IN A consistent vein, Finance Minister Davies has predicted a 3 per cent growth for the coming fiscal year 2002/2003. Dr. Davies predicted his growth figures on the following assumptions: That inflation will come out at 5-7 per cent, a continuation of growth that was 3.4 per cent for the first nine months of 2001, that the build up in the Net International Reserves will prevent any pressure on the foreign exchange rate, and bright investment prospects for the information technology sector.
On the face of it, Dr. Davies' premises can hardly be faulted. Financial consultant Colin Steele, arguing in support of the Finance Minister's projections, said the latest sale of FINSAC's bad debt portfolio that would allow many entrepreneurs to focus on their businesses, would facilitate increased production. For Steele, the rehabilitation of the financial sector was another plus that augured well for the Minister's forecast.
Economist Dr. Damian King, speaking on the same radio discussion as Steele, argued that the current favourable macro economic environment of single digit inflation, reduced interest rates, and relative exchange rate stability translated into cost savings for firms that could expand output by taking advantage of existing underutilized capacity. In his view, as firms exploited their existing underutilized capacity, the achievement of a 3 per cent growth is feasible.
But there is a downside to Dr. Davies' predictions. First, Dr. Davies concedes that he faces some "heavy debt payments". He cited the first foreign global bond that was soon due as one such payment. He, however, brushed aside his concerns with the proviso: "If everything goes alright". Further, it is noteworthy that the recently handed down Air Jamaica Pension Fund judgement will entail government payments that will impact on the fiscal accounts. Dr. Davies himself has already warned of the implications of the judgement for Government's coffers. This is occurring, you will remember, in a context where government recently had difficulties in meeting gas payments for the police force. Additionally, there were reports that the much publicised Caribbean Institute of Technology (CIT) course was affected by shortage of funds. For this to occur at a time when Government had declared information technology as its main priority sector indicates that some of the heavy payments to which Dr. Davies referred are already taking their toll.
A point allied to this is that Dr. Davies' assumption about expanded investment in the IT sector is very questionable given the recent NetServ scandal. Government's handling of this situation to date, has done very little to restore confidence in the beleaguered sector to suggest any increase infusion of capital.
Additionally, Dr. Davies' assumption that the build up in NIR should prevent any run on the currency does not necessarily follow. This is so given the usual strong seasonal demand for U.S. dollars in the last quarter of the year, that eventually triggers a fall in the value of the currency and an attendant increase in interest rates. In light of this repeated trend, even in a situation of surplus foreign exchange reserves, investors will be influenced by their traditional perceptions. In short, it is difficult to see why this cycle will be broken this year.
But probably the most formidable obstacle to the achievement of an expected 3 per cent growth is the state of our social relations. This point has to do with the obvious breakdown in the social order. This is reflected in the high crime statistics, the general mistrust among social groups and the general breakdown of norms in many public institutions and the broad society. It can be argued that the latest meeting of the Prime Minister and the Leader of Opposition, as well as the appointment of a new Security Minister, could signal a new day. However, with an election in the air and the near endemic divisive political culture that we have practiced, it is difficult to see how the social agenda can be changed in a short time.
In summary then, Dr. Davies as-sumption of a 3 per cent growth is at variance with the existing social realities. For growth to occur, the disconnect between the economy and the social agenda must be eliminated.
Errol Gregory
