Budgetary Bangarang

The Minister of Finance, the recently married Mr. Audley Shaw, presented the 2010/2011 Budget to the Jamaican Parliament a few weeks ago. This was the first budget since the 1990s that must adhere to the strictures of the International Monetary Fund. The JLP government signed on February 4, 2010 an agreement with the International Monetary Fund. Once a country signs with the IMF, for the life of that agreement, that country must undergo benchmark tests conducted by the IMF on meeting certain macro-economic indicators. A failure to meet those benchmarks will entail the necessity to renegotiate the agreement.

Mr. Shaw made a valiant attempt to put a positive spin on the new budget. Long before the JLP assumed power in September, 2007, the Jamaican economic situation has been far from rosy. For decades, the rest of the Caribbean has been growing at 3 percent GDP and beyond in contrast to Jamaica’s puny growth rate of 1 percent.

Under the PNP and the stewardship of the then Minister of finance, Omar Davies, and Governor of the Bank of Jamaica, Derrick Lattibeaudere, there was some progress made in reducing inflation, raising net reserves and moving gingerly to close the budget gap. Nonetheless, during the 18 years of the PNP government, the debt became chronic and economic growth was nigh non-existent.

The tragedy of the economic system during those years is that an undue amount of investment capital gravitated away from the productive sector and was pulled in the direction of investing in government paper. The purchase of government treasury bills at a high interest yield was great for investors but was not in the long term interest of expanding Jamaica’s productive capabilities. That economic scenario helped to patch up the deficit and to meet debt payments but it thwarted the economy from extricating itself from a vicious cycle of indebtedness.

Minister Shaw spoke about the new economic paradigm that was being created and that the 2010/2011 budget was setting the foundation for that new paradigm. There was now going to be a serious attempt to break out of the debt trap and grow the economy.

Much of Jamaica’s debt is owed domestically. There is a foreign debt but there was no attempt to renegotiate the foreign debt but in cooperation with the IMF, the government established the Jamaican Debt Exchange to stretch out debt payments and reduce the interest being paid to government treasuries. Last year’s debt payment amounted to 60 percent of the budget. With the seeming success of the JDX that figure has been reduced to 47 percent. This year the government will borrow $176.3 billion to cover the 6.5 percent deficit. Of this figure, $118 billion will be borrowed domestically and the remaining $58.3 billion will be raised mostly from international agencies.

The presumption of the new paradigm is that if government can reduce the burden of the debt and lower interest rates for loans in the banking system, the entrepreneurial class will be in a much better position to expand the productive base of the society and engender economic growth and employment.

A major part of this equation is the reorganization of the tax system in Jamaica. With the help of the Internal Revenue Service in the United States, Jamaica is restructuring its tax system to reduce the number of taxpayers who beat the system. A robust system of collecting taxes would augment the government’s capacity to close once and for all the budget gap and provide more services for its citizens.

Long before the IMF could again call the shots in Jamaica, they have been warning about the unsustainable growth of the public sector. In previous years public sector workers signed a memorandum of understanding to temporarily forego wage increases to avoid layoffs.

Last year, government paid out sizeable raise increases to police officers and teachers. The total wage increase to police officers came to 35 percent and teachers were given raises of 15 percent. Those wage settlements added $40 billion to the government payroll. The IMF has set a condition that the wage bill in the public sector cannot supersede more than 9 percent of GDP. In his address to create this new economic paradigm, the Finance Minister has pleaded with government workers to forego wage increases that are pending. Workers become restless in time of runaway inflation. The inflationary rate in 2009 was in double digits although government estimates that the rate for the fiscal or calendar year should be significantly reduced. It is going to be a test of the government’s power of persuasion to get public sector workers to postpone pending wage increases.

During the Manley years, the IMF was contemptuous of social programs and conditionalities demanded the elimination of safety-net programs. In his budgetary presentation of 2010/2011, Audley Shaw boasted about the ‘promises made and the promises kept’. Tuition at high schools has been eliminated and fees at Public Hospitals have been abolished. The PATH program will encompass over 300,000 Jamaicans. Jamaica during the 1990s managed to reduce poverty rates from over 30 percent to a respectable figure of approximately 15 percent. With the recession and the non-performance of the Jamaican economy, it will be interesting to see when the next Survey of Living Conditions in Jamaica is published to empirically determine if the rate of people living below the poverty line has begun to rise.

There are signs that by the end of the year more bauxite-alumina plants will be reopened and contribute to the country’s economic well-being. Tourism has held steady in these most difficult of times and should benefit from the renewed buoyancy in the American economy. And there are signs that remittances are returning to a state prior to the economic meltdown in the Unites States in 2008.

Much of the economic recovery will depend on the enterprise of the entrepreneurial class. The reduction in interest rates should encourage economic expansion. Something that Mr. Shaw has not addressed is to what extent is there a willingness among the wealthy to invest in Jamaica? The corruption in the society is fairly pervasive. Businesses have been affected by the racket of extortionists and in some parts of the country there is a greater propensity to become entangled in transnational crime rather than to establish legitimate businesses. An essential part of the Jamaican economic recovery is containing the out-ofcontrol crime problem. In his address on the budgetary question, the Prime Minister Bruce Golding should be able to provide the nation with great insight into these matters of life and death.

A Point of View
A Walk In The Park

My son, now thirteen, has been a participant in Harlem Little League for seven years. By the way, Harlem Little League is just one of many great unsung community-based organizations that are constantly and consistently dedicated to making life opportunities available to young people. It is just one of many great unsung community-based organizations that merit and warrant our support if our tomorrows are truly to be better than our todays. But I digress.

As I watched my son and his teammates play in Central Park last weekend I was struck by the grandeur and awesome concept that is Central Park. And I realized that, if not for the foresight and vision of Frederick Law Olmstead and many, many others in 1859, I would have been standing in a warren of concrete condominium canyons instead of in a verdant field of grass encircled by small forests with the sky so close that touching it almost made sense. There are probably still developers and builders who cast a longing glance at the Great Lawn and Strawberry Fields and wonder, what if…….

There is no doubt that, in 1859, there was more than a little opposition to the establishment of a huge, permanent park in the middle of Manhattan, by then America’s largest and most vibrant and fastest growing city. There were those who were prepared to let the free market determine the best usage of the land that became Central Park, putting the public interest and a vision of the future in permanent second and third place, respectively.

I thought about the public education system in the United States. I considered the fact that the establishment of free, compulsory and universal public education through the twelfth grade was not a universally admired concept in the latter half of the 19th century. There were many who felt that the free market should determine who would or could get an education. The needs of industry for child labor were favored over any notion of the public interest and any vision of a future with educated and literate Americans.

I don’t think that there is any doubt that the establishment of free, compulsory and universal public education transformed this country. The millions of educated and literate Americans that helped to create the United States that became a global juggernaut in the 20th century were the driving force behind that progression. And I wondered if it would be possible to institute free, compulsory and universal public education in this country in these days and times.

I also thought about the national parks system in the United States, a system that encompasses the Grand Canyon and Yosemite Park and so many more major and minor miracles of nature. And I recalled that at the time the parks system was established, with the leadership of President Theodore Roosevelt, there were cries of opposition from private interests – mining interests, logging interests, developers and the like.

Confiscating private land for public use was anathema to the American way, the argument went. The public interest and the vision of the future would and should be determined by the free market. And I wondered if it would even be possible institute a national parks system in the United States in these days and times.

I also thought about the fact that, as successful as he was in establishing a national parks system, a system that is now a global jewel, Theodore Roosevelt was absolutely unsuccessful in establishing a universal health care system for Americans. He was able to protect the canyons and forests and valleys of America, but not the health of Americans. And I realized that the American mindset that can be so generous can also be selfish, instead of selfless.

It is why we saw so much rancor attached to the recent health care bill debate.

It is why we see the continued rancor and debate over a bill that would help keep men, women and children healthy. This dichotomy in the American character is not pretty and is not admired by the rest of the world.

A new biography on the life and times of Alexis de Tocqueville was released recently. As one of the first socio-political observers of the new United States of America, he made several astute observations that turned out to be eerily accurate prognostications. One was that slavery and the issue of race would be a continuing problem for Americans until it was resolved.

And we live with that prediction to this very day.

He also mentioned that the American psychology, point of view if you will, was very much directed towards selfaggrandizement and profitability – the “what’s in it for me” approach. The search for new frontiers and new inventions and new industries has always been fueled by a distinctly American search for profit – a search for personal profit. The generosity of this country is legendary and well-deserved. The preoccupation with self and self-worth is also part of a well-deserved reputation. And this dichotomy has very real consequences.

We now see President Obama excoriated for wanting to provide the same protection for the health of Americans that Danes and Poles and Japanese take for granted at birth. We live in a country born of change. It is clearly time that we change some more.

Wallace Ford is the Principal of Fordworks Associates, a New York-based management consulting firm and is the author of two novels, The Pride and What You Sow.