EDITORIAL - Hard-earned confidence

Don Anderson, who conducts the surveys for the Conference Board, likes to begin any analysis of the latest business and consumer confidence report with the proviso that the last numbers proceeded from a low base.

Mr Anderson is, no doubt, right. But that doesn't invalidate the data, or, more important, the central message they hold for the Simpson Miller administration, in particular its finance minister, Peter Phillips: that they must stay the economic course.

Clearly, staying on the path isn't easy. For central to Jamaica's economic support agreement with the International Monetary Fund (IMF) is what, euphemistically, is referred to as fiscal sustainability. The Government, broadly, is being asked to live within its means.

DEBT PROBLEMS

The tricky bit is Jamaica's 140 per cent debt to gross domestic product (GDP), the servicing of which requires more than 40 per cent of the Government's Budget. When the debt is serviced and public-sector wages are paid, hardly anything is left to pay for the other basic goods and services Government is expected to provide. Yet, given the country's debt profile, few people are willing to lend more to Jamaica - at least not at rates we can afford. In any event, Government borrowing diverts from the private-sector capital that might otherwise have been invested to create jobs and grow the economy.

The ultimate solution to Jamaica's dilemma, in addition to other reforms, is reducing the size of the country's debt, which is the basis of the IMF's requirement of 7.5 per cent of GDP. But weaning the Government off excessive borrowing, and the fix that the official debt provides to an inefficient economy, is painful and, initially, contractionary.

It can, as was evident in the first year of Jamaica's programme with the IMF, sap economic confidence. But the first-quarter report of attitudes by businesses and consumers indicates Jamaicans are beginning to appreciate the merits of the reform.

With the confidence index up 20 per cent in the first quarter, Jamaican firms are their most optimistic in two years, and their outlook for the economy is 42 per cent better than at the end of December. Moreover, among surveyed companies, there was aN 11 per cent improvement among those who said their finances had improved over the past - an indication that, in difficult circumstances, firms have also been putting their fiscal houses in order, ultimately a better position to compete.

Growing confidence

Between the fourth and first quarters, the number of firms that believed it was a good time to invest remained unchanged at 49 per cent. It is significant that, year-on-year, the number of those who said it was a bad time to invest plummeted from 60 per cent to 42 per cent.

Consumers are not wildly upbeat, but are more confident that things may be headed in the right direction. In last year's first quarter, the index measuring their mood was the lowest in a decade. It was up in the first quarter by nearly 11 per cent, even though people still largely understood that we remain in dire straits.

The deeper appreciation, we think, is that options are limited and that the Government, under the tutelage of the IMF, is doing the right things. It would be a shame if the Government squandered the gains so painfully made.

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