government needed to move rapidly from its spending profligacy and waste to much better and prudent management of the country's affairs. But the cut in government spending will cause hardship until other sources of funding and income from private investors - local and international - are found.
Fiscal pain and painful initial economic contraction to achieve a better fiscal balance is not mutually exclusive to economic growth and contained spending of borrowed foreign exchange.
The private sector and Government must work to save money and spend the savings in sectors and in businesses which can produce economic growth.
The GOJ can make a much more concerted effort to indentify and reduce a significant portion of our ever-increasing oil bill by adopting consistent conservation measures, and aggressively expand our renewable-energy resources - including waste-to-energy and wind - to cut the amount we spend every year on imported fossil fuel.
The agriculture and agro-processing sector must be ramped up - I hear that the agro-parks are progressing well - and the low-hanging fruit of efficiency in Government must be plucked by an imaginative but effective picker.
Economic growth cannot, must not, be mothballed because the minister of finance has to do his contractionary thing at the behest of the IMF - and really because we lived way above our means and borrowed too much for too long.
Indeed, if we do not start quickly on the path and process of economic growth, we are going to end up in a real snake pit of poverty that will breed the kind of results that one does not even want to contemplate.
Still, this desperate starting point can be a great booster for investors who are innovative, and a spirit of economic enterprise and GDP growth.
Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years.Email: email@example.comTwitter: @HillAubynFacebook: facebook.com/Corporate.Strategies