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EDITORIAL - Frank, ongoing dialogue on economy needed
Published: Sunday | July 19, 2009
The administration's coy statements notwithstanding, it is almost forgone that Jamaica is heading into a borrowing relationship with the International Monetary Fund (IMF). The deed is nearly done.
Our suggestion, therefore, is for the administration to end its disingenuous rhetoric and engage the Jamaican people in serious conversation about the economic crisis and the hard choices to be faced, with or without a credit facility from the fund. We do not mean a one-off address by Prime Minister Bruce Golding or Audley Shaw, the finance minister, but an ongoing dialogue
Prime Minister Golding signalled last week that he might be close to such an engagement when he warned at a town-hall meeting in Ocho Rios that the fiscal fallout from the global recession mandated a level of discipline to which the country was unaccustomed.
"If you set your targets and you do not meet them, other adjustments have to be made in order to get back on track," he said.
What neither the prime minister nor any other member of the administration has yet done, at least with the necessary clarity, is outline targets being demanded by the IMF - and which the Government believes are required to put the economy back on track - in exchange for an estimated US$1.2 billion of IMF credit. It has seeped out, however, that a prime concern of the IMF, and apparently, the central government, is the high interest rates being maintained by the Bank of Jamaica. This, seemingly, is an issue of policy contention between Finance Minister Shaw and the central bank's governor, Derick Latibeaudiere.
The public, we believe, ought to be brought into this conversation. This full and frank discussion must address the trade-off between narrowing the public-sector deficit, addressing the current account gap, managing inflation and maintaining exchange-rate stability.
High interest rates do come at a serious economic cost. They are disincentives to private-sector borrowings, and, therefore, an impediment to investment, growth, job creation and the generation of the surpluses from which governments get the taxes with which to fund their operations. This crowding out of the private sector by governments that are willing to pay expensively for money, allows them space to be inefficient and to postpone the hard choices. In Jamaica, for instance, we continue to operate a bloated, and, ultimately, unaffordable, public sector, but are unwilling to reform, for fear of the political backlash.
One consequence of this failure to act is a public debt of 114 per cent of GDP, the servicing of which requires around 60 per cent of the national budget.
At the same time, the high cost of money has allowed for a relatively stable exchange rate by artificially depressing demand for foreign currency. This relative stability moderates capital flight and, in the context of an open, import-dependent economy, provides a buffer against debilitating inflation, whose effects are felt disproportionately by the poor.
The bottom line: there are no easy options; all are painful. Before any policy is jettisoned and/or embraced, the trade-offs must be thoroughly considered, including how the burdens are to be shared.
And tell people the truth, as harsh as it is.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
Published: Sunday | July 19, 2009
The administration's coy statements notwithstanding, it is almost forgone that Jamaica is heading into a borrowing relationship with the International Monetary Fund (IMF). The deed is nearly done.
Our suggestion, therefore, is for the administration to end its disingenuous rhetoric and engage the Jamaican people in serious conversation about the economic crisis and the hard choices to be faced, with or without a credit facility from the fund. We do not mean a one-off address by Prime Minister Bruce Golding or Audley Shaw, the finance minister, but an ongoing dialogue
Prime Minister Golding signalled last week that he might be close to such an engagement when he warned at a town-hall meeting in Ocho Rios that the fiscal fallout from the global recession mandated a level of discipline to which the country was unaccustomed.
"If you set your targets and you do not meet them, other adjustments have to be made in order to get back on track," he said.
What neither the prime minister nor any other member of the administration has yet done, at least with the necessary clarity, is outline targets being demanded by the IMF - and which the Government believes are required to put the economy back on track - in exchange for an estimated US$1.2 billion of IMF credit. It has seeped out, however, that a prime concern of the IMF, and apparently, the central government, is the high interest rates being maintained by the Bank of Jamaica. This, seemingly, is an issue of policy contention between Finance Minister Shaw and the central bank's governor, Derick Latibeaudiere.
The public, we believe, ought to be brought into this conversation. This full and frank discussion must address the trade-off between narrowing the public-sector deficit, addressing the current account gap, managing inflation and maintaining exchange-rate stability.
High interest rates do come at a serious economic cost. They are disincentives to private-sector borrowings, and, therefore, an impediment to investment, growth, job creation and the generation of the surpluses from which governments get the taxes with which to fund their operations. This crowding out of the private sector by governments that are willing to pay expensively for money, allows them space to be inefficient and to postpone the hard choices. In Jamaica, for instance, we continue to operate a bloated, and, ultimately, unaffordable, public sector, but are unwilling to reform, for fear of the political backlash.
One consequence of this failure to act is a public debt of 114 per cent of GDP, the servicing of which requires around 60 per cent of the national budget.
At the same time, the high cost of money has allowed for a relatively stable exchange rate by artificially depressing demand for foreign currency. This relative stability moderates capital flight and, in the context of an open, import-dependent economy, provides a buffer against debilitating inflation, whose effects are felt disproportionately by the poor.
The bottom line: there are no easy options; all are painful. Before any policy is jettisoned and/or embraced, the trade-offs must be thoroughly considered, including how the burdens are to be shared.
And tell people the truth, as harsh as it is.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.