Don Robotham, ContributorTHE HON. Portia Simpson Miller is to be congratulated on her election as president of the People's National Party (PNP) and as Prime Minister-designate of Jamaica. She and her team fought for this victory and won it.
In such a climate, it is natural for popular exuberance to overreach itself and to develop impossible expectations of the prime minister-to-be. But it would be a good idea for us to calm ourselves and to take a cool and collected look at our true
situation.
GAS AND ELECTIONS
The first area for realism is politics. In the heat of the moment, some in the PNP and the Jamaica Labour Party (JLP) are clamouring for early elections. The Red Brigade imagines it can defeat the 'Black Escalades' if it strikes during the gas price debate. This is the reason for their "vigorous opposition" to the gas tax. Their plan is to exploit this proposal to create unbearable tension within the Cabinet between Omar Davies and Mrs. Simpson Miller. In the coming weeks this is bound to create division in the PNP camp.
An early general election may suit some power-starved JLP politicians. But is it in the interest of Jamaica? We have just been through four months of
campaigning. Are we to endure another four immediately? What would this do to crime and violence? What would happen to the garrisons, the gang leaders and the druggists? What would
happen to political tribalism? What would happen to our credit rating, the tourism boom, investment, the exchange rate, interest rates the economy as a whole? Goodbye to any economic growth prospects. What would happen to our class and racial divisions? Goodbye to national unity, for sure. This, Jamaica does not need.
THE ECONOMY
The second area for realism is the economy. Some are clamouring for the removal of Dr. Davies as Finance Minister and the abandonment of the policy of macroeconomic stability.
Most do not understand that the point of these policies is not a wilful desire to cause pain. They feel the pain and think, no Omar, no pain. But the real point of the policies is to eliminate the
budget deficit, now standing at 2.8 per cent of GDP. It is the persistence of this deficit which sends the government into the money markets to borrow the funds to finance operations. In turn, these borrowed funds have to be repaid with interest. It is the requirement to repay the interest and principal which causes nearly 70 per cent of the expenditure to go for debt servicing. That is why we do not have enough to spend on education, health and other social needs.
It is also this continuous
borrowing which keeps interest rates high. Eliminating this deficit is, therefore, the absolute key not only to reducing interest rates and to generating economic growth and employment. It is also the key to changing the structure of the budget and to have more for social expenditure. So actually, no Omar equals more pain. This is the real truth which the anti-Ph.D. demagoguery is working overtime to hide.
NO ROD OF CORRECTION
Some in the JLP are claiming that they have a rod of correction to get us out of our economic bind. They propose that we should unilaterally cut interest rates in half. If we were so
foolish as to take this advice, massive inflation plus a rapid devaluation would ensue. However, since this is Jamaica, it would not surprise me in the least if a Council of Wise Women (and a Man!) were to be appointed to propagate this idea so as to outflank Minister Davies and poor Bruce Golding.
But stop and think for a moment. Those who put forward this absurdity seem to imagine that we are still living in a world when there was no foreign exchange market and the money was rationed by an administered auction system. In those good old days, a phone call here and a warning there could indeed prop up the auction artificially. But, thankfully that era of 'don' economics is gone for good. Today, the market sets the exchange rate, not any One Don.
Those who advocate the interest rate cutting mantra must therefore also be advocating the restoration of foreign exchange rationing and some system of command economics under
government control. Who in Jamaica is in favour of that? It never ceases to amaze me how a pro-capitalist party like the JLP thoughtlessly puts forward anti-market policies on a regular basis. What is the use of a capitalist party which does not understand the market?
OUR REAL OPTIONS
Given these realities, what are our real options?
Option one: Stick to the existing goal of reducing the deficit to zero and inflation to single digits in the next financial year. If we take this course, we would have to look for additional social expenditures, only at the
margins. A limited social fund could be put together from PetroCaribe, the Department for International Development's Community Security Initiative fund, and other sources to spend on limited relief for young
people who are suffering greatly.
Option two: Stick to the existing deficit and inflation reduction targets but increase taxation and reduce expenditure. The obvious candidates for increased taxation are: gas and financial services. The obvious candidate for reduced expenditure is public sector salary increases. Under this option, in effect, the better-off social groups would agree to give up resources to the worse off. It would yield more social funds but could have negative economic and political effects.
Option three: Stick to the deficit and inflation reduction strategy but at a slower rate. For example, target a budget deficit of one per cent and an inflation rate of 10 per cent which would not hurt our credit ratings significantly. This would yield more funds for social expenditure but it would mean a higher cost of living, higher interest rates, a slower rate of adjustment and possibly slower economic growth. It may also negatively affect multilateral and bilateral aid. But it may be worth the price in terms of social stability.
Some will ask if we could not finance more social expenditures by cutting government waste, as the JLP and others will be arguing more and more. Of course this would yield more resources. But not significantly so. Those who make this argument never quantify what they think this would yield in specific terms. The reason is they can't. If all anti-corruption measures were enforced, the budget deficit would remain as big as ever, staring us in the face.
NOT BY GROWTH ALONE
We have no free lunch available. Our choices are harsh. Yet, the election of Mrs. Simpson Miller is a cry for immediate social relief. This cry is just and must be addressed. The real issue before us therefore is not simply economic growth, vital as that is. We had rapid economic growth under Norman Manley in the 1950s. But that did not prevent the haves and have-nots social crisis from emerging with a vengeance --the occasion for the emergence of Mr. Seaga.
We had rapid economic growth under Mr. Seaga in the 1960s, but that did not stop the 1968 crisis from occurring, which brought Michael Manley to power in 1972. We had rapid economic growth after 1986 again under Mr. Seaga. But the social unrest brought Michael Manley back to power in 1989.
So we are between a rock and a hard place. Our resource shortfalls are real and cannot be wished away. We must calmly examine our options and try to arrive at a solution which is fair, realistic and in our true long term national interests. This is no time for hysteria, pandering, political opportunism, policy tricks or empty slogans. It is a time for cool reflection.
