Keith Collister, Contributor
DAVIES
JAMAICA'S MASSIVE national debt is strangling the economy, says Opposition Spokesman on Finance Audley Shaw.
Addressing Parliament in his contribution to the Budget Debate yesterday, Mr. Shaw reviewed the performance of Minister of Finance Omar Davies and outlined some aspects of the Jamaica Labour Party's economic strategy.
The $847 billion debt is "fast approaching the trillion dollar mark" while the total debt when the JLP left office was $32 billion. He pointed out that the current projected interest bill alone of $92.4 billion was nearly three times this figure.
This debt is a "tightening noose around the operations of every business, whether large, medium, small or micro, and those yet to get off the ground," he said. Mr. Shaw questioned what Jamaica had to show for the borrowing given that the level of per capita national output was approximately the same as in 1971.
While admitting that "on the surface" the recently internationally-issued 30-year bond at a set rate of 8.5 per cent would appear better than the 1998 bond issued at 10.875 per cent for only seven-years, Mr. Shaw thought that the issue "was not in the best interest of the country" as it locked the economy into a high interest rate mode for the long-term. He decried its positive reception by 'analysts', as he argued the accumulated interest costs would be over three times the accumulated interest costs of the seven-year bond, as opposed to cheaper, long-term financing available from multilateral sources.
Despite interest rates for emerging countries touching the lowest levels on record, Jamaica had issued bonds at "mind-boggling returns to foreign investors largely because public confidence of its management of the economy remains on the downside." Mexico was borrowing at interest rates of only one per cent above U.S. treasuries, while Brazil was borrowing at margins "not seen since Britain was the world's banker."
PUBLIC BODIES - TALE OF NEGLECT
Mr. Shaw referred to the billion-dollar loss of the Sugar Company of Jamaica of 2004/2005 (compared with the budget projection of a $112 million-dollar loss), of which approximately $382 million was interest. He compares this with an actual interest charge of $800 million in 2005/2006, which he says at least 65 per cent is due to overdraft and excess overdraft charges.
He also expressed concern about the losses and financing of Air Jamaica, National Water Commission and the uncollectable advances made to developers by the National Housing Trust.
Mr. Shaw argued that the expenditure budget was understated due to the aforementioned "big ticket" items, as well as what he estimates as an $11 billion gap over two years between what the unions are requesting in wages and the Government's offer.
NO NEW TAXES
In Mr. Shaw's view, the promise of "no new taxes" in this year's budget has "to be taken with a grain of salt" as Minister Davies had said the same thing in April 2002, specifically "Read my lips: No new taxes," which had required a "record tax package of $14.5 billion" in order for the minister to correct the "run wid it" budget that followed.
TIME HAS COME FOR US TO CHOOSE
Referring to Dr. Davies current economic policy strategy, Mr. Shaw stated "The definition of insanity is to repeat the same thing over and over and dream of a different outcome ... a policy of all pain and no gain."
He compared this to a populist alternative, where " the Government cannot even decide among themselves [whether] it plans to adopt" - a "policy of less pain now, more pain later and no gain at all" or a new "Crash Programme" which he believes the people of Jamaica must also reject.
ALTERNATIVE STRATEGY
The Crash Programme was a make-work scheme adopted by government in the 1970s.
Mr. Shaw proposed an alternative economic strategy composed of three main elements: credible and prudent macroeconomic policy; creative debt reduction; and an aggressive and export-oriented industrial policy.
In Mr. Shaw's view, any plan to revive economy must begin by attacking the debt, which means that plans to "embark on the massive social spending are not sustainable." According to Mr. Shaw, the Opposition does not believe that the policy of fiscal discipline should be abandoned, but Jamaica must abandon a Government unable to implement it.
He stated that the Opposition believed that the policy of fixing the exchange rate "could be inappropriate for Jamaica at this time," although they "fully recognise its merits." In his view, "The Jamaican economy is still in a fragile and growthless mode, with too heavy a reliance on debt to take any unnecessary risks at this time" although "we need to discuss the matter further."
See continuation in tomorrow's Gleaner.
