Edward Seaga, Leader of the Opposition THE INTERVIEW of Prime Minister P.J. Patterson on radio talk show Breakfast Club on Wednesday this past week reveals many distortions and half-truths which avoid reality. This cannot be allowed to stand.
I propose, therefore, to present here the other side to the most important of the distortions presented by Mr. Patterson:
(1) The Prime Minister stated that the fiscal deficit was well under way to showing a surplus until FINSAC (debt payments) caused the potential surplus to be converted to a deficit. This is not true.
The facts are that the fiscal account showed a surplus from 1987/88 until 1995/96 when it became a deficit and has been in deficit ever since, except for one year, 2000/01. Ironically, this was the year in which the FINSAC debt was fully absorbed into the Budget for payment, although some smaller payments were made from 1998/99!
Ministry of Finance data reveal that the fiscal deficit began in 1996/97, the year after the last IMF agreement was concluded in 1995/96. This was because the Government wished to make the political point that it would not have any further agreements between Jamaica and the IMF, as proclaimed by the Prime Minister, ("ta ta IMF").
BUILD UP RESERVES
To do so, Government had to build up the foreign exchange reserves to adequate levels to provide a Net International Reserve backing which would maintain confidence in the absence of an IMF agreement. But the foreign exchange required was not being earned. It had to be purchased. Sufficient revenue was not being earned either. So borrowed money had to be used to purchase the required foreign exchange.
The domestic debt, consequently, jumped from $22 billion to $49 billion between 1993 and 1994 when the programme of build up of the reserves commenced in anticipation of the political move to avoid involvement in further IMF agreements.
This was the beginning of the domestic debt problem which today totals more than $400 billion.
It is useful to note that another political decision in 1991, prematurely rescinding Exchange Control Regulations before the BoJ had reserves to protect the exchange rate from massive devaluation, caused the original explosion of money supply which produced interest rates and inflation rates in excess of ten per cent in the early 1990s.
This severely damaged the economy causing the virtual collapse of the financial sector. The great majority of financial institutions, over 40, went down. FINSAC was created to pay for the damage which totalled $120 billion, or 40 per cent of GDP. The World Bank, in a study just released on Jamaica's economy, noted that crime costs the economy four per cent of GDP annually.
Based on this reckoning, it could be said that the 'political crime' committed by Government in wrecking the financial sector (at a cost to the economy of 40 per cent of GDP) by repealing Exchange Control Regulations prematurely in 1991 without reserves in the BoJ to protect the exchange rate from massive devaluation, was the equivalent of the devastation to the economy caused by all crimes, (at four per cent per annum), over ten years from 1991 to the end of the century.
(2) The Prime Minister speaks of reducing the fiscal deficit to two per cent to three per cent of GDP next year. This is far from the full story.
The fiscal deficit is targeted to be 5.6 per cent this year or $25 billion. Present projections show that this will not be achieved because of severe budget over-runs which cannot be offset by budget cuts.
Projections by the Ministry of Finance in December, show that in this fiscal year the targeted fiscal deficit will be exceeded by some $17 billion, additional to the $25 billion deficit budgeted for the year. On this forecast, the deficit this year would be not 5.6 per cent but ten per cent of $25 billion but $42 billion, almost double the original amount.
The IMF, in its meeting with me in December was projecting 8.3 per cent or $36.5 billion. The coming fiscal year, 2004/05, is targeted for a deficit of three per cent ($14 billion), if strong fiscal adjustments to cut expenditure and increase taxation are made. Alternatively the deficit could be up to seven per cent ($34 billion), if the adjustments fail. Since government has regularly failed to achieve its fiscal targets, and having regard to the considerable slippage and overhang expected this year (from 5.6 per cent to 10 per cent) the outcome is far more likely to be five per cent ($24 billion).
It is time that interest groups which constitute civil society, including the PSOJ, wake up and realise that while this financial year represents a cataclysm based on the current projection for a 10 per cent fiscal deficit ($42 billion), nearly twice the original forecast 5.6 per cent ($25 billion), the deficit next year is very likely to be $25 billion, if very tough adjustments are not made. These are the same politically unpopular adjustments which Government has failed to make in the past. These adjustments must be made because Government will not be able to borrow its way out of this problem as the persistently high deficit will certainly ensure no participation from the external market. This exceptional situation is not, as the Prime Minister explained, a result of having to deal with high interest rates which are countering Government's efforts for economic recovery, as if high interest rates are some mysterious force arriving from outer space. High interest rates are a product of Government driving the economy with a political rather than an economic road map. This is not a case of the usual Jamaican apologetic explanation that "the bicycle pitch me down".
RIDER CANNOT RIDE
It is the rider who "pitch down" the bicycle because the rider cannot ride! It is time to throw away all the "mealy-mouthed" apologies for a Government which has proven that it is nothing more than a party political machine. It has admitted that it strategised to win the last general election by politically deceiving the people about the healthy state of the economy which it had already, knowingly, wrecked by providing $8 billion of additional unauthorised expenditure for political campaigning so that their candidates would be able to "run with it" without any holding back. It is the provision of this $8 billion spent, without any budgetary authorisation, which is one of the prime reasons for the present crisis.
The question which ultimately arises is what mechanism will be found to ensure that the unpopular political adjustments are made to avoid a continuation of unbearable adjustments which can only lead to a financial Armageddon.
When the Barons in 1215 found that England faced the same crisis of a reckless King John who was taxing his subjects mercilessly to fight his political campaigns, they forced him to sign a Magna Carta to set new rules on taxation and justice and to impose conditions of strict monitoring of his conduct of the affairs of the country. This became an historic landmark in reducing the powers of the monarch and restoring stability to England.
It is time for a MAGNA CARTA now!
