Dawn Ritch, Contributor
READERS WILL remember that two weeks ago I asked the Bank of Jamaica (BoJ) whether or not they purchased any of the recent Government of Jamaica (GoJ) Investment Debenture that was floated by the Ministry of Finance with a subscription period from October 21 to 27. There has been the usual deafening silence.
I pointed out at the time, that had the central bank bought any, it would be tantamount to printing money. On October 30, the Ministry of Finance and Planning issued a news release showing that some $12.5 billion was raised from that issue. On the face of it, this demonstrates an extremely warm and positive response from the investing public.
Leading up to the issue, however, Government was required to pay out approximately $12.1 billion representing principal and interest on two maturing Investment Debentures. The Bank of Jamaica has now published their fortnightly Balance Sheet which indicates that their holding of GoJ Securities rose by $4 billion, net, between October 22, 2003 and November 12, 2003. The Balance Sheet also shows that public sector deposits rose only $500 million over the same period.
It's a clear case of "In one hand and out the other." And all this despite the purported successful issue of $12.5 billion.
The numbers suggest therefore that the BoJ has indeed printed money. I think that Mr. Derick Latibeaudiere, BoJ Governor, should have said so plain and straight, instead of ignoring the matter. This demonstrates that the Ministry of Finance is having difficulty getting the cash to meet its obligations.
BALANCING ACT
The recent series of debentures cannot be described as successful, regardless of the false impression the Ministry of Finance tried to create in its news release. Indeed subsequent to the closure of the subscription period, the central bank has been selling GoJ securities aggressively in an attempt to lighten its portfolio, and re-absorb some of the high-powered cash that they had pumped into the country through the Government.
What a balancing act! It is hard to withhold a reluctant admiration from Dr. Omar Davies as Finance Minister. But the country ought to demand more from its Government than that its Finance Minister become the finest juggler in any circus act anywhere in the world.
In its report on Jamaica of November 12, 2003, Bear Stearns writes: "In the first six months of the year, interest has consumed 47 per cent total expenditures and 63 per cent of government revenues. We consider an interest bill of 25 per cent of revenues or expenditures to be very high, so Jamaica is in a different league in this regard. Jamaica's public debt interest burden amounts to 18.3 per cent of GDP in this year's budget. To put this number in context, Argentina has determined that, from a political and financial viability standpoint, they can pay no more than three per cent of GDP on public debt interest."
Bear Stearns also notes that the Jamaican Government has been able to maintain for several years "outsized primary surpluses" from its budget. Indeed it states that the average primary surplus since 1998 has been 10 per cent of GDP. "Most countries consider (i.e. Brazil and others), 4 per cent to be too painfully high." It seems to me therefore that we Jamaicans just cough up as much taxes as demanded year after year, regardless of our condition.
They also state "This effort (the increases in taxation) has been the main reason why Jamaica has avoided a major fiscal crisis until now. The government has been able to engineer this politically (when so many other governments in the Latin America region have failed) because Jamaicans have a higher level of respect for contracts (related to higher willingness to pay) than other countries that we have observed."
FINANCIAL PUNISHMENT
Readers will conclude that our tolerance as a people for financial punishment has been duly noted by international investment bankers. The fact is that tax revenues are ahead of last year, but below 2003-2004 projections. This strongly suggests that our tolerance for additional taxation is not infinite.
The more people realise that most of our taxes is paying interest charges on debt contracted to pay government salaries, is the less tolerant they will become of this profligate administration.
It is refreshing therefore that Dr. Davies has finally come to the recognition that bloated government needs to be cut and reduced. In a recent speech reported on television he airily said that government costs have to come down: "...there has to be less cell phone and less trips..." This is truly risible. The Government can't even locate its telephone lines all of which seem to work splendidly, much less cut down on cell calls. And the only trip likely to be cut is the one from the fire-engine.
Let me not throw too much cold water on Dr. Davies, since this is the first glimmer of hope in forever. But it is deeply unfortunate that the country has had to be brought to this grim and sorry pass before the Finance Minister could come to this belated realisation. I look forward to him acting accordingly in future to cut and reduce dramatically the monstrous size of the public sector. Failure to act will be the obstacle to any hope of economic recovery.
FOOTNOTE:
There was an error in last week's column when I said that George W. Bush's was the first state visit to England by an American President. Serves me right for reading the Daily Mail. The facts are that the first and only other state visit was in 1918 by Woodrow Wilson.
