Phillips focuses on team, targets and IMF talks

Lavern Clarke, Business Editor

Under pressure to reboot Jamaica's stalled economy, and having a mere three months to pull together a budget, Peter Phillips says he is in no hurry to change the economic team he inherited from Audley Shaw.

"I don't start out with a determination to change," Phillips, the new finance minister, told Wednesday Business on Saturday, the day after he was sworn in to assume the new government's key economic portfolio.

"I start out more with a determination to build teamwork and to get the job done," Phillips said.

"The tasks and challenges that are before us and the country are so great that I have no intention of beginning with a witch-hunt or house-cleaning mentality ... In time, if significant changes are needed, I will make them."

Phillips, however, did not expressly rule out a role for former central bank governor, Derick Latibeaudiere, who Omar Davies, the finance minister in last People's National Party (PNP), had indicated would find a place in the new administration.

Latibeaudiere was fired by the Jamaica Labour Party administration, ostensibly over a contract that was claimed to have been too generous. But it later emerged that there were also policy and personality differences with Shaw.

Phillips said he would not speak now on his prospective advisers, but acknowledged having discussions with Latibeaudiere, and others whose counsel he sought as shadow finance minister.

He said he has known the central banker for years, extending back to their school days.

The team he retains - Financial Secretary Dr Wesley Hughes, Bank of Jamaica Governor Brian Wynter, and Planning Institute of Jamaica director general Dr Gladstone Hutchinson - were all installed in their current positions under the Golding administration.

But, as Phillips notes, all three are seasoned professionals who have also worked with PNP administrations.

"I am going to move systematically in putting together a team," he said in reference to his inner circle, so as not to spook the capital markets.

The minister said he would not be inclined to switch talent now in the midst of preparations to negotiate a new International Monetary Fund (IMF) agreement amid talk of a potential role for Latibeaudiere; and that were he to need advice, he would rely on the boards that he appoints.

The finance minister said he hopes to chart a budget that is based on a new deal with the IMF and a different set of medium-term economic targets.

"I hope that we can conclude an agreement with the Fund to influence the next budget," he said, "but I can't presume we will without engaging in the discussions."

Jamaica's economic team will soon be shuttling between Kingston and Washington for meetings with technical fund staff, ahead of a visit by an IMF mission at monthend, according to Phillips.

Contact has already been made, the finance minister said, even as he nixed the idea of keeping the current US$1.27 billion 27-month Stand-By Agreement (SBA) as a fallback position, arguing that time had run out on that programme.

There has been "no substantive engagement between Jamaica and the Fund" for more than a year, and the period of scheduled performance reviews or tests have elapsed, he said Saturday.

The Fund appears willing to work with the new Government on its priorities.

Wynter, who was hired at the tailend of 2009, in time to help finalise the IMF deal launched in February 2010, has since maintained a low interest rate regime in which he has eliminated all the BOJ's open market securities with the exception of the one-month tenor, and has cut policy rates on that instrument to 6.25 per cent from 12.50 per cent.

Latibeaudiere had reportedly been reluctant to be as aggressive in cutting rates, but the administration in cutting him loose cited his compensation as cause.

Phillips said Saturday that he favours a low interest rate environment.

The eighth and final IMF review would have covered the December 2011 quarter. However, Jamaica has faced no IMF scrutiny since the September 2010 review, which even then showed the Government backsliding on promises to limit spending, as well as missed deadlines for disposal of loss-making assets.

Last October, the IMF went public with its concerns after the Government cut a deal with public sector trade unions that unlocked pay increases equivalent to an estimated 2.3 per cent of GDP. The Fund said then that three things would have to happen for the programme to restart: headway on tax reform, a public sector reform plan demonstrating how the wage bill would be cut to 9 per cent by 2014, and the 45 per cent sale of Jamalco.

Wynter's optimism that tax reform legislation would have been advanced by yearend proved misplaced.

So far, Jamaica has received US$838.2 million of the IMF bailout funds, which are disbursed on a schedule after the passage of each quarterly test, leaving US$432 million unclaimed.

Some of the donor funding that were side deals to the IMF bailout have also been frozen.

The new Simpson Miller administration has no interest in resuscitating the SBA but hopes to negotiate an Extended Fund Facility (EFF) with the IMF to replace it.

The EFF is a similar arrangement to the SBA but the adjustment or structural reform period is longer, lasting three to four years, allows for flexibility in the frequency of reviews or tests, and the loan repayment period can be as much as 10 years, compared to a maximum of five years for the SBA.

Phillips has declared himself pro-tax reform, pro-public sector transformation but anti-job cuts, and not inclined to borrow.

"We cannot borrow our way out of our problems," he said, in what appears to be a new orthodoxy for his party under whose management the debt ballooned close to the trillion-dollar mark in 2007, with Dr Omar Davies then the keeper of the treasury.

Phillips said his fiscal policies would not be designed to "have the medicine kill the patient", but pressed on whether that meant there would be no austerity budget, he signalled there would be pain.

"The most recent numbers are saying taxes are down; that is an untenable situation," he responded.

"No one should interpret anything I said to say that there will not be difficult adjustments to make."

The Parliamentary Committee on Tax Reform, chaired by his predecessor Audley Shaw, would have been nullified by the elections, but Phillips said once the new Parliament is convened, he will reconstitute the tax committee and take up the discussions where they ended in November.

The finance minister says he supports plans to revamp the system of tax waivers - an issue that has split manufacturers, hoteliers, and the stock exchange — so that no sector is gaining strength at the expense of another.

"A new incentive regime needs to be settled on," he said.

The jobs issue appears to be the main divergence from the previous SBA positions. Phillips, whose portfolio encompasses the public sector, reiterated that he will not make the 10,000 jobs cuts that the previous government had floated. Health, education and security accounts for 70 per cent of the public sector, he said Saturday.

Asked whether his position on jobs really amounted to a concession to trade unions, Phillips pushed back that the real goal was cost control and not disruption of the system.

"At that scale, 10,000 jobs, you will decimate the social fabric," he said. "I believe, nonetheless, that we have to contain the wage bill in relation to GDP," he added, but was unwilling to commit to the previous 9 per cent target.

The minister hopes to bring the wage bill down through negotiated concessions from the unions.

lavern.clarke@gleanerjm.com