Clarke

I WAS STRUCK by a statement made by Guyana's President Barat Jagdeo while he was in Jamaica recently. In describing his country's experience with the International Monetary Fund (IMF), he said: "We now have a debt overhang of 47 per cent of GDP (Jamaica's is over 120 per cent), and we are using about 4.8 per cent of revenue to service that debt (Jamaica is using nearly 100 per cent of tax revenue). Because we have removed that debt, we can now spend much more on health, education, and our capacity to address crises."

My memory of Guyana when I was involved with the Caribbean Association of Industry and Commerce during the 1980s, is of a country whose economy was a major drag on the economic vitality of the region. At that time, Jamaica was viewed as economically vibrant. It now seems that Guyana, in partnership with the IMF, has grown out of its basket-case status, while Jamaica, which left the IMF in 1995, now occupies that spot.

As I have argued in earlier articles, Jamaica's economy was vastly healthier in the 10 years before we left the IMF than it became afterwards. One only has to compare our rate of economic growth with growth in the rest of the world during the two periods. Between 1986 and 1994 under the IMF, Jamaica's economy grew just 20 per cent slower than the world average. Since leaving the IMF, the world economy has grown over seven times faster than Jamaica's.

period of economic vibrancy

Jamaica has engaged in irresponsible import consumption over the last two decades. – File

One could actually feel the difference - 1985 to 1995 was a period of economic vibrancy, thousands of young people found productive work in new factories across the country, small businesses were thriving, and the crime rate was relatively low. The post-IMF period was marked by chaos in the financial sector and the near destruction of the productive sector. We saw small businesses gradually morph into street-side hustling. We witnessed a frightening mush-rooming of crime, with murders doubling over the period. The hardships under the IMF in the 1985-1995 period were mainly fed by propaganda; the hardships of the post-1995 period have been real and palpable.

After 1995, IMF-enforced economic discipline and rigour gave way to a regime of economic policies, which undermined the productive capacity of our economy and, unlike Guyana's situation today, left us incapable of spending adequately on health and education, or addressing crises, such as the global recession we face today.

After leaving the IMF, Jamaica engaged in a muddled, wasteful economic management, which has left us in today's deep economic hole. Government squandered hundreds of billions of dollars of our capital in entrepreneurial adventurism and commercial undertakings for which there was no reasonable rationale. It departed from the tried and proven path of using multilateral and other low-cost external capital to bridge budgetary gaps and instead, engaged in a parasitic pursuit of domestic capital at the expense of the county's production and development. It designed policies to buttress Government's wasteful expenditure and severely buffeted the producers of the economy in the process.

ballooning debt

Our ballooning debt, created by irresponsible and profligate decisions in the past, has predictably slid to junk status. But it is not clear that our Government understands the extent of our economic predicament, or what is required to overcome it. The only conclusion one can draw from its remarkable reaction to Standard and Poor's recent downgrade of our debt, is that it is still not aware of the depth of the economic ditch into which we have fallen.

Is the Government not aware that our ability to support our rapidly escalating debt has been declining with each passing day? Jamaica's production of goods and exportable services has been contracting ever since we bade farewell to the IMF in 1995. In that year, the value of the goods we produced was approximately one-third the size of our debt. Ten years later, in 2005, our debt was five times the value of the goods we produced. In the final analysis, it is the production of goods and exportable services which determines our ability to service and repay our debt. And with a declining capacity to repay, the downgrade of our debt by the rating agencies was as inevitable as death itself.

Just as inevitable was our inability to finance our ballooning import bill. For years, we had been using expensive, private commercial credit to postpone the day of reckoning. Now the IMF is all that is left. But the loans to which the IMF gives us access can only be a temporary salve for our deeply dysfunctional economy. Taken alone, the loans will not resolve the growing gap between our economic needs and our capacity to satisfy them. The greater challenge will be to create the means to produce goods and exportable services in order to reduce our dependence on imports and increase our ability to pay for the imports we must have. This will require economic policies, which will cause a substantial reduction in personal real incomes and consumption levels, but will eventually lead to lower production costs and improved competitiveness. And it will require a steely will from our political leader, a conscious public, and the forced discipline of the IMF to make these policies stick. What our Government must now do, in presenting its case to the IMF, is to put forward an economic package that will get the job done regardless of the potential political consequences.

The rightful expectation of our people is that Government will provide an environment in which it is able to produce and prosper. The Government now has a fresh opportunity within a new IMF programme to create that environment. To do so, Government must ensure that the policy mix it develops and presents to the fund is capable of creating the economic conditions necessary for us to produce our way out of our poverty. The three components of conditionality laid down by the IMF so far - reducing the budget deficit, divesting public sector enterprises, and reorganising our debt - are undeniably necessary. But although they can positively influence the wider economy, these conditions are directed to fiscal issues. Much more important are policies specifically aimed at increasing output in the economy and bringing the key elements of the economy into production-oriented equilibrium.

macroeconomic environment

The first task must be to create a macroeconomic environment which will allow our farmers, manufacturers and export-services producers to be internationally competitive. It will be difficult for a society, which for at least two decades bred an appetite of irresponsible import consumption, to accept the economic policies which will lead to the drastic reduction in imports, which will be necessary. But accept them we must. The stark bottom line is that our overall real consumption and income levels will have to be severely cut, particularly at the top. The hardships that will follow will be real, but what is needed is not a call for sacrifice. Sacrifice suggests giving up something to which we are entitled. We were never entitled to consume more than we produce.

What we need is a clear-eyed rendezvous with reality. And it is our Government which must first face that reality and recognise that it has to lead our people to understand that incomes and consumption must be aligned with production if we are to survive in the world. Government must show strong, wise leadership, not the utopian 'cum by yah' coalition-type governance, which many advocate as the solution to every national problem. A leadership which will convince the people that policies which curb our propensity to consume imports will, over time, increase our capacity to produce, redirect consumer demand to domestic production, create employment, and ultimately, make Jamaica and Jamaicans more prosperous.

The fact that we destroyed so much of our manufacturing capacity during the FINSAC (Financial Sector Adjustment Company) debacle will make the task of increasing production that much more difficult, and major incentives are going to be needed to replace that lost capacity.

The regeneration of exports to close the gaping trade gap will not only require a dramatic increase in our productive capacity, it will need a determined effort to reduce local input costs. Exchange rate and interest-rate competitiveness must be achieved, and worker productivity at all levels will have to be brought in line with that of our trading partners. Policies to reduce the cost of producing energy and improving the efficiency with which it is used must be developed. Several locally provided services, including financial services, which impose a disproportionately high cost on our producers, must be brought to competitive levels.

The Opposition has called for a parliamentary debate in the wake of Standard and Poor's downgrade of our debt and in light of the imminent IMF agreement. This debate would not only be welcome, but is highly necessary. However, it must not be confined to the usual discussion of the technical aspects of the Government's financial affairs, but must engage both sides in a vigorous exchange of ideas on the economic and social policies needed to make our economy competitive and strong. Both the Government and the Opposition must put forward their ideas on how the policy errors which created the present crisis can be avoided in the future, and how to chart a course to future growth and prosperity.

This is the debate we really need. For it is the quality of the policies which we adopt now that is going to determine whether Jamaica will remain submerged in poverty, or rise from our state of deep economic distress.

Claude Clarke is a former trade minister and manufacturer. Send feedback to columns@gleanerjm.com.