EDITORIAL - Fairyland economics and lesson from Barbados

For the denizens of the fairyland world of economics, where resources and policy outcomes may be easily conjured, the announcement last week would likely be of little worth and little noticed.

We, however, put store by the ratings agency Fitch's marginal upgrade of Jamaica's long-term sovereign debt to B-, from CCC, especially coming as it does after Moody's recent reaffirmation of its CAA3 rating, but improving the country's outlook from stable to positive. Fitch's action essentially brings its ranking in line with that of the other big agency, Standard & Poor's, which last September improved its rating of Jamaica's debt to B-.

To be clear, Jamaica's debt still struggles deep in junk-bond territory, so our Government would expect to be asked for an interest premium if it were to attempt to borrow on the private markets. Nonetheless, the improved risk ratings, such as declared by Fitch, are a declaration that people outside Jamaica are beginning to notice the efforts to put our fiscal and economic houses in order.

They would have noted the restructuring, a year ago, of the Government's domestic debt; that we were able to reach an economic reform/support agreement with the International Monetary Fund (IMF); and, more important, that the Simpson Miller administration has gone about meeting its obligations of that agreement with admirable discipline.

The economic conjurers, no doubt, look sneeringly at these efforts, arguing, correctly, that the IMF programme is inherently contractionary and that the reforms being undertaken are painful.

Their preferred option to hard-nosed fixes would be stimulus spending by the Government, supported by snickering analyses of the problems of a regional partner such as Barbados, which is usually portrayed as an example of long-term, sensible economic management.

MISSING THE POINT

These critics miss the point on all fronts.

They apparently forget the critical element in Jamaica's crisis: a government debt that is nearly 150 per cent of GDP; the stifling impact debt servicing has had on investment and economic growth; and the fact that Jamaica has few willing lenders. Fixing the economy demands, first, lowering the debt, which means the Government must spend and borrow less, and/or earn more. Such behaviour is the precursor to fiscal stability, which causes agencies like Fitch to improve their credit ratings on Jamaica, which, hopefully, translates to improved confidence in the Jamaican economy. In the circumstances, people abroad may be more willing to invest in Jamaica and find it cheaper to borrow internationally to do so. Having a stable macroeconomic environment is a plus for Jamaica.

In that regard, the lesson to us from Barbados is not the inefficacy of its long-term model, but the dangers that lurk when you steer from the course. Well, it's the same lesson that Jamaica should have learned from its long experience of poor economic management.

By and large, Barbados, for the past 40 years, kept its economic fundamentals in order and grew at an annual average rate of three per cent, and enjoyed moderate inflation and per-capita GDP of around US$20,000. Jamaica's average growth, on the other hand, has been less than one per cent and our per-capita GDP is under US$7,000. Inflation has been an unnerving roller-coaster ride. Our social environment is rent.

Barbados is not inured from cyclical downturns. Nor is it immune from bad policy decisions. But when it fell into trouble, it has demonstrated a willingness to take corrective action.

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