EDITORIAL - Good start, but tough road for Dr Phillips

On the basis of his performance at his media briefing on Wednesday, it appears that Dr Peter Phillips has been able to assert command of the finance ministry.

Not only did he talk bluntly about the state of the public finances, but he spoke frankly about how tough it would be to put things right. In the process, he is likely to have been perceived by the money markets and the multilateral institutions as a man with whom they can do business - at least for now.

But the devil, they say, is in the detail. So, Dr Phillips' severe test is still down the road when necessarily tight fiscal discipline, which is the finance minister's remit, begins to collide with campaign promises and more narrow political interests.

What was significant about Dr Phillips' performance was his clear effort to contain demand. We all knew that the fiscal situation was bleak. Only, Dr Phillips says it's worse.

For example, tax inflows, running at six per cent, or $14.6 billion, behind projection for the first nine months of the fiscal year, are expected to maintain that trajectory. Overall revenue and grants are $25 billion, or seven per cent, below target.

Huge debt

Despite cutbacks in spending, the fiscal deficit is up to J$10 billion behind projection. In reality, though, the situation is worse. Given that the Government operates a bogus accounting system, it is able, for long periods, to keep arrears off the books, acknowledging them only when they are paid rather than when accrued. Against this backdrop, there is, the finance minister disclosed, a pile-up of more than J$12 billion in arrears on the recurrent account that will be rolled into the next fiscal year.

"This will result in significantly reduced capacity for new expenditures in 2012-13," said Dr Phillips.

The big drag on the Government's finances, of course, is the debt of more than $1.6 trillion. At 131 per cent of gross domestic product, that debt is unsustainable; or, as Dr Phillips put it, "a major impediment to growth". Indeed, servicing the debt, even after the restructuring of the domestic portion two years ago, will this fiscal year eat up more than J$220 billion, or more than 40 per cent of all government spending.

Destructive loan cycle

Clearly, the Government has to end this Ponzi scheme of borrowing, then borrowing some more to pay those it previously owed, with little to show for debt. It has to spend less and collect more revenue, even as it tries to stimulate growth, driven primarily by the private sector.

Dr Phillips again declared his commitment to tax, pension and public-sector reform and signalled that he left last weekend's retreat of the Government with full backing on these counts. What, however, is still lacking, are the specifics of these prescriptions and the Government's negotiating posture for a new agreement with the International Monetary Fund.

Having, thus far, spoken boldly, Dr Phillips has now to demonstrate that he is fully backed by the prime minister and that he has the will stand up to his colleagues.

He must see himself as the chief financial officer, watching closely every penny of expenditure. He should, by default, say 'no' and 'unaffordable' and make himself hard to be convinced otherwise.

And he must show that the job is his, whoever else is in the Cabinet and whatever jobs they might have held.

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