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Designing a political path for a different economic result

Claude Robinson

Sunday, February 17, 2013    

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THE Portia Simpson Miller Administration last week inched closer to an agreement with the International Monetary Fund (IMF) by taking some prior actions demanded by the fund as preconditions to a deal which the Government regards as essential to reducing the massive public debt and laying the foundation for economic growth.

The process began Monday night with an unprecedented joint broadcast by Prime Minister Simpson Miller and Finance Minister Dr Peter Phillips announcing a restructuring of Jamaica's domestic debt that will cost savers and pensioners $17 billion per year over the next seven years. Bond holders have until February 21 to accept the offer; indications are that they will.

Then on Tuesday, Dr Phillips presented a $15.9-billion tax package to Parliament that will, among other things, see increases in property taxes, transfer tax, tax on dividends, customs fees, gambling and telephone services. The Government will also draw down $11 billion a year over the next four years from the National Housing Trust (NHT).

These are tough measures that have ignited major debates that are likely to intensify as the details, the impact on consumers and taxpayers at all levels and the implications for the overall economy, sink in.

There are many hard questions as we move forward: How will giving up $44 billion affect the ability of the NHT to provide desperately needed housing and housing solutions, especially among low-income contributors?

Will the Government be able to collect the new taxes, given the actual experiences of shortfalls in revenue collections over the past decade?

And most important, will this pending IMF agreement be implemented and will it achieve the results? And will the country achieve the admittedly modest one to two per cent economic growth projected over the four-year life of the agreement?

In December 2009, we may recall, the country got word of a previous agreement that would, among other things, address our economic imbalances and put "Jamaica on a path of sustainable growth"; resolve the problem of an "unsustainable" debt position at over 130 per cent of GDP, and other weaknesses in the economy.

Among other things, the Golding Administration committed itself to implementing a credible medium-term fiscal framework and a proactive debt management strategy to put the debt-to-GDP ratio on a clear downward path.

We know how that turned out. And now we are being asked to believe once more. Only this time, the debt is 140 per cent of GDP.

Different result requires different actions

This time around, the finance minister seems resolute. "I would not want to put any other generation of Jamaican officials through the process I have just gone through..." he said last Thursday. "But that is the price you have to pay when you allow things to get to the stage" where the Jamaican economy is now.

Dr Phillips says there was no alternative to the tax package and though he's "open to suggestions and concerns" for tinkering around the edges, the basic package will remain intact. In Jamaica's dire circumstances and uncertainties in the global economy, the IMF was the only lifeline and the offer that the Administration took was the only one available. It was a choice between "difficult and more difficult, between bad and worse," he said at a media briefing at Jamaica House Thursday.

Of course, the $1.7-trillion debt reflects the deeper underlying problem of an economy distorted by overconsumption, using other people's money and under-production due to our uncompetitiveness, low productivity, a largely untrained labour force, and high crime rates. According to UWI professor of economics, Anthony Clayton, crime costs approximately 7.1 per cent of GDP.

Many of the solutions to our problems are within our grasp; not buried in any IMF agreement, essential though that is under the present circumstances. Grasping them requires us to think and act differently.

Dr Phillips wants the country to "collectively focus on how we can achieve the targets" rather than pointing to why they may not work. That would be different.

Government must lead by example. It is within their remit to set and implement a rational economic growth agenda including lowering electricity prices; implementing tax reforms that will reduce rates and bring more people into the tax net; making it easier to start and do business; and encourage major investment and expansion in agriculture to produce about half of the US$1-billion food import bill. Government can do a great deal more to generate economic activity in the small and medium-size enterprises.

Investors who are now faced with the reality of lower returns on government paper have a choice: Seek 'safe havens' abroad or look for alternative opportunities in the local economy. Choosing the latter course will involve our political leadership at the highest level, forging confidence-building measures and facilitating an open process with business and labour.

Government can also lead the wage restraint agenda. Specifically, Prime Minister Simpson Miller should send a clear signal of commitment to fiscal prudence and public sector efficiency by cutting the size of the political executive and demanding greater performance. The rest of the public sector would get the message.

Eschew political gamesmanship

The prime minister and the finance minister have, quite fairly in my view, been criticised for not clearly stating in their broadcast Monday night that a substantial tax package would be presented for passage in the Parliament the following day.

They didn't have to provide specific details; but it was not enough to rely on previous statements signalling that there would be additional taxes as part of what is required to achieve a primary surplus of 7.5 per cent of gross domestic product (GDP) over the next three fiscal years.

Indeed, the finance minister acknowledged the criticism when he told reporters at his media briefing, "I accept the observation that it might have served a useful purpose to restate all the conditionalities in the broadcast of February 11th."

That "useful purpose" is that frankness and transparency in the communication of bad news are essential, especially when the messenger desperately needs broad understanding and buy-in if the message is to have any chance of being accepted. It would avoid suggestions of deceptive tactics and begin to establish a basis for getting "all hands on deck" which, according to the minister, was a basic requirement for success.

In addition, the Opposition should have been given more time to critique the tax measures before they were asked to vote on it. It would have avoided criticism that this was a 'Nicodemus' approach to tax measures. It now appears that the IMF insisted on swift passage of the tax measures to avoid the very political wrangling that has broken out.

While the Opposition had a point about not being consulted, it hardly rose to the level of a walk-out of Parliament. Opposition Leader Andrew Holness and his finance spokesman Audley Shaw should have been in the House to critique the measures.

Instead we now have an increase in the partisan decibel level in which Mr Shaw has not only taken on the Administration but the IMF for what he has described as a "scandalous" deal that will hurt the productive sector and the broader economy.

We have the makings of political bickering and the excessively tribal nature of our politics. A party takes a position in Opposition and does the very opposite when it forms government and vice-versa. We have had so much of that over the years, I think it is embedded in a dysfunctional politics that seems inherently incapable of collaborating on important matters.

Will we, as Jamaicans, demand a different kind of politics that will ensure that Jamaica does not walk this path again?

kcr@cwjamaica.com

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