SPEAKING at the Jamaica Exporters’ Association’s (JEA’s) quarterly luncheon on Wednesday, President Vitus Evans, commenting on the IMF standby arrangement’s key objective of increasing the country’s economic growth rate, argued that “Jamaica’s main, if not the only way out of its economic woes is through increased production and by adopting an export-led growth strategy.”

The new JEA president called on the Government “to immediately implement the appropriate measures to incentivise exports in order to ensure that the economic growth that the country so desperately desires is achieved”.

At long last, there appears to be a consensus emerging on the way forward for Jamaica.

The JEA speech follows a similar call by the Jamaica Chamber of Commerce (JCC) at the end of last week for “an export-led growth strategy, which is not an area of emphasis in the IMF agreement”. This strategy, the JCC said, “is critical to the enhancement of Jamaica’s growth potential”.

The JCC cautioned that “fundamental tax reform must not once again be delayed as part of the drive to fiscal sustainability, but must become a critical part of improving the revenue base”.

In that same release, the JCC repeated the call in its January 13 statement, headlined ‘JCC supports the debt exchange programme’, where it stated that the “JCC encourages the Government to take the other tough decisions required to restructure the economy, starting with a planned, timetabled and comprehensive tax reform programme”.

On the same day as the JEA president’s speech, the Observer published an editorial entitled ‘Now that we have the IMF pact…’, where it noted that “in some instances” the antecedents of our current economic crisis date back to the 1970s. The editorial described this as the start of “a failed policy” of “borrowing to finance growth”, which became “a tenet of policy during the regime of Dr Omar Davies”, and which has now “reached a point where it was not sustainable”.

The editorial observed, perhaps hopefully, that with the conclusion of the IMF agreement and the deal with the holders of government debt, the Golding administration had “fundamentally changed Jamaica’s economic policy of the last 25 years”. It might more accurately have said the last 35, or even 38 years.

In their release, referring to the IMF programme, the JCC had highlighted the need for “an absolute focus on implementation, as this programme has no room for error”.

The JCC also reiterated their call for the prime minister and minister of finance “to put in place the strongest possible team with proven expertise, experience and implementation ability”, noting that there was both multilateral and local private sector money available to pay for the expertise.

It cannot be business as usual

The Observer editorial echoed the JCC’s call, when it noted that “With regard to economic management, it cannot be business as usual. The Government’s economic management capacity must immediately be considerably upgraded. A start has been made, but a great deal is left to be done. Where there was no capacity, some has been installed, eg, the Ministry of Finance, and where there was high interest rate fundamentalism, pragmatic leadership has been imported, eg, the Bank of Jamaica.”

Significantly, the editorial calls for new thinking. “The Planning Institute of Jamaica (PIOJ) needs a new head and this time round we must break with the pedestrian. The new director-general must be a high-calibre economist who must have the courage to say what needs to be said and not what the political leadership wants to hear. He/she must transform the PIOJ into the think tank that it has not been since the days of Mr Don Mills and Mr Gladstone Bonnick.”

The JCC argument that the search for expertise should not be confined to Jamaica was also echoed in the editorial: “New thinking is required if Jamaica is to emerge from the economic crisis, and we should not be afraid to look for fresh ideas from abroad. There are several world-renowned Jamaican economists living and working outside Jamaica. Ironically, their advice is sought all over the world, except in Jamaica. But essentially, the Government should avail itself of the advice of any expertise regardless of nationality.”

Even more encouragingly, new Central Bank Governor (and former JEA board member) Brian Wynter, in his speech entitled ‘Implications of an IMF relationship for Expanding Jamaica’s Exports’, correctly observed that “Given the size of the domestic economy, it is clear that the transition to strong and sustained growth has to be led by our exporters.”

Wynter notes that over the last 15 years, the rate of expansion of Jamaica’s export growth of goods and services, at an annual average rate of 4.7 per cent, is approximately half of two of our non-oil regional competitors — Costa Rica and the Dominican Republic — which expanded their exports by 10 per cent and seven per cent per annum, respectively. He notes that Jamaica needs to achieve sustained rates of growth in excess of three per cent, or at least five times the 0.7 per cent achieved by Jamaica over the last 15 years.

He also states that the financial sector reform process embodied in the IMF agreement will also expand the types of investment vehicles available to individual savers “thereby expanding the pool of loanable funds for the productive sector”.

So what is the new thinking required?

Jamaica’s economy requires an immediate shift from consumption to production, from a policy of high interest rates to one of low interest rates (hopefully now underway), and from debt (predominantly to finance the Government) to equity financing (predominantly to finance the private sector).

A good place to start in looking at how to address the missing part of the IMF programme, or how to “incentivise exports” in the words of the JEA’s new president, is the document ‘A Blueprint for Taxation Reform in Jamaica’ prepared by PriceWaterhouseCoopers tax partner Brian Denning for the National Planning Summit. The report recommends Jamaica considers moving to a low rate of corporate income tax, say between 10 and 15 per cent, in conjunction with a wind down of existing incentives, which should prove attractive to investors, driving further investment, economic growth, and therefore tax revenues (in contrast to Jamaica’s current regime which forgoes tax revenues entirely during the period of the incentive).

A low tax regime would be WTO/Caricom compliant, avoid picking winners, and should probably be targeted at the productive sectors first, eg, tourism, manufacturing and agriculture due to our lack of fiscal space.

Prime Minister Golding’s recent trip to China makes this a particularly opportune time to shift to such a tax regime as a key part of a strategy of export-led growth. Such a shift would be a critical part of the package to attract large-scale Chinese private sector investment, particularly if it was accompanied by a move to a territorial tax regime like that of Hong Kong, with which Chinese investors would be very familiar.