Have we begun the journey back to the 1980s?


Sunday, April 22, 2018

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NO greater similarity exists between Jamaica's fiscal and monetary management in the 1980s under Prime Minister Edward Seaga and now under his protégé Prime Minster Andrew Holness than now.

The action, more than anything else, which has imported this comparison is the intervention of the Bank of Jamaica (BoJ), since November 2017, in the foreign exchange market — occasioning a 4.5 per cent revaluation of the Jamaica dollar in relation to the benchmark United States dollar.

Bearing in mind that the US economy presently is one in which the percentage rate of inflation is lower than that of Jamaica, this artificial revaluation of the Jamaica dollar in late 2017 flowing into 2018 has come amidst the continuing tepid and anaemic growth in the Jamaican economy.

As we witness this drama of a stagnant economy with a negative trade deficit ratio of every one billion dollars of export from the country, there is $4.5 billion of imports, so the justification of the arbitrary manipulation of the exchange rate by the Central Bank becomes quizzical. The classical economic understanding between exchange rate and economic performance is that a country's currency value in relation to its trading partners, in terms of its production or the lack thereof, determines and ought to dictate its currency value. In other words, money is useful in facilitating the exchange of goods and services in contrast to the previous system of bartering. But money is of no value unless it is backed by the production of goods and services within an economy. And the evidence of this truism has an appropriate reference in our most powerful neighbour to the North — the United States of America.

In 1929 during the Great Depression the economy of the USA crashed, the result of which had deleterious effects not only on the domestic, economic, social and political situation in the USA, but extended worldwide with Jamaica caught in the vortex of this burdensome global challenge.

With the collapse of the United States economy in 1929, the value of its currency took a precipitous slide and in short order people walked past the US dollar on the streets and used the money as wallpaper in their homes … it being useless in the face of a non-productive, depressed economy. It was arising from those experiences that John Maynard Keynes, with his theories in Demand Side Economics, influenced the programme of the “New Deal”, with the economic fundamental of consumption becoming recognised as the catalyst for the circularity of economic activities.

For indeed, without consumption there is no need for production, and without production there is no need for employment and investment. This interplay of the factors of production is independent of political ideologies or philosophy. The economic law of supply and demand and its impact on prices is universal, regardless of political models of democratic liberalism or totalitarianism (communism). Additionally, each country has had its peculiar experiences in its march to achieve economic viability and social harmony… the primary objectives of all nations in a word happiness, or the search for it.

Jamaica is no exception in this regard. Yet, our economic management has taken a turn in fairly recent times and is returning to the very scenario that we have longed passed in the 1980s, with all its compelling lessons, pains and unprecedented pressures on our citizens. For the benefit of our young people and those who have forgotten that period I will revisit same, so that there is greater clarity about what happened under Prime Minister Edward Seaga of the Jamaica Labour Party.

This article is not a get at Eddie Seaga exercise but a continuation of my attempt to purge our social, cultural, economic and political history of lies, half-truths, omissions, embellishments and the general dishonesty so commonplace in the reportage and recording of this history. In short, too much of our history — oral or written — simply lacks integrity, and the political period of the 1980s is no exception.

I feel quite justified in writing about the facts of the period referenced, as I recall and saw it. I do so dispassionately and objectively. I was the first mayor of the city of Montego Bay, JLP councillor for 13 consecutive years for the Rose Hall Division in the parish of St James; regional supervisor (Western Jamaica and Ocho Rios) for the Bustamante Industrial Trade Union and that union's spokesman on tourism; lecturer in Caribbean trade union history at The University of the West Indies' School for Continuing Studies (western Jamaica); the Jamaica Maritime Institute and the Jamaica Tourist Board visitor information section, Montego Bay area; visiting lecturer in the History and Social Science Department at Northern Caribbean University, Mandeville, Manchester.

Later on, I was host of the RJR programme aired from Montego Bay called the Western Response, produced by veteran journalist and broadcaster Marlene Stephenson Dalley.

I have been a political analyst for multiple media platforms for over 33 years here in Jamaica and occasionally for the British Broadcasting Corporation (BBC Radio).

I have also been a retired businessman in tourism since 2006. All this to most humbly make the point that I was and have indeed been in the thick of things from back then, and that I have always loved my country and its people who have done so much for me, even as I make my unqualified contribution to it. And so I am continually grateful. That is why I write particularly for succeeding generations including my own dear grandchildren.

What I have been hearing about this period of the 1980s and the impression that the narrative conveys is not only a steep stretching of the truth of what transpired but the misleading of the young people in particular is of concern to me and therefore I am compelled to act.

Eddie Seaga's total political life did not begin and end with this period of the 1980s while that period is the focus of this article. Overall, there are some positives to Seaga's political life, which have been amply recorded in many places including works such as the production of books by him.

Considered by some to be a bright man, Seaga has played no small role in the institutional building of this nation and I admire him for not being a politician who sought to feather his political nest financially as far as it appears. Some people would trust him to keep their dollar. But he also was far from being a saint and that side of his personality, political activities and utterances continued to make some people feel uncomfortable and his 'tit for tat' policy made others cringed.

To now hear all the nonsense being peddled about the period of the 1980s just won't cut it and I will not allow the purveyors of the rubbish to have a field day uninterrupted, and taking more than a cruel advantage of those who have forgotten, those who were too young to recall and those who were born after this period. This article is dedicated to them especially as my contribution to their clarity relative to our political history in particular.

It is not intended to be an anti-Seaga article but pro-political historical facts about a specific time in our journey as a nation.

The two oil price shocks of 1973 and 1979, the previous decade, coupled with the programme of economic destabilisation … later publicly acknowledged by the United States of America ... incorporating the flight of capital and massive closure of businesses and loss of jobs amounted to the monumental damage to the tune of some 30% loss of the GDP of the Jamaican economy.

By 1976 the BoJ ran out of reserves completely … reflecting a negative balance, which lasted for the next 20 years ending in 1996. This is the hand that Seaga was dealt. Public sentiments by now were at an all-time low. The Jamaican economy was upended.

Instead of hope and change the Jamaican people moped and scringed. Life became nightmarishly difficult. And questions began to be asked of Eddie Seaga whether he was engaged in pursuing an economic plan instead of an economic scam.

The outflow of capital due to expenditure for imports and investments migration put pressure on the Net International Reserves (NIR) at the Bank of Jamaica.

Any claim therefore that the 1980s was a period of progress is one of aggravated dishonesty. Externally, the serious tensions in the world - Iran Revolution in 1979, Iraq/Iran War in the 1980s, the continuing conflict and tension associated with the Arab/Israeli War in 1973 in the previous decade precipitated contortions and distortions, and reconfiguration on and of the structure of the Jamaican economy in the 1980s.

Seaga lost control and became more of a reactive functionary rather than proactive and transformational leader who responded to the challenges of the crises with abrasiveness, insults and threats against the Jamaican people. In 1980 when Seaga came to power the Jamaica's debt to GDP ratio was 63%. The debt ballooned to 262% of GDP in 1989 an increase of 315.8% in Jamaica indebtedness in nine years of the JLP/Seaga “stewardship”. Any single digit growth in the economy in the face of the growth in debt was of no particular significance and consequence. In addition, the source of minimal growth was due to oil price falling in 1986 and beyond ….not due to any slew of promised successful investment projects apart from sweat shop jobs in the garment industry.

Workers were paid J$1,200-J$1,500 per week - the equivalent of US$30 per week and the JLP Government had an agreement with the “807” American garment manufacturers that the free zones in which they operated were off limit for workers to be unionised. In any case, economic growth means nothing unless people benefit from such growth whether it is “5 in 4 or 9 in 1”…. such growth must be accompanied by equity. That was the problem with the 'robust growth' in the 1950s and 1960s resulting in acute polarisation of income accompanied by widespread social alienation and bitter social discontent.

The Opposition PNP led by Michael Manley was catapulted to power in February, 1972 on this wave of mass political resentments, grievances and societal mistrust … holding aloft his “rod of correction” and promising that “Better Must Come”. The conditions of the 1980s, when truthfully told, says it all… even to the least discerning. It was very, very rough here in Jamaica.

David Rockefeller, who came to “turn Jamaica into the Singapore of the Caribbean” withdrew from Jamaica in less than five months of his engagement following several disagreements with Seaga.

Most ironically, the flight of capital occasioned by the destabilisation of the Jamaican economy in the 1970s continued under Seaga with Exxon Mobil, for example, the principal oil refinery pulling out of Jamaica.

The gas station lines were long and uncomfortable as people who had urgent business to attend to, were locked in gas lines for hours.

Gas demonstrations bringing traffic to a standstill across the country were commonplace with the 1985 gas riots, crippling further an already dismal affair in the country.

The flashpoint of the riots was due to gas tax increases by Seaga in the midst of falling oil prices globally which saw the USA, among other countries' prices at the pump declining, while in Jamaica the price at the pumps were rising exponentially.

The people took to the streets, all this while Seaga's posture and attitude were of total indifference and political impregnability.

But he was wrong again. Life in Jamaica began to make no sense. Migration and brain drain gained momentum. The major bauxite companies also pulled up stumps and left the country.

From 1980 to 1983 the JLP Government under Seaga failed a minimum of four IMF tests. Seaga announced to the nation that his Government had passed these tests but the IMF went public and rebutted him. The PNP's Dr Paul Robertson called on Seaga to resign for lying to the Jamaican people. Seaga called a snap election in 1983. The PNP did not contest it and so the JLP had all 60 seats in the Parliament and 21 in the Senate.

With no Opposition in Parliament Seaga began to wield indiscriminately the tax axe earning the nickname 'Papa Tax', and the axe was wielded on several Government institutions occasioning redundancies and dismissals. Over 18,000 public sector workers lost their jobs.

The dismantling of the structures of the Local Government system begun in earnest with the Parish Councils' only responsibilities being to manage markets and cemeteries with no funds and the only duty left for mayors to perform without authority of the Minister of Local Government was that mayors could approve the exhuming of dead bodies.

Then KSAC Mayor Coleen Yap was on Half-Way-Tree Road travelling to her office when she heard breaking news on RJR that the KSAC was abolished by her own Government.

Duckenfield and Gray's Inn Sugar Estates were closed.

Moneague Teachers' College and the Jamaica School of Agriculture were closed.

The auction system was introduced where those who wanted foreign exchange to conduct business could apply to the BoJ twice per week on Tuesdays and Thursdays with the certainty of applicants getting less than their needs.

Regular Jamaicans travelling abroad on vacation were allowed US$56 and that must get approval from the BoJ.

The black market's rebirth gained massive momentum and became more deeply rooted within the economy.

Businessmen with overseas creditors began having problems to receive credits as they could not pay their bills on time due to the scarcity of foreign currency in the island.

People with medical emergencies had to wait until funds were available at the Central Bank. Some people died while waiting on the system to afford them the opportunity to travel abroad to get well.

Things got so bad at the BoJ that in 1985 a shipload of crude oil arrived in the Montego Bay Harbour but the captain refused to unload the oil until he received payment from the JLP Government.

After a successful effort of the JLP Government begging private citizens to pay its bill the BoJ was able to draw a cheque to pay the cargo ship's captain his money. He unloaded the crude oil and left Jamaica's shores.

Several hospitals were either closed or downgraded including Ulster Spring, Spaldings, Alexandria, Port Maria, and listed to be downgraded included Annotto Bay, Lucea among others. The Community Health Aid programme was abolished.

During all this the exchange rate was artificially held for close to nine years — 1980 to 1989 at J$5.50 to US$ by the Bank of Jamaica, but it made no positive difference in the lives of Jamaicans.

It was during this period that a dramatic and massive increase of the flow of people, particularly lower paid redundant Government workers (weekly, task, and daily paid) flooded the streets across the country buying and selling for survival. These hordes of people who began to occupy the sidewalks of our streets, as vendors were the victims of downsizing, rightsizing and re-engineering policies pursued by the Seaga regime.

Today those numbers have only increased exponentially to seemingly a point of no return. We do not have to live in the past but it is a good place to visit.

So those of us who remember that the private sector came out publicly congratulating and offering support to work with Eddie Seaga's programme of the artificial manipulation of the exchange rate should remember that prices on goods and services were never reduced, rather they saw dramatic increases, even with a “stable dollar”, and capital flight (money outflow) from Jamaica further crippled the country.

The political consequences were horrendous, in that Eddie Seaga was defeated in consecutives general elections in 1989, 1993, 1997, and 2002. He resigned as leader of the JLP and began his homeward journey. Those “happy days” are here again inching and creeping onwards to where we were in the 1980s but immersed and marinated in a heavy dose of public relations stunts and gimmickry. And one in which prices on fuel, food and medicine particularly, are not falling for the Jamaican consumer while poverty by the Government's own announcement and admission … is rapidly increasing amidst public concern being expressed by the International Monetary Fund (IMF).

The traditional middle class is in panic mode but in silence (I will revisit this soon).

Three people posing under the Jamaica Coat of Arms at Jamaica House with crossed hands and collectively 27 outstretched fingers do not grow an economy. But one thing nobody can accuse this Government of is that of being a lazy bunch, however. They are trying and so was Eddie Seaga, albeit overtaken by insurmountable challenges. So we will see.

In the meantime, buckle your seat belts as oil prices continue to rise globally and our major trading partner, the USA, begins to raise benchmark interest rates.

Forty per cent of Jamaica foreign debt, denominated in US dollars with the IMF, is pinned to a variable interest rate.

The USA in the meantime has just announced a 35% reduction in the budget in aid package for the Caribbean region, which undoubtedly Jamaica will be hard hit, particularly in the areas of health, education and security.

Clearly, the table is spread for domestic inflation, with all its negative economic implications, to rise dramatically. So no one ought to be kept in the dark through political flight of fancy occasioned by skillfully crafted high-tech public relations tactics and stunts. This will not suffice nor survive. And if in any doubt, ask former Prime Minister Eddie Seaga.

The country has been here before. But let's sincerely hope for the good of our country that that the recent Cabinet shuffle will make a difference. The new Minister of Finance, Hon Nigel Clarke has begun to give out some right sounds.

I still believe the Hon Audley Shaw should have been placed in the Ministry of Foreign Affairs and Foreign Trade. But the Prime Minister knows more than us who are looking in from the outside and it is his call to make.

I wish our country well going forward. It is about time. However, the Bank of Jamaica Governor, Mr Brian Wynter's latest announcement relative to how the BoJ intends to deal with the management and motoring of the daily foreign exchange rate going forward demands attention, observation and analysis. This I will look at in short order against the background of the country's burgeoning negative balance of trade: The crux of our foreign exchange problem.

Will the new Minister of Finance work the miracle?






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