The unenviable task facing Dr Peter Phillips
Most of us now know that a stable macroeconomic policy, sustained over the medium term, is an essential component of an economic environment conducive to investment and growth.
The value of stability in economic policy is that it provides a predictable economic environment allowing for private sector planning of investment and production. Stable macroeconomic policies also contribute to economic growth by reducing uncertainty and risk in the business environment and can reduce vulnerability to external contagion by removing destabilising expectations.
Moreover, stable macroeconomic policy means that policy measures and instruments such as fiscal policy, monetary policy and exchange rate policy must be applied in a consistent manner and be complemented by institutions that facilitate market-driven growth.
This does not imply an immutable policy, but a regime where policy change is orderly so that economic actors, be they consumers or producers, understand the market forces and underlying rationale for the policy changes.
A general society-wide consensus on the goals, direction and pace is the foundation on which stable macroeconomic policy is based.
Fortunately, both major political parties seem to agree on the goals and direction of economic policy. Where the Opposition Jamaica Labour Party and the ruling People's National Party differ is on the pace and sequencing of policy actions. This is important because Jamaica's history reveals a direct relationship between economic growth and the public perception of differences of economic philosophies between the governing and the opposition parties.
The extent to which macroeconomic policy can be stable depends on exogenous factors, eg hurricanes and economic events such as escalation in oil prices. Not much can be done to prevent the adverse impact of external forces in a small, highly open developing economy such as Jamaica.
Another important external factor is the type and extent of support
from the international financial institutions (IFIs), in particular, the International Monetary Fund (IMF), World Bank and the Inter-American Development Bank.
This is a particularly pertinent factor at this time. The IFIs generously support the economic reform of the Bruce Golding Administration which imploded without finishing the course.
The Portia Simpson Miller Administration is committed to the same broad economic policy direction, but has inherited the same economic mess evident in the budget deficit and the national debt. The result is a hiatus, though Dr Peter Phillips is moving, with alacrity we are pleased to see, to maintain the flow of external funding.
The continued stability of macroeconomic policy depends on the IFIs maintaining a steady and consistent presence and continuation of financing. More than this, the IFIs must move quickly, and with flexibility, to help the new Government, as they helped the previous one, to maintain stable macroeconomic policy.
To achieve this objective, the IFIs must be active in providing resources in the next three to six months. Central to accomplishing this goal is the conclusion of an IMF agreement before the tabling of the 2012/13 budget in April/May of this year.
We believe that Dr Phillips has a solid understanding of this imperative.