- RUDOLPH BROWN/CHIEF PHOTOGRAPHER
Patrick Casserly, successful entrepreneur and head of E-services Limited.
Don Robotham, Contributor
THE BUDGET presentation by the Prime Minister should leave us in no doubt. In a speech of 13,248 words, 65 words were devoted to economic stability. This is a bit less than five per cent. So much for macroeconomic stability. You would never believe that this is a Prime Minister of a country staring at a $875 billion debt stock.
The remaining 95 per cent of the speech was a litany of government handouts. A regime which has broken all records in cost overruns plans to overrun even more. Netserv, Solid Waste, Operation Pride, the National Housing Trust car park, Whitehouse are not enough. The time has come to raid the National Insurance Fund (NIF).
NO DEVELOPMENT PERSPECTIVE
The Prime Minister's presentation was a praise poem to social redistribution. In her vision all we need to do is to shuffle Jamaican dollars from the taxpayer to the Consolidated Fund, from the Consolidated Fund to the NIF, from the NIF, to the Bank of Jamaica, from the Bank of Jamaica back to the NIF, from the NIF to microenterprise handouts and from there back to the Consolidated Fund. A paper chase.
The fact that in the process no net new wealth is created, and no development takes place, is of no consequence. Let us continue to chase the same set of dollars round and round the mulberry bush. Let us continue to chase our tail!
But don't fool yourself. It may be a pointless exercise from the point of view of the development of Jamaica. But it is not pointless from the point of view of the (People's National Party (PNP) dons and the genetically connected. This could be a windfall for them.
The Prime Minister's Budget speech will alienate the middle classes but it will be popular with the masses. But the middle classes do not win elections. The Budget speech will win votes and that's what counts.
For decades, the PNP (not just the present Prime Minister) has failed to understand that the issue before Jamaica is not how to redistribute the existing pool of limited funds that we have. This is a vision from the 1970s. The point is production not distribution. There is a huge illusion in Jamaica that the inner cities are full of potential business people waiting to 'buss,' to use a dancehall term. There is, indeed, business talent in every social class in Jamaica but when in this area, many are called but few are chosen, as in all countries. The vast majority of us, including myself, have zero business ability. We must work for others, not for ourselves. Because of our small farming and higglering traditions, most Jamaicans hate to face up to this simple reality. Entrepreneurial talent is a scarce commodity in every society. Not everyone is a potential millionaire waiting to be recognised. Microenterprise credit will not develop production.
From an economic development point of view, the key is the expansion of small and medium-sized business by people who are already successful and need facilitation. The key are people like some of our successful music companies and recording artistes, as well as people such as Andrew Gray and Patrick Casserly, in whatever social class they are to be found. The point is to really develop the economy so as to generate a larger pool of funds. And further, this larger pool is not simply for consumption purposes. It is not for bling. We need to save and reinvest as much as we can so we can have a self-reinforcing spiral of dynamic growth. This is what a development vision and a development ethic requires.
Important breakthroughs are already taking place in business process outsourcing in the economy. These are crying out for strong government assistance in human resource development, marketing and other areas. But the Prime Minister had absolutely no comment on such issues. A classic example was her treatment of the music industry. Towards the end of her speech she sang its praises. But there was not one word about a development plan for the music industry. The development of the music industry has absolutely nothing to do with the provision of microenterprise credits. It is a much larger and more complex question than that.
DISTRIBUTION VISION
The distribution vision is best exemplified in the proposal to use $1 billion from the National Insurance Fund (NIF) to finance microenterprises. In its most recent incarnation, this approach dates from June 1993 when a $10 million loan was made to the National Development Foundation of Jamaica at 15 per cent for 10 years.
Also, it was Mr. Patterson who first announced a $1 billion allocation from the NIF to microenterprise credit. He did this at the launching of the Young Entrepreneurs Association at the Jamaica Pegasus on Wednesday, January 25. On Monday, February 20, a decision was taken by Cabinet to lend $50 million from the fund to the National Development Foundation of Jamaica. Three months later, Mrs. Simpson Miller serves up these warmed-over Patterson proposals without further ado.
The first thing to be said about the NIF giveaway is that these are loans not investments. This is about debt not equity. Moreover, this is social credit not economic credit.
The investments in GraceKennedy, Lascelles, BNS, NCB, Capital and Credit, Braco and El Greco had to do with taking equity. These had nothing to do with extending social credit. The Prime Minister repeated the word 'investment' and its derivatives no less than 26 times. But repeating it even 1,000 times will not alter the basic fact. A loan is a loan is a loan. Social credit is social credit. Nothing to do with investment.
Do the NIF law and regulations permit them to make loans for social purposes? The NIF law speaks about 'investment.' There is not one word in it about extending credit, let alone social credit. The NIF has an investment board. It does not have a credit board. But now the NIF is being converted into a microenterprise bank.
Moreover, the credit to be extended by the NIF credit board to the lending agencies has to be at about five per cent in order for credit to be retailed at the proposed eight per cent way below market rates. So it is not only a matter of the NIF extending credit. It is to extend credit at giveaway rates.
ACTUARIAL ISSUES
Further, serious actuarial issues exist around the NIF. The law requires an actuarial review of the NIF every five years. The reason why the funds in the NIF and NHT are so large is not contributions. It is because of the high returns from NIF and NHT investments in government paper in the last 15 years. The NIF and NHT are the single largest holders of government paper. But that high interest regime is now over. So these high rates of return have ceased. There needs to be a detailed actuarial review before going ahead with this move. This detailed actuarial review needs to be made public.
For some time, it has been recognised that Caribbean pension funds are facing serious issues of reform. This is because all populations in the English-speaking Caribbean are ageing. For example, the population growth rate in Jamaica is currently less than one per cent. Life expectancy is 72 years. This means that eventually many more people will be retiring than will be entering the labour force.
In Barbados, by about 2015 pension funds may be called upon to pay out more in benefits than it is receiving in contributions. The Barbadians are already advanced in their process of pension reform either increasing contributions or extending the age of retirement to 67. They have had a process of public education and consultation on these issues since 2001.
As recently as 2004, a conference was held in Barbados stressing the urgent need for Caribbean pension reform. Jamaica was represented at this conference by two senior civil servants so the problem is well-recognised here as well.
But instead of educating the Jamaican public on these critical actuarial challenges, the PNP approach is to figure out how best to eat out the NIF. The politicians' enormous pensions are safe. Your pension is in danger. No question about it: General elections are coming.
