Jamaicans living in fool's paradise
JAMAICANS have been living in a fool's paradise created by both People's National Party (PNP) and Jamaica Labour Party (JLP) administrations for many years now. The governments at various times gave the impression that the economy was doing well when the opposite was true.
The majority of the people have been living on that false premise because successive governments failed to reveal the truth about the state of the economy for political reasons. Neither Prime Minister Portia Simpson Miller nor Finance Minister Dr Peter Phillips seems to appreciate that the Jamaican people are entitled to the full details of the negotiations because ultimately they would have to pay the high price.
There is a lack of transparency, especially as regards meeting targets set in the International Monetary Fund (IMF) agreements. Dr Phillips, like his predecessor, Audley Shaw, has not been forthright with the people that he failed to provide full details of the Prior Action Requirements demanded by the IMF. I requested the information from him but he did not have the decency to respond to my request.
Jamaicans do not seem to realise that they are living mostly on borrowed money that must be repaid. It is borrowed money that is used to support the annual budget and to do a lot of other things which, on the surface, make us look rich and prosperous when indeed it should be our own funds. The façade is impressive: an abundance of high-priced SUVs and top-line motor cars and mansions on the hills, valleys and plains. Underneath all this is a weak economy dependent to a large extent on loans. Meanwhile, poverty and crime are gnawing at the belly of the nation.
GDP debt ratio staggering
Debt is running at 140 per cent of the Gross Domestic Product (GDP) and consumes 60 per cent of our annual budget in repayment of loans. The GDP is the value of all goods and services produced in Jamaica. The Statistical Institute of Jamaica points out that the Jamaican economy declined by 0.2 per cent during the third quarter of 2012 when compared to the similar quarter of 2011.
The truth is that Jamaica is not producing enough goods and services to pay for the voracious lifestyle of the middle and upper classes. Our loan programme is unsustainable and very soon we may not be able to get loans except under stiff conditionalities, like those now being laid down by the IMF.
The IMF is acting like any other bank in basing a loan on the client's financial strength and ability to service the loan. If the client is in a weak financial position like Jamaica now is, the terms of the loan will be harsh or not made at all. I often refer to my own experience in this regard.
I had loans from my bank to finance the university education of my two children. I wanted to buy a house at the same time so I applied to my bank for another loan. "Not a cent more," the loan officer told me.
When a country has 60 per cent of its income servicing debt, a fiscal deficit, the difference between what the Government earns and spends, running way over the safe zone of three per cent and one of the lowest productivity rates in the region, it is time for the people to stand up and take stock. Well, the IMF wants radical changes on how we manage the economy in critical areas.
The agency wants action before the agreement is signed and this is a harsh condition the agency is setting. The IMF is saying, as I interpret it, set your house is order prior to any agreement to avert the possibility of you returning for any adjustment. IMF or no IMF, there are certain things that must be done, even if they bring hardship on the people.
For example, tax waivers have to end. How can a country on the brink of bankruptcy give up any taxes? Taxes have to be increased, especially on those who can pay.
The most critical requirement, to my mind, is a cut in the public sector wage bill, which is not in tandem with the GDP, meaning that the country is not producing enough goods and services to warrant such a high wage bill. The answer, therefore, must be a reduction in the number of public sector employees.
The country needs a smaller, tighter and more efficient public service. However, this Government has shown a reluctance to take tough measures because of political fallout. Prime Minister Portia Simpson Miller has said she has no intention of talking herself out of office.
Economic uncertainties cause drop in interest rates
It may be recalled that in the 1980s Prime Minister and Minister of Finance Edward Seaga had the guts to cut the public service by nearly 30,000, which resulted in significant economic improvement, but which many believe cost him the 1989 general elections. Many Jamaicans did not fully grasp the critical importance of Seaga's move and not enough public education was done.
Apart from reducing the wage bill and increasing taxes, there are other things that must be done, IMF or no IMF. The tax collection system will have to be improved. There are too many people and businesses evading their obligation to pay taxes. The revision of the public service pension, not only in respect of making workers contribute, but also to increasing their pensions, is critical and should be speeded up.
The prime minister's new year broadcast to the nation came under heavy criticism because she failed to deal with the economic problems which Jamaica is facing and the IMF negotiations. Otherwise, I thought her address was inspirational in parts.
The delay in straightening out our economic affairs has led to a reduction of interest rates on the money markets. This has resulted in hardship for people who invested their pensions in the markets and live off the interest. The interest rate on investment in one money market firm was reduced from five per cent per annum to 4.85 per cent. When investors questioned the reduction they were told that it was caused by the economic uncertainties. I thought it was exploitation of a bad situation.
Ken Chaplin is an inductee in the Press Association of Jamaica Journalism Hall of Fame for long and distinguished service to the field of journalism.