Saturday, March 08, 2014
After Jamaica 50, Olympics comes economic realityDennis Chung
NOW that the euphoria of the Jamaica 50 and Olympic celebrations are over, many of us are now getting back to reality. This reality has always been present for some of us, unlike the Jamaican in the diaspora who sent me a Facebook message to ask that us residents not discuss the challenges Jamaica faces during the Olympics as she didn't want to read about anything depressing during that period, so that she could enjoy the Olympics. In my words, why don't you natives in Jamaica stop talking about the problems there so that we in the diaspora can enjoy the successes Jamaica has in the Olympics without any distractions.
This is the reason why I do not support the diaspora being given the right to vote, or make any decisions affecting Jamaica and Jamaicans.
So us residents now, have to deal with the reality of the need to have an IMF agreement in place, continuing to deal with the fiscal and crime challenges, and two days after our birthday seeing unemployment raise with the addition of another 207,000 persons to the unemployment line. This will no doubt push more people into the informal sector of the economy.
Going forward though, us natives will have to find a way to address the development challenges we face. We must seriously ask ourselves. Have we been tackling the problems correctly, and what do we need to do to ensure that we increase the quality of life for us as citizens?
Another question we must ask is: How do we do so in a challenging global environment? I think it is very clear for the world to see now that the austerity measures that Europe embarked on three years ago have not been working and will not work. In fact, Mervyn King (governor of the Bank of England), who was at the forefront of the UK's austerity drive three years ago, was quoted in February as saying that if the austerity measures were continued the UK economy would continue to decline. This, after it slipped back into recession. Greece, which is in its fifth year of recession, recently saw another annualised GDP decline of 6.2 per cent. King was only this week quoted as saying that he saw no end in sight for the Euro debt crisis.
The US, on the other hand, under the leadership and insistence of Barack Obama, chose to increase the debt and stimulate the economy. This has resulted in the US economy seeing small but consistent GDP growth. The US should be thankful the Republicans were not in charge, else they would still be in recession.
In the case of Jamaica, we have sought to consolidate on the fiscal side, but also we have introduced some stimulus measures. These include the JEEP programme and we have restarted JDIP. In addition to that there is the intention to kick-start the projects under the Ministry of Transport, which cannot come soon enough, as the growth projection numbers without them will be stagnant and you could be looking at increased unemployment.
However, while these are necessary to keep the wheels of the economy turning, it is far from sufficient if we want to start the engine of development. We need to change how we think about solving these economic problems that has plagued us since the 1990s. That is development must be driven by two things: (1) the main focus must be on the Balance of Payments; and (2) we will need to get projects on the ground to stimulate the economy through greater employment.
If we can succeed with these focus areas then the fiscal accounts will not be a problem. It is even more critical to deal with these, as without addressing these fundamental problems the fiscal accounts will always have a problem. And the truth is that, if, as S&P says, our fiscal choices are restricted much further then the fact is that the next area to look at for reducing will have to be the public sector wage bill which, in my view, would be disastrous to the economy.
Many will say that the public sector is too bloated, and needs to be cut, and will even agree with the no more than nine per cent of GDP argument. My question is on what basis do you say that the public sector is too bloated and what is the magic of nine per cent. Many persons who say that do not have any evidence to support that argument apart from what the IMF has said. My argument is that with unemployment being over 14 per cent, consumer and business confidence falling, and the IMF agreement not yet finalised, we would be suicidal to think about putting more people on the unemployment line.
What we must therefore do is, while providing the jobs stimulus needed (and it must be done strategically), our focus must be to grow the overall GDP, and not narrowly focus on debt reduction. I agree that our debt must go down, and not just the debt-GDP ratio, which can be inflated away. However, we must reduce the debt not by sucking the life out of the economy, but by increasing the income available to pay it off. Greece tried the "squeezing the life out of the economy" way, and they are in their fifth year of recession.
My own view is that it is not difficult to do this. It, will however, require no lesser office than that of the prime minister, to make sure that it is co-ordinated with all ministries. I have mentioned on many occasions the method by which this can be achieved, and so will not bother to reiterate. But suffice it to say that between energy, crime, and transportation, you are looking at over $100 billion that can be added to the GDP.
One other thing I would like to mention here is my synopsis of what I think the way forward for the energy sector should be. I am in full support of the view expressed by the energy minister that the distribution monopoly, currently held by JPS, must be broken up if we want to enjoy the benefits of lower energy prices on a sustained basis. My own view has always been also that we could end up regretting any decision to focus on LNG only as a replacement, as the price of LNG is projected to increase. Diversification must be the answer, but more importantly it must be diversification led by multiple players in the market, not by a monopoly.
Minister Paulwell, full speed ahead. You are on the right track as you have done already with the telecommunications sector.
Dennis Chung is a chartered accountant and the author of "Charting Jamaica's Economic and Social Development — A much needed paradigm shift". His blog is dcjottings.blogspot.com. Email: firstname.lastname@example.org
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