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Dr Hughes changes teams from PIOJ to Ministry of Finance
BY KEITH COLLISTER
Wednesday, August 19, 2009
In what appeared to be his last presentation as director general of the Planning Institute of Jamaica, Dr Wesley Hughes used a football analogy Monday to deflect questions on his planned "transfer" from the PIOJ to permanent secretary in the Ministry of Finance.
KEITH COLLISTER
Hughes revealed, meanwhile, that Jamaica's real GDP had declined by 3.9 per cent in the second quarter (April-June 2009), the sixth consecutive quarter of decline. The decline was due to the impact of the ongoing deterioration of the global economy, and was driven by both the goods-producing and service-providing industries, which fell 10.5 per cent and 1.6 per cent, respectively.
Unsurprisingly, mining and quarrying were, once again, the main contributor to the downturn in the goods-producing industry, with a significant 62.5 per cent reduction, primarily due to the closure of two of the country's three aluminium plants. Alumina production fell by 63.6 per cent and crude bauxite saw a drop in production of 52.7 per cent.
Hughes noted that other goods-producing industries also recorded declines, with construction down 3.8 per cent and manufacturing down 4.1 per cent.
The only exception was agriculture, the star performer for the quarter, which continued to show improvement with an increase of 9.2 per cent. Hughes noted that "growth in this sector is now more than mere recovery" from the effects of Hurricane Dean and Tropical Storm Gustav. He argued that with onion production up 228 per cent, potato production up 127.6 per cent, and carrot production up 62.3 per cent, the Ministry of Agriculture's Productivity Programme was showing results. Increased output was also recorded for other agricultural crops (up 19.4 per cent); animal farming (up 1.3 per cent); and fishing (up 9.1per cent).
Declines in transport, storage and communication, down 9.1 per cent, and wholesale and retail trade (down by how much???), repair and installation of machinery, down two per cent, were the main contributors to the fall in the performance of the services industries. Improvements were recorded, meanwhile, for hotels and restaurants, up 3.9 per cent, electricity and water supplies, up 1.2 per cent, and finance and insurance services, up 0.8 per cent.
Fiscal deficit: the key macroeconomic problem
The fiscal deficit of $35.9 billion that he reported for the quarter would have been of even more interest than usual to Hughes, in view of his upcoming role as the nation's chief financial officer. This deficit was $4.1 billion higher than budgeted, with revenue coming in $7.7 billion lower than programmed, only partially offset by a reduction in expenditure, which was $3.7 billion below budget. Significantly, in his usual understated manner, Hughes noted that "This trend in the fiscal numbers continued after the end of the quarter and indicates the need for significant adjustment before too long".
His former boss, opposition spokesman on finance and former finance minister, Omar Davies, has expressed doubt that Jamaica would meet the September deadline for submitting a letter of intent to the IMF unless a supplementary budget is brought before parliament soon. It would, however, seem almost impossible for a not yet installed Hughes to produce a supplementary budget before Parliament's summer break ends, suggesting Parliament will not be recalled before September.
Jamaica's re-engagement with the IMF
While Cabinet is supposed to have discussed the proposed Stand-By Arrangement with the IMF on Monday, this agreement will be another critical area with which Hughes will need to become even more heavily involved in his new job.
It is worth looking again at the environment facing Hughes in helping to guide Jamaica's renewed application to the IMF.
The IMF has increased the resources it makes available for lending, including through the liquidity it is providing by way of the Special Drawing Rights (SDR) allocation. Jamaica's share of the SDR allocation is US $320 million, which will be added to our net international reserves in September. The IMF is now close to the goal set by the G-20 in April to triple its available funds to $750 billion from $250 billion, so there is no danger of it running out of money before Jamaica's application is finalised. This suggests Hughes would be well advised to not rush the IMF negotiations, but instead get it right.
As part of its recent revamp of lending programmes, the IMF is streamlining its conditionality terms, and doing away with structural conditionality. Structural reforms will still be encouraged and monitored, but will not be treated as performance criteria. This avoids a country, such as Jamaica, having to apply for waivers, removing the stigma that the country "didn't make it" in its reviews. This overhaul also extends to lending to low-income countries, where the IMF has boosted resources to US$17 billion over the next five years, doubled borrowing limits, and set more flexible terms and zero interest rates until the end of 2011. One of Hughes' jobs should be to make the case to the multilaterals for Jamaica to receive similar terms to those received by low-income countries. Jamaica should study closely the terms received by highly indebted
Caribbean countries such as Guyana.
The IMF has also stated its intention to protect social spending, with new programmes designed to ring-fence social spending, or in some cases even increase it. This will be particularly relevant to Hughes in view of the prime minister's stated goal of protecting spending on health and education from any proposed budget cuts.
Finally, as Hughes would no doubt recognize, when the IMF publicly tells rich countries to increase spending, while enforcing fiscal tightening on emerging economies, it is not being inconsistent, at least in the case of highly indebted Jamaica. As IMF(?) Managing Director Dominique Strauss-Kahn made clear in his visit to Jamaica late last year, not everybody can do it, as fiscal stimulus is needed from countries that have fiscal space.
Some countries (such as Jamaica) will need to carry out fiscal adjustments, and lending from the IMF and other sources is designed to make the process less painful, not more. It is also a positive overall for the global economy that those countries that do have fiscal space use it, as most developing countries will only benefit if the big engines of the world economy - the US, Germany, Japan, etc - start revving up again, as Hughes implied in his PIOJ presentation.
BY KEITH COLLISTER
Wednesday, August 19, 2009
In what appeared to be his last presentation as director general of the Planning Institute of Jamaica, Dr Wesley Hughes used a football analogy Monday to deflect questions on his planned "transfer" from the PIOJ to permanent secretary in the Ministry of Finance.
KEITH COLLISTERHughes revealed, meanwhile, that Jamaica's real GDP had declined by 3.9 per cent in the second quarter (April-June 2009), the sixth consecutive quarter of decline. The decline was due to the impact of the ongoing deterioration of the global economy, and was driven by both the goods-producing and service-providing industries, which fell 10.5 per cent and 1.6 per cent, respectively.
Unsurprisingly, mining and quarrying were, once again, the main contributor to the downturn in the goods-producing industry, with a significant 62.5 per cent reduction, primarily due to the closure of two of the country's three aluminium plants. Alumina production fell by 63.6 per cent and crude bauxite saw a drop in production of 52.7 per cent.
Hughes noted that other goods-producing industries also recorded declines, with construction down 3.8 per cent and manufacturing down 4.1 per cent.
The only exception was agriculture, the star performer for the quarter, which continued to show improvement with an increase of 9.2 per cent. Hughes noted that "growth in this sector is now more than mere recovery" from the effects of Hurricane Dean and Tropical Storm Gustav. He argued that with onion production up 228 per cent, potato production up 127.6 per cent, and carrot production up 62.3 per cent, the Ministry of Agriculture's Productivity Programme was showing results. Increased output was also recorded for other agricultural crops (up 19.4 per cent); animal farming (up 1.3 per cent); and fishing (up 9.1per cent).
Declines in transport, storage and communication, down 9.1 per cent, and wholesale and retail trade (down by how much???), repair and installation of machinery, down two per cent, were the main contributors to the fall in the performance of the services industries. Improvements were recorded, meanwhile, for hotels and restaurants, up 3.9 per cent, electricity and water supplies, up 1.2 per cent, and finance and insurance services, up 0.8 per cent.
Fiscal deficit: the key macroeconomic problem
The fiscal deficit of $35.9 billion that he reported for the quarter would have been of even more interest than usual to Hughes, in view of his upcoming role as the nation's chief financial officer. This deficit was $4.1 billion higher than budgeted, with revenue coming in $7.7 billion lower than programmed, only partially offset by a reduction in expenditure, which was $3.7 billion below budget. Significantly, in his usual understated manner, Hughes noted that "This trend in the fiscal numbers continued after the end of the quarter and indicates the need for significant adjustment before too long".
His former boss, opposition spokesman on finance and former finance minister, Omar Davies, has expressed doubt that Jamaica would meet the September deadline for submitting a letter of intent to the IMF unless a supplementary budget is brought before parliament soon. It would, however, seem almost impossible for a not yet installed Hughes to produce a supplementary budget before Parliament's summer break ends, suggesting Parliament will not be recalled before September.
Jamaica's re-engagement with the IMF
While Cabinet is supposed to have discussed the proposed Stand-By Arrangement with the IMF on Monday, this agreement will be another critical area with which Hughes will need to become even more heavily involved in his new job.
It is worth looking again at the environment facing Hughes in helping to guide Jamaica's renewed application to the IMF.
The IMF has increased the resources it makes available for lending, including through the liquidity it is providing by way of the Special Drawing Rights (SDR) allocation. Jamaica's share of the SDR allocation is US $320 million, which will be added to our net international reserves in September. The IMF is now close to the goal set by the G-20 in April to triple its available funds to $750 billion from $250 billion, so there is no danger of it running out of money before Jamaica's application is finalised. This suggests Hughes would be well advised to not rush the IMF negotiations, but instead get it right.
As part of its recent revamp of lending programmes, the IMF is streamlining its conditionality terms, and doing away with structural conditionality. Structural reforms will still be encouraged and monitored, but will not be treated as performance criteria. This avoids a country, such as Jamaica, having to apply for waivers, removing the stigma that the country "didn't make it" in its reviews. This overhaul also extends to lending to low-income countries, where the IMF has boosted resources to US$17 billion over the next five years, doubled borrowing limits, and set more flexible terms and zero interest rates until the end of 2011. One of Hughes' jobs should be to make the case to the multilaterals for Jamaica to receive similar terms to those received by low-income countries. Jamaica should study closely the terms received by highly indebted
Caribbean countries such as Guyana.
The IMF has also stated its intention to protect social spending, with new programmes designed to ring-fence social spending, or in some cases even increase it. This will be particularly relevant to Hughes in view of the prime minister's stated goal of protecting spending on health and education from any proposed budget cuts.
Finally, as Hughes would no doubt recognize, when the IMF publicly tells rich countries to increase spending, while enforcing fiscal tightening on emerging economies, it is not being inconsistent, at least in the case of highly indebted Jamaica. As IMF(?) Managing Director Dominique Strauss-Kahn made clear in his visit to Jamaica late last year, not everybody can do it, as fiscal stimulus is needed from countries that have fiscal space.
Some countries (such as Jamaica) will need to carry out fiscal adjustments, and lending from the IMF and other sources is designed to make the process less painful, not more. It is also a positive overall for the global economy that those countries that do have fiscal space use it, as most developing countries will only benefit if the big engines of the world economy - the US, Germany, Japan, etc - start revving up again, as Hughes implied in his PIOJ presentation.
