Keith Collister, Contributor
Hon. Portia Simpson Miller, Prime Minister, leaves Jamaica House on her way to Parliament for her inaugural presentation on the Budget on May 9. - JUNIOR DOWIE/STAFF PHOTOGRAPHER
IN HER Budget presentation, new Prime Minister Portia Simpson Miller, responding to the Opposition's allegation of confusion about the economic direction of the Government, clearly stated that her Government was committed to a sound macroeconomic policy that "prudently manages the fiscal accounts; controls inflation; reduces the debt ratios; lowers domestic interest rates combined with improved access to credit by those seeking to invest in our development programme; and achieves stability in a liberalised foreign exchange system".
In the light of the Opposition's clear rejection of a 'populist', fiscally irresponsible approach in their presentations, this would suggest a significant measure of agreement on economic policy at this time.
EXCHANGE RATE POLICY
At first sight, this impression of agreement on economic policy is accentuated if one looks at the issue of the exchange rate regime. In his opening presentation, Minister of Finance Omar Davies, in defence of Jamaica's current floating exchange rate, quoted approvingly from a paper by Guillermo Calvo (Chief Economist of the Inter American Development Bank, and Frederic Mishkin (sometime co-author with the new U.S. Federal Reserve President Ben Bernanke) entitled 'The Choice of Exchange Rate Regime'.
"When choosing between exchange rate regimes, one size .does not fit all. Instead, an informed choice of exchange rate regime requires a deep understanding of a country's economy, institutions and political culture.
Indeed, we believe that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal, financial, and monetary institutions in producing macroeconomic success in emerging market countries. Rather than treating the exchange rate as a primary choice, we would encourage a greater focus on institutional reforms like improved bank and financial sector regulation, fiscal restraint, building consensus for a sustainable and predictable monetary policy, and increasing openness to trade."
Rules vs Discretion - The Real Economic Policy Difference
On closer inspection, there appears to be a clear policy difference between the Government and the Opposition, even if both now appear to subscribe to the basic tenets of the so called Washington consensus. This seems to reflect a difference of philosophy with respect to the amount of power a Government should have, and the limitations on that power, which can, perhaps over simplistically, be called a preference for rules over discretion.
Exchange Rate Policy - one size does not fit all
Whilst the Opposition moved away from a more rules based "fixed exchange" rate as opposed to a more discretionary "floating exchange rate", this may be more of a tactical than philosophical move. discussing the issue of a fixed exchange rate Mr. Shaw in his Budget presentation said, "While we agree this issue requires greater study as we fully recognise its merits, we believe such a policy could be inappropriate for Jamaica at this time". The excerpt from Calvo and Mishkin actually supports this key difference that "one size does not fit all, or always", suggesting that different exchange rate regimes may be appropriate for a country at different times in their history. One of the justifications given by Mr. Shaw for the Opposition's changed position is "the Jamaican economy is still in a fragile and growthless mode, with too heavy reliance on debt". Whilst not mentioned during the Budget Debate, the Opposition's 2002 manifesto commitment to a legally independent Central Bank would further accentuate this difference.
Fiscal Policy
In his presentation, Opposition leader Mr. Bruce Golding clearly articulated a strong preference for rules over discretion with his proposal for "an entrenched constitutional provision placing a limit on the amount of debt that can be incurred and a limit which the deficit, in any one year, cannot be allowed to exceed".
In his response, the Minister of Finance admitted his opposition to this proposal might generate "the immediate reaction that the Minister of Finance wishes to be free to incur as much debt as is possible and to operate with significant budget deficits."
He argued however that while "No one can quarrel with the objective of placing a limit on debt as well as on the size of the deficit..to believe legislation placed in the constitution is the answer defies not only logic but recent experiences." The Minister made reference to France and Germany which, when faced with severe problems in terms of social security system, "simply violated iron-clad rules to which they had been committed, in terms of their budget deficits."
New Debt Solutions
Replying directly to the Opposition's "new debt solutions", Finance Minister Omar Davies described Mr. Shaw's proposal that the PetroCaribe Agreement provided Jamaica with an opportunity to retire expensive debt with longer term low cost debt as an "Excellent idea, but nothing original." He cited a January 12th Cabinet submission by his Ministry to reduce the "overall cost of borrowing through the use of the funds to refinance existing expenses to GOJ domestic debt." However, the Minister emphasised other more discretionary uses for the funds such as" investment in energy projects aimed at reducing Jamaica's reliance on oil, upgrading the physical infrastructure - in particular roads and bridges," showing a clear difference in emphasis.
Minster Davies also replied to the Opposition's suggestion that the Government could borrow $1 billion U.S. from the multilateral institutions, stating that there was "no good reason why this administration would seek to avoid entering into an agreement which would reduce debt servicing". The still unanswered question remains however as to whether if Jamaica were to accept the IMF conditionalities or "rules" of a Fund program, would this money in fact be available.
Consolidation of Statutory Deductions (NHT/NIS)
The clearest example of this philosophical difference over the degree of discretion allowable to Government may be the apparent controversy over the treatment over the National Housing Trust and National Insurance Scheme funds. Arguing for a discretionary approach, the Minister of Finance stated in his budget presentation "The second objective is to provide flexibility in terms of the allocation of the resources depending on the particular priority in the nation at a given period. " Opposition leader Bruce Golding however made clear his rejection of this approach to these dedicated funds, with his "Leave poor people's money alone" remark
