In 2018, then regional Inter-American Development Bank (IDB) head Therese Turner-Jones invited me to interview prominent IDB economists Diether W Beuermann and Moises J Schwartz about their new book, Nurturing Institutions for a resilient Caribbean, a very detailed overview of the importance of institutions to economic development and the state of development of the region’s institutions.

It is not possible to do a full review of this complex book here, but the first quote endorsing their book by Barbadian Prime Minister Mia Mottley got to the core of the importance of institutions that should interest all Jamaicans — their role in protecting the weak.

Mottley says, “Institutions in the Caribbean have played a critical role in being able to enhance our democracy and to provide a platform for economic growth. They have protected the interests of those least capable of protecting themselves. It is vital that we work each day to ensure that our institutions continue to play this role without themselves becoming excessively distracted with their own sustainability at the expense of achieving their core mission.”

In her invitation to the interview, Turner-Jones described the book as exploring “the historical development and status of political and economic institutions in the Caribbean. The Caribbean institutional reality is studied vis-a-vis best international practices. The main objective is identifying positive aspects and institutional areas in need of improvement that could facilitate a sustainable development path in the Caribbean”.

The book also includes endorsements by globally famous professors — Massachusetts Institute of Technology’s Daron Acemoglu and Chicago’s James Robinson — who wrote the globally acclaimed Why Nations Fail: The Origins of Power, Prosperity and Poverty, itself a key book on the importance of institutions. While we won’t go into it here, the book also mentions the key debate: “Institutions verses policies: A tale of two islands” by Jamaica’s Peter Blair Henry and C Miller in 2009, which compares Jamaica and Barbados as countries with a similar colonial institutional endowment but with very different outcomes, in his view, due to their policy choices in the 1970s. For those interested further, see my Jamaica Observer article on a Caribbean Policy Research Institute conference in 2008 on institutions.

On page 107, in chapter 5, entitled ‘The Role of Economic Institutions in Supporting Growth and Development’, chapter author Klaus Schmidt-Hebbel depicts the links from five key fiscal institutions to growth and development: medium-term fiscal frameworks, fiscal rules and fiscal councils help strengthen the conduct of fiscal policy, all supported by an efficient tax system and a well-managed sovereign wealth fund.

The IDB, under Turner-Jones, funded the work on the key structural reforms under the International Monetary Fund (IMF) extended fund facility (EFF), namely the two key 2014 acts — Financial Accountability (Amendment) Act and the Public Bodies Management and Accountability (Amendment) Act which included balanced budget and debt rules.

In the book’s chapter 12 on Jamaica, IDB Caribbean regional economist Henry Mooney, et al noted that in May 2018, at the urging of Jamaica’s Finance Minister Dr Nigel Clarke, Jamaica’s Cabinet approved the establishment of an independent fiscal council (to monitor our budget, etc) as part of measures to strengthen Jamaica’s fiscal responsibility framework. The fiscal council itself was developed after consultation with civil society, with the IDB helping to fund a supporting Fiscal Research Centre at The University of the West Indies to be launched this month.

The council itself should finally come into full operation in the first half of the next calendar year, with the last reported plan being that it should then replace the Keith Duncan-led Economic Programme Oversight Committee (EPOC).

In his budget speeches Finance Minister Clarke, a key proponent of these fiscal rules, with one of the most globally impressive track records in meeting them, has noted that achieving his signature budget line of “no new taxes” over the past decade was in no sense automatic. Simply put, if this was not an objective, Jamaica’s nearly decade-long run of “no new taxes” budgets would not have happened.

Schmidt-Hebbel adds that exchange rate and monetary policies are strengthened by three key regimes and institutions in those countries that aim to conduct independent monetary policy: the troika of a floating exchange rate, an independent central bank, and an inflation-targeting regime strengthen the credibility and reputation of central bank decisions, lowering inflation, reducing economic uncertainty, and strengthening macroeconomic stability at the cost of higher exchange rate volatility.

Minister Clarke can justifiably claim the finalisation of our long journey to an independent central bank in 2020 as one of his signature achievements that Jamaicans must all strive to protect.

In the 1970s the law was changed to allow the central bank to provide financing to the central government of up to 30 per cent of government revenues or, loosely put, “print money” to finance our very large budget deficits of the time.

In 1992, former Finance Minister Hugh Small set up a committee under actuary Daisy Coke that produced the so-called “Coke Report” in 1994, recommending the ending of this practice and the independence of the central bank. This “pro business” policy recommendation found its way into the Don Harris-led National Industrial Policy document of 1996 but was only finally implemented in 2020.

Another critical but very politically difficult reform by Minister Clarke was that of the government board appointment approval process. In the past, people were appointed to government boards without even being informed in advance, never mind being vetted. The main issue was that this sometimes occurred whether or not the person was qualified, whereas now there is a robust qualification process with a database.

In short, macroeconomic instability is not costless, and the whole society needs to support and strengthen key institutions if Jamaica is to finally reach its development potential.

Keith Collister has been a member of the Jamaica Chamber of Commerce Economic Affairs and Taxation Committee for 24 years and is its current chair. He has also been a member of the Private Sector Organisation of Jamaica Economic Policy Committee for the same period of time.