Delroy ChuckTODAY, ANOTHER budget exercise begins when the Minister of Finance, Dr. Omar Davies, makes his annual presentation to Parliament. His stewardship is under scrutiny as, under his watch, sectors of the economy have collapsed, downsized or are barely hanging on. Nothing is doing well, except the funeral parlours, lotto and - the perennial solace to the hopeless and frustrated - the churches.
The economy is in trouble and desperately needs a lifeline, but is unlikely to get one. It will be more of the same. Dr. Davies' economic model has not worked. Along its path, the model has left a trail of economic wreckage and, it appears, there is more to come. It simply cannot work. The model cannot create wealth, or generate growth and production, or increase business activity or provide more jobs and opportunities and should never be applied for any prolonged period of time. The model is a short-term monetary device to steady the economy, flush out excess liquidity and control rampant inflation. Pursued over an extended period, it merely transfers wealth from the poor to the rich, destroys businesses, causes more unemployment and increases poverty, which cannot be long-term objectives.
The Minister will no doubt repeat his tiresome enumeration that inflation is under control, the NIR is at its highest level and the exchange rate is stable. While these are positive economic indicators, the rest of the economy is in dire crisis. When the negatives are balanced against the few economic positives, is the country any better off? The economy is quite unstable, fickle and waiting to fall apart. Massive borrowing and an unsustainable high interest rate policy are holding it together. To be sure, if the only monetary measures available to keep the exchange rate stable, the NIR high and inflation under control are the high interest rate policy and increased borrowing, then, it is only a matter of time before the cookie crumbles.
I would argue that in spite ofthe few positives, the country is worse off than it was five years ago, with no immediate prospect of an economic turn-around. The Minister, really, has nothing to be gleeful about. His economic model has sunk many well-established businesses. There is no more Mutual Life - an institution with nearly 160 years history, mainly foreigners now own the financial institutions, the agricultural sector is dead, the professional firms are sputtering and most businesses and private institutions are in an advanced state of economic rigor mortis.
The massive bailout machinery, FINSAC, is about to unload its heavy burden on the taxpayers. FINSAC will cost the taxpayers at least $114 billion, which figure is still climbing. For the next ten to twenty years, perhaps for the rest of our lifetime, the people of this country will pay for the failure of Dr. Davies' economic model. Yet, Dr. Davies will count FINSAC as one of his successes and a necessary tool to save the total collapse of the financial institutions.
However, anyone with simple common sense and little economic training could easily have anticipated that the high interest rate policy would cause the collapse of the financial sector and hurt the economy. When businesses are not doing well then the financial sector or the economy cannot do well. This column is on record, over six years ago, warning that the monetary policies would lead to the collapse of businesses and, thus, the whole economy. In fact, FINSAC is only a temporary cushion before even more, easily discernible, economic wreckage emerges.
Dr. Davies is determined to wind up FINSAC and sell its portfolio to local and/or foreign investors. The portfolio is clearly a collection of bad debts, of businesses unable to meet their obligations, of Jamaicans caught in a debt trap and of prime real estate about to be auctioned in a great fireside sale. FINSAC was created, it is argued, to save over 30,000 savers and pensioners. Now, FINSAC will close and destroy 5,000-10,000 small businesses and small investors who risked their homes and life savings to keep their businesses afloat. Where is the equity and justice? Why should anyone borrow and invest in this economy? In fact, if and when the purchasers of the FINSAC portfolio unleash the sale of real estate collateral on the market then the real estate market will certainly collapse, the economy will drift into even further chaos and the economic wreckage will be plain to see.
What Dr. Davies should tell the country today is how he proposes to take the country out of the massive indebtedness into which it has plunged during his tenure? When he took office the domestic debt was around 25 per cent of the budget. When he gives the figure for the domestic debt today, it will be almost 100 per cent of the actual budget. What a tragedy? When the FINSAC indebtedness is added to the domestic and external debts, then our total indebtedness would have doubled, from 5 to 10 billion US dollars, during Omar's stewardship? What a heavy price we have paid for the failed economic model. What is the way forward?
We need to bite the bullet even harder. The Minister's promise to reduce interest rate must now take effect. Interest rate has got to come down, gradually no doubt, even though there will be a commensurate slide in the exchange rate and some inflation. But, it is absolute madness for the interest rate to be at 18-24 per cent over the past three years when the inflation rate was/is at single digit. It means holders of monetary instruments are making a massive profit even while growth and production are stifled. For economic equilibrium, the interest rate and inflation rate should be almost on par. When they are so far apart, it shows that the economy is quite unstable.
Yet, it is useless to discuss the way forward or alternative economic models, as Minister Davies is likely to continue with his failed economic prescriptions that defy all economic objectives and only leave economic wreckage. Surely, what is needed is a model, unlike Omar's, with the objectives of stability, equilibrium, wealth creation, growth and production, jobs and opportunities and an improved quality of life.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at:
Delchuck@Hotmail
