Don Robotham, ContributorAS WE approach the New Year, a new political leadership is emerging in the two political parties. On the side of the JLP, Mr. Golding is striving to consolidate his position surrounded by younger persons known to be contemptuous of his leadership. In the case of the PNP, the race to succeed Mr. Patterson is in full divisive swing.
One would have expected that these changes would have sparked a discussion of public policy in Jamaica, especially on the economy. There has been some discussion of the other key issues-such as crime and education. But even in these areas nothing new has emerged as of now. Hopefully, something new will come from the Macmillan committee on crime. We shall have to wait and see.
In education, the conclusion that early childhood education is the panacea seems to have been thoughtlessly swallowed. What is likely to happen as a result is that we shall simply add a weak early childhood system to the existing weak primary and secondary levels. We need far more emphasis on policies to raise the quality of our teachers. We also need much more emphasis on policies to raise the educational and skill levels of our currently employed labour force.
It is in the economic sphere, however, that discussion of economic policy by our aspiring political leaders has been weakest. The reason for this is that in reality the economic options for Jamaica in the short term are close to zero. The economic course is more or less fixed. From the point of view of economic policy, it matters little who is the political leader of Jamaica whether it is Mr. Golding, Mrs. Portia Simpson Miller, Dr. Phillips or Dr. Davies.
THE KEY ECONOMIC ISSUES
The main economic policy questions facing Jamaica are the following: reducing the budget deficit to at least 1 per cent of GDP, reducing interest rates, managing currency depreciation, reducing the debt/GDP ratio to 100 per cent and lower, increasing GDP growth and reducing unemployment, especially youth unemployment (currently at 30 per cent). These economic objectives are inescapable, no matter who is the Prime Minister of Jamaica. No matter what any of them may or may not say, not one of them would dare depart from this macroeconomic policy framework. To do so would bring an instant reaction from the markets (massive capital flight and devaluation) and immediately plunge the country into ruin. This is the reality.
Given this reality, significantly increasing social or infrastructural expenditure beyond existing levels is not possible. Sixty-five per cent of the budget is spent on debt servicing. The rest is committed to health, education and security, mainly in the form of salaries. The only way to significantly increase expenditure on, let us say, roads or inner-city renewal (apart from drastically cutting health, education and security), would be to abandon the deficit reduction targets. If, in a fit of ignorance, this is attempted, interest rates will have to soar dramatically, likewise the debt servicing charges and the debt burden. Goodbye to any growth prospects in that scenario! Goodbye to any hopes of reducing of unemployment.
Of course, changes in macro-economic policy at the margins are possible and should be discussed. Should we cut the budget (not just the deficit!) even faster, for example, has always been an important question. The politicians hate to have this inconvenient question raised: it brings back memories of their salary increases and threatens them with further unpopularity. It leads to confrontations with powerful interest groups: the teachers, nurses, security forces, the civil service and organised labour. As an alternative, our politicians put forward options which do not work.
In the case of Dr. Davies, in lieu of sharper budget cuts we have increased regressive taxation (16.5 per cent GCT rates). Yet his deficit reduction target is still likely to be missed. In the case of Mr. Golding we have the ridiculous and irrelevant proposal to cap the debt by constitutional amendment. Recent experience of Germany and France with the -3 per cent EU budgetary guidelines has exposed this nonsense. Both countries have rightly ignored this non-target. But there is a larger point which frankly puzzles me about this proposal and it is this.
Supposing that Mr. Golding's constitution-mania were given full reign and such an amendment were passed tomorrow, what then? How could that possibly affect our real debt service crisis? How would it affect the current debt service charges on the current stock of debt for the next five years? How would that affect the existing structure of the budget with its hard budget constraints? Or is Mr. Golding thinking that his constitutional amendment will be retroactive? Does he have in mind to renege on a portion of the existing debt stock and by that means reduce the already committed debt service charges? This needs clarification, to put it mildly.
Likewise for the pious thought often heard from others that interest rates should be reduced. Of course they should be reduced. That is precisely the course being pursued right now. But reducing interest rates is a complex and delicate matter. One wrong move and you will bring the entire house down on your head. As the governor of our central bank will no doubt inform them the very next day after they come to power, this is not a matter of a political decision. It is a matter of the money supply (in particular the budget deficit), the inflation rate and target, the current account balance and currency stability. That is why some believe that central banks should have both 'goal-independence' and 'instrument-independence'-to protect the society from politicians who imagine that one can bring down interest rates by political fiat.
The only sustainable way to bring down interest rates in a country such as Jamaica is on the present course and no other: cut the budget deficit as fast as possible. This is also the best way to reduce the debt/GDP ratio. It is also the best way to stimulate faster GDP growth and to reduce unemployment, further reducing the debt burden. It is the only sustainable route to eventually yielding more resources for social and infrastructural expenditure which are, of course, sorely needed.
These are the brutal economic realities which we face for 2006. They mean a continuation of real hardship for hundreds of thousands of Jamaicans into the New Year and beyond. This should not be denied or evaded by any responsible person, least of all those aspiring to the highest levels of political leadership. Politicians the world over think it is clever to play down such truths and instead to pander to the populace on their ride into power. However, the morning after they arrive in the seats of power, reality sets in. The civil servants show them the books and then they realise that there will be no possibility of delivering on their promises. The result will be even greater political disillusionment and alienation than we now have. In fact, it is precisely this kind of fantasy politics which has helped to bring our political system to its present state of disrepute.
BASIC ECONOMICS
One of the greatest problems in the Jamaican policy environment, on both the Left and the Right, has been a lack of attention to basic economics. Usually, those on the Left propose grand social redistribution schemes which cannot be financed. Those on the Right, on the other hand, believe in Don economics: one simply commands the exchange and interest rates to stand still, like a Don commands his 'shottas'! Others, of no particular political persuasion, simply are dispirited by the bad economic and social environment and deeply yearn for rapid improvements. But this too is a mistake, although an understandable one. We have to face the realities, harsh as they are. If we face them we can overcome them, but not if we bury our heads in the sand, clutch at illusions, or throw our arms up in despair.
