The letter below is from Minister of Finance and Planning, Dr. Omar Davies, responding to an open letter to the Editor written by the Rev Ralston Nembhard and published in the Sunday Gleaner of January 12. The Rev Nemhard's letter was severely critical of current economic police policies which he said would lead the country to "bankruptcy and ruin"."Dear Rev. Nembhard:
IT IS not my normal practice to respond to "open letters" written to me in the newspapers. However, on this occasion I have chosen to respond, primarily because I believe from the frequency of your public writings, that you have a genuine interest in a wide range of national issues. Therefore, it is in that spirit that I seek to answer some of the questions which you have posed in your "letter".
I must state, at the outset, that it is apparent from your letter that you do not have a complete understanding of the way in which decisions on economic policies are taken or the complexity of the inter-related factors influencing the issues which cause you concern.
If I may illustrate - whilst various "analysts" often identify a particular aspect of macroeconomic policy which is "off-track", there is often the notion that each problem can be cured in isolation. Your letter betrays this deficiency in analysis. The fact is that in adjusting any major macroeconomic variable, eg. interest rates - one has to take into consideration a range of other factors including inflation, the exchange rate, Government expenditure, the level of Government revenues and consequently the Government's need to borrow. Hence, one cannot simply speak of correcting one problem without considering the implications for other variables.
Let me now address the two primary issues of concern to you, as reflected in your letter. I turn to the proposal that we should "cap the debt." It is one which has been advanced most prominently by Senator Bruce Golding. It is not clear to me whether you are advocating "capping the debt" in absolute terms - that is, a specific dollar figure which the national debt should not exceed, or we should establish the cap as a per cent of GDP.
I should indicate that the Administration's view is that, not only should the debt, as a percentage of GDP, be capped, but our objective is to drastically reduce that ratio from its present level to approximately a hundred percentage of GDP within five years. Even using that less stringent interpretation of "capping the debt", there are serious implications for the fiscal budget, both in terms of raising revenues and reducing expenditure.
I now turn to the other interpretation of "capping the debt", whereby we are speaking about an absolute dollar value. This has far more restrictive implications. If this is the approach which is being advocated (and I do not know which one you are promoting), the country faces serious choices. One choice would be simply to renege on outstanding debt obligations. This Administration would certainly not be party to any such proposal!
Capping the debt in absolute values would therefore mean either severe cuts in the provision of Government services or draconian increases in taxes. Therefore, Reverend, when you advocate that we should immediately "cap the debt", it is imperative that you go a little further and explain precisely what you mean and state which consequences you are willing to accept. I now turn to your second criticism of the economic policies which are being pursued. You propose that we should "allow the dollar, which is terribly overvalued, to find its true market value". I do not know the basis on which you assert that the dollar is "terribly overvalued". Is there some substantive reason for your assertion which you could share with the public? The technical work which is available to me does not support this viewpoint, particularly in light of the recent depreciation of the exchange rate.
I now turn to a fundamental deficiency in most discussions on economic decision-making in Jamaica. For whatever reasons, such decision-making is personalised and the assumption is that the economic path being pursued is "Omar's model." Whilst by virtue of my job, I am the primary spokesperson for the Administration on economic matters, it is quite silly for the assumption to be made that policy decisions are concocted by me on a whim. The fact is that Jamaica possesses a high level of expertise - from the Bank of Jamaica, the Ministry of Finance, the Planning Institute of Jamaica, the Statistical Institute and the FSC to name a few institutions - which provides the Cabinet and myself with the technical analysis which informs our decision making. On a previous occasion, I was bold enough to indicate that I assessed the quality of the technical advice which I received from the GOJ team to be at least equal to that from any other team, be it the IMF, the World Bank or the IDB. I now repeat that assertion.
Based on the technical advice presented to us by the various institutions, Cabinet then makes policy decisions which, in the normal course of events, are articulated by me as the main spokesperson on economic affairs for the Government.
The reason I have been at pains to detail the decision-making process is not to "duck" responsibility for the economic decisions which have been made. Rather, I have done this in an attempt to erase the erroneous view that simply by my changing my mind on an issue, the Administration could make radical changes to my current economic policies.
Although these policies have not always been as successful as we would like, they have brought about major improvements in Jamaica's macroeconomic landscape. How soon have we forgotten the chaos which once dominated the foreign exchange market? How soon have we forgotten inflation rates of over 100 per cent. How soon have we forgotten a country with absolutely no foreign reserves? How soon have we forgotten that the level of poverty, measured by an index designed by the previous JLP Administration has been cut in half during the PNP's time in office? I could go on listing other major achievements which have received positive recognition from international agencies and internationally recognised technicians worldwide. However, this is not the objective of this piece.
Finally, Rev. Nembhard, whilst I do not wish to personalise this discussion, the fact is that my modus operandi in making decisions, is to listen to varying viewpoints from as wide a range of persons as possible. However, such persons cannot simply come forward with an idea which is not supported by clear analysis indicating all the implications of any major policy changes. Too much of what is advanced as "economic analysis" is deficient in that regard.
I close as I started. I have chosen to respond to you, Reverend, because I do believe that you have the country's interest at heart. I sincerely hope that this exchange will lead to a more rational dialogue on macroeconomic policy making.
Omar Davies, MP
Minister of Finance & Planning
