D.K. DuncanTHE LEADER of the Opposition, Edward Seaga, the Jamaica Labour Party (JLP) spokesman on Finance, Audley Shaw, as well as the Opposition Shadow Minister for Justice, Delroy Chuck, have all raised several important issues during the course of the current budget debate. The debate concludes this week with a major presentation expected today from Prime Minister P.J. Patterson, as well as the closing contribution of the Minister of Finance, Omar Davies on Wednesday.
The Peoples' National Party (PNP) President will move into the political spotlight as he makes his thirteenth consecutive presentation as Prime Minister, in what might turn out to be the penultimate budget presentation of his political career. The Finance Minister has demonstrated a consistency in brevity especially in his closing speech over the years. However, both himself and the Prime Minister will be expected, between them, to respond comprehensively to the several questions posed and the various issues raised by the Opposition speakers.
SEAGA'S PROPOSAL
The JLP Leader asserted in his presentation that "it is time for a new vision to lift Jamaica out of the quagmire of a debt-ridden, stagnant economy". To realise this vision he says "one major change" is necessary - a Fixed Exchange Rate. This change, he later asserts at a press conference, could be implemented in six months. He argues that this would lead to a significant increase of Jamaican dollars (liquidity) in the financial system. The Central Bank would not need to mop up this liquidity through Government financial instruments offering high interest rates. With a fixed rate there would be a reduced incentive for individuals to purchase foreign exchange. The Opposition Leader further argues that a two per cent increase in liquidity would "induce a ten per cent reduction in current commercial bank lending rates". This would spur private sector borrowing leading to investments thereby "lifting the economy out of stagnation".
He anticipates that a corresponding five per cent reduction in government borrowing rates could realise savings to the budget of $22.5 billion". If this major change is "accomplished in one year the fiscal deficit would be reduced to zero". The certainty of lower interest rates for future government borrowings including the present variable debt stock would accelerate the recovery from a "debt-ridden economy". Citing empirical data from independent studies, the Opposition Leader confidently made his case for "a detailed study to design and implement strategy" for a Fixed Exchange Rate.
DAVIES' RESPONSE
The Finance Minister's initial response to the proposal was to label it as "simplistic". It would be useful if Dr. Davies could very simply explain this oversimplification. Double-digit reduction in commercial bank rates, an exchange rate which is stable in the medium term, increased financial resources for a functional fire brigade service, as well as human resource development are not simplistic. For a public anxious to see some light at the end of the tunnel, a studied response is in order.
In his 2002 Budget presentation, Dr. Davies stated "Let me begin by indicating that this Administration is firmly of the view that interest rates remain too high, too high for the private sector and they are too high for the government". At that time, two years ago, the last Treasury Bill had an interest rate of 13.43 per cent. The most recent financial instrument was offered last week at 17 per cent. Interest rates peaked at more than 35 per cent in 2003. In 2002 the fiscal deficit was projected to be at zero by this financial year. It is now projected to be three to four per cent. In that same 2002 budget speech the Minister stated "every reduction of one percentage point in the average domestic interest rate could mean a saving of approximately $3 billion".
Sounding much like Audley Shaw in 2004, Dr. Davies lamented "think of all the good things we could do in terms of Education, Health, Lift Up Jamaica and even with the SESP with some of that money". The Finance Minister opened the debate with confidence. The Opposition responded in kind. The Prime Minister and Dr. Davies have a lot to clarify as they close the debate. One Love, One Heart.
A Dental Surgeon, Dr. D.K. Duncan is a former Cabinet Minister and General Secretary in the PNP Administration of the 1970's.
