EDITORIAL - Economic schizophrenia

Peter Phillips must feel that he is dealing with a bunch of schizophrenics. Nine months ago, he was under pressure for failing, after a year on the job, to conclude an agreement with the International Monetary Fund (IMF).

Now, he is facing a revolt of sorts for having an agreement with the Fund. Or, more to the point, for, by and large, keeping to the terms of the agreement. Worse, much of the complaining is being done by significant voices in the private sector.

It is worth reminding ourselves why Jamaica has an agreement with the IMF: irresponsible and sometimes reckless fiscal behaviour in the past by our Government.

In the absence of economic growth, Jamaican administrations borrowed to spend and to pay off debt. It was, in a sense, like operating a Ponzi scheme, from which we racked up a debt of J$1.8 trillion, or one and a half times the value of the goods and services Jamaicans produce annually.

Our bad habit finally caught up with us.

In the current fiscal year, the Government, despite restructuring the domestic portion of its debt, projects that it will have to spend J$316 billion to service - interest and amortisation - the obligation. That is 78 per cent of all projected revenue and 88 per cent of what was expected from taxes.

After servicing the debt, what would be left from the projected revenue would be sufficient to cover a mere 58 per cent of the wage bill, notwithstanding the freeze on the salaries of public-sector workers. So, the Government has to borrow some more.

Not Many Willing Private Lenders

Only now, there are not too many willing private lenders, and those who would be willing to advance cash to Jamaica want a significant premium on their cash. Multilateral institutions that are willing to provide the needed cushion are insistent on fiscal discipline, monitored by the IMF.

Indeed, a critical element of the agreement with the Fund is that the Government must, this fiscal year, run a primary surplus of at least 5.7 per cent of GDP and to begin an aggressive overhaul and modernisation of the economy. Anyone who is a little bit perceptive would know that the programme would be painful.

As a prior condition for the agreement, the Government was forced to impose a J$19-billion tax package and start the process. The administration, in the face of lower-than-projected revenue, has had to clip expenditure to meet performance targets. It has also had to allow an overvalued currency to depreciate - so far by around 13 per cent. There is still much more to be done, including pension, public-sector and tax reform.

But in recent weeks there has been a rising crescendo, including from persons who were most vocal when an IMF agreement was not in place, against the bite of the policies. It would be irresponsible of Dr Phillips and the Government to change course in favour of the politically expedient. That would cause a return to the stop-start approach to economic management that has for too long been the bane of Jamaica.

It is important, we believe, for Prime Minister Portia Simpson Miller to begin to lead from the front on this issue, and for responsible people in the private sector to help bring rationality to the discourse.

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