Don Robotham, ContributorIN 2002 civil society in Jamaica proved that it could begin to face the realities of addressing crime in Jamaica. Now we face a much more difficult challenge in 2003: this is the task of facing our economic realities. Are we able to meet this challenge and remain a united society? Or are we going to degenerate into chaos? That is the question before us the question raised by the recent demonstration by some taxi-drivers.
Thankfully, this demonstration failed to attract huge bi-partisan public support. Civil society and the media in Jamaica are maturing and the Jamaican people are beginning to understand that civil unrest cannot be the means of addressing any of our problems -- least of all our economic ones. At the same time, apart from the plain speaking of Josef Forstmayr -- greatly to be commended -- and a few newspaper editorials, the demonstration has not yet attracted the forthright rejection which it deserves.
FEAR AND COURAGE
The reason for this may be that many people do not understand that there is only one set of policies to take us out of this crisis. This is simply the reality with which we refuse to come to grips as a nation.
Some across the political spectrum and in civil society do understand our economic realities. If I were to single out politicians who understand they would be Omar Davies, Maxine Henry-Wilson, Peter Phillips, Edward Seaga, Bruce Golding and Delroy Chuck. However, they usually stop short at analysis. They do not go on to put forward solutions. This is not because they do not know the solutions. The real reason is fear.
They fear that the solutions are too tough. The medicine simply will not be swallowed. They fear that the Jamaican people, the Jamaican political system and Jamaican society as a whole does not have the resilience to face up to the policies which they know are needed to successfully address our harsh economic realities. They fear that, because of our fractiousness, tribalism, class and racial divisions, the society would plunge itself into chaos. Some in civil society also fear that Jamaican politicians have lost all moral authority to speak harsh policy truths to the nation and to call for sacrifices.
These fears are only too well founded, as the vicious killing of Mr. Gladstone Allen in the recent taxi roadblocks showed. Yet the longer we put off confronting civil society with the unvarnished economic truth, the greater is the danger of social explosion. What is needed desperately right now in Jamaica is political and economic courage presented in such a manner as to foster public understanding and social unity.
THE ROOTS OF OUR CRISIS
To understand the inevitable policies that Jamaica has to pursue, no matter whether the PNP or the JLP is in power or whether Omar Davies or Audley Shaw is the finance minister, we have to understand the root causes of our crisis. First of all, let us rid ourselves of the typical tribalistic or personalistic delusions that tells us to look for someone else to blame not me! It is that 'wicked' Omar Davies! Or that P.J.! Or the JLP 'trying to sabotage the economy'. Rid your mind of these absurd fairy tales and think soberly about the real solutions to our economic crisis.
One key aspect of our economic reality that is not a fairy tale is this. Jamaica's credit rating will collapse the moment there is an attempt to remove or undermine the position of Omar Davies as Finance Minister! Part of the reason why so far we have only received a slap on the wrist from Standard and Poor's, instead of the full credit downgrading which we probably deserved, is because of the high standing Davies enjoys in the leading private and public financial circles in the United States who deal with Jamaica.
Like him or not, get rid of or undermine Omar Davies, as some siren voices are urging, and our financial goose will be cooked, as far as the international financial community is concerned. Put that one in your pipe and smoke it!
No, the economic fault lies not in personalities, nor political parties nor even in the policies pursued. There is no magic bullet to resolve the difficulties that a country with the economy of Jamaica faces, which, by the way, is far from being alone in the world in facing this particular set of problems. Twist and turn, wriggle and squirm, demonstrate and holler and bawl as much as we like, there is no short cut, no one to give us 'a bly'. We have to help ourselves first.
This is because our economic problems are very deep. The root cause lies not in FINSAC or high interest rates, the overvalued currency, the huge budget deficit or the high domestic and foreign debt. When all is said and done, our fiscal and foreign exchange shortfalls are only symptoms statements at the accounting level of something deeper.
That 'something' is the antiquated nature of our production system. We do not produce much for which the rest of the world is willing to pay serious foreign exchange and what we do produce is relatively costly. A little tourism, bauxite and sugar, a little coffee and less bananas -- how far can that be stretched? On the other hand, we have 'high chest': we must have Volvo and video and name-brand, no matter the cost. Production and consumption are drastically 'out of sync' in Jamaica. We are experiencing the inevitable economic consequences.
We seek higher wages and profits in order to consume at the level of the developed world. We 'must get' modern goods and services that other, more productive economies sell. There is nothing wrong with such aspirations if they are based on our own high levels of productivity in tradable goods and services. But since the corresponding productivity is lacking on our side we can only achieve this miracle by dubious means. First, by using political, social or trade union muscle to jack up the paper value of our wages an illusion since inflation rapidly takes the increases back again. Second, by resorting to what is politely called the 'informal sector'. But we all know what that really is. Hence our deeper and deeper involvement in the international drug trade and the inevitable counter-response from affected countries.
Most of what we want to consume is imported but of course, we can't bother ourselves with the hassles of legitimate export activity let other, less 'Tallawah' nations 'kill up' themselves with such drudgery. We will export gun violence, ganja, transship cocaine and perform a little music now and then. The entire world is learning that we Jamaicans are really good at 'badness' top of the class. Apart from the international collapse in our reputation, the result is huge shortfalls in the foreign exchange derived from legitimate international financial or merchandise transactions. No matter: remittances or artificially high interest rates -- to stimulate foreign and domestic borrowing -- will solve this for us. A bad joke but the joke is on us.
Because our formal sector is unproductive, the tax base of Jamaica is weak. At the same time, we want all that the modern state is supposed to provide. We must have free education and health care and good roads and public transportation and housing and school feeding and inner-city renewal. Plus high wages for public sector employees and politicians. But God forbid that we should be required to pay our existing taxes, not to mention higher ones. Another bad joke.
The upshot of all this is the existing crisis. High interest rates. Huge domestic and foreign debt. Huge budget deficit. Renewed threat of inflation. Declining international credit-worthiness. No economic growth. Stagnation in the formal sector. Massive informal sector. Understanding our economic crisis does not require rocket science. Our politicians have no more created our economic crisis than they are responsible for the introduction of visas to the United Kingdom. We have brought it all down on our own heads. Let us take some responsibility for a change and stop hunting for scapegoats!
ONLY ONE SHORT-TERM SOLUTION
What our politicians are guilty of is not the creation of the crisis. Where they have let us down is in their failure to tell us the plain truth: there is one and only one short-term solution to the Jamaican economic crisis. This is where the real failure of leadership lies -- on both sides. If Audley Shaw (or Delroy Chuck a better choice) became the finance minister tomorrow morning they would have to pursue the very same policies Davies is pursuing. The need for the policies arises out of the nature of the crisis, not out of the personalities managing it. Let us bury this infantile political opportunism once and for all, as we have begun to do in crime policy.
What are these economic policies? Space only allows discussion of the short-term needs. Medium and long-term needs the really tough issues require separate articles.
Our first priority must be to reduce the budget deficit. This is the key to restoring our international credit rating. Without reducing the budget deficit we cannot reduce interest rates. This is because with the high budget deficit, a sharp reduction in interest rates would inevitably send us back to the 80 per cent inflation levels of 1991, from which Davies' policies over the last 10 years rescued us.
It is a profound mistake to single out only one tool of macroeconomic management such as interest rates and to base policy solely on that, as Delroy Chuck proposed, in his column (The Gleaner, January 8 2003). Using one tool of macroeconomic policy -- be it fiscal or monetary -- is not an alternative to the use of another. All tools must be used together and consistently co-ordinated. Indeed, if there is a valid criticism of Omar Davies it is precisely this: he has one-sidedly resorted to one tool of monetary policy interest rates to manage the economy. The substantive criticism of this policy mistake is not that Davies pushed interest rates up but Chuck would push them down. This is simply to repeat the mistake but in a different direction. The really serious criticism is the attempt to use only one monetary policy tool in relative isolation from the other tools of macroeconomic management.
SOCIAL CONSEQUENCES
This must now be corrected. We must now introduce a policy that consistently co-ordinates monetary and fiscal policies -- carrying them forward together lockstep in the same direction. That is why the policy challenge facing us is so grave: we have to reduce the budget deficit, cut interest rates and devalue the dollar, at one and the same time. This is serious deflationary stuff with dire economic and social consequences -- for example for banks and companies that have debts in foreign exchange. Reducing the deficit is number one, requiring tax increases, budget cuts and salary give-backs. We can discuss the extent of cuts and tax increases, the timing and the equity of the necessarily harsh measures. But we must face up to the grim realities.
With these very basic provisos then, Delroy Chuck is right. We must reduce interest rates to stimulate economic growth, reduce debt service charges and enhance exchange rate competitiveness. This will inevitably lead to about a 10 per cent devaluation of the Jamaican dollar. The above policies are precisely the ones being pursued by Omar Davies, but in a stop-go manner. This is because of his well-founded fear of social unrest, the lack of support from within his own Cabinet and from those in the JLP and in civil society who understand these realities. As was the case with crime, the lack of understanding of the economy by many in the media who report on and have to explain these issues to the general public greatly aggravates the problem.
Nevertheless we have to bite this bullet and our media have a major role to play. This is even more important than fighting crime -- indeed it is deeply inter-connected with that fight. We have to come clean with the Jamaican people. We have to explain what those innocent sounding technical economic phrases really mean 'reduce the budget deficit': great social suffering. We must and can devise policies to deal with this social fallout on an equitable basis. We can achieve social and political unity on these grave issues. But we must open the dialogue now. Roadblocks and civil unrest are the very opposite of what we need.
