EU partial financial fixes and Jamaican growth woes

This week it's Ireland's turn. Private investors doubted the Irish economy's capacity to generate growth, taxes and wherewithal for the government to service its debt. Interest rates demanded for purchase of sovereign debt in the bond market were punishing.

Today, the markets behave as if they expect, very shortly, it will be Portugal's turn. Its most recent bond sale required just over five per cent to clear.

The semi-bailout arrangements of European Union (EU) lending to national banks, that then lend to government are but a stopgap measure providing only so much breathing space.

For Ireland, social unrest threatens the very recovery the International Monetary Fund (IMF) and EU bailout is meant to foster. The question is, why? Just a few years ago, Ireland was being touted as a model to follow. Income and employment were rising, real-estate market booming with banks tumbling over each other to get a slice of the action.

The bubble burst. The United Kingdom government rescued the two British banks that were burnt. The problem with these bailout policies, now made more punishing for the Irish people by IMF and EU requirements for austerity measures, is their transparently obvious 'unfairness'.

The people demonstrate because they see the fact of private gain when the going is good, but public loss and sacrifice when financial-sector decisions turn out to be wrong.

Workers, who never got a big piece of the action in the first place, lose jobs and benefits. Financial-sector stakeholders, on the other hand, walk away unscathed with their pre-crisis gains intact. We come face to face with the fact that the scenario is such that it can topple a government.

On the brink of default

Jamaica has, for decades, tottered on the brink of default. We avoided harsh cutbacks in government expenditure and brutal austerity measures purely because of the Jamaica Debt Exchange (JDX).

JDX, essentially, is a form of default, albeit an agreed arrange-ment in which lenders accept terms less beneficial than originally agreed and contracted. It is a JDX scenario the EU does not want for its members, hence the limited options confronting Ireland and Portugal.

The UK claims it has policies in place that will preclude another meltdown similar to the one its banks and building societies experienced recently. It is likely that the Irish will propose and implement changes to their financial-services legislation and make the same claim as the British, once this crisis period is over.

We, in Jamaica, having gained a bit of fiscal space in the Budget, have once more embarked on efforts to encourage growth. We propose to study the Brazilian 'miracle' for possible 'best-practice' initiatives to emulate.

I suggest that Jamaica's inability to achieve at its obvious capacity results from 'winner-take-all' politics, garrisons and links between informal, under-world or criminal activities providing resource transfers to significant slices of our population with no work effort or output created in return. These mechanisms provide stability for sections of the country and population.

The cost, effectively hidden, is unrealised creative and potentially growth promoting resources and generated surpluses - wasted expenditures on free transfers dictated by political requirements.

Need we look any further than our recent experience with our attempts to carry out our extradition treaty requirements? And, if in a small economy like Jamaica a good half of the intellectual and technical capacity of the country's human resource is left out to pasture as a result of the 'winner-take-all' political syndrome, can we think that the Brazilian miracle will offer us much to emulate?

If it offers a mechanism to delink politics from crime and use our technical and managerial capacity optimally, we might have learnt much.

Whether we can implement what is required to do these things, I submit, is an entirely different matter.

Wilberne Persaud, Financial Gleaner Columnist

wilbe65@yahoo.com