Don Robotham, Contributor

AUDLEY SHAW has opened up a debate on the economy. He argues that I wrongly claim that he is supporting the economic model of Dr. Davies. Secondly, he wants me to focus on the final two years of the Jamaica Labour Party (JLP) government (1987-88) whereas I am focusing on the first five-years (1981-85).

COMPUTER PRINTOUT

Mr. Shaw regards my claim that he supports Dr. Davies' model as a kiss of political death. But to illustrate my point let me quote from a column published in The Sunday Gleaner on May 21, 2006:

"Belief in the correctness of this failed model has now been bolstered by the support of the Opposition Spokesman on Finance who is following the Finance Minister on his non-productive path leaving the strong impression that the minister is now the computer and he is the printout!"

This was written by the Most Honourable Edward Seaga. How did Mr. Seaga arrive at this harsh judgment? The reason is that there are two crucial elements of the current economic model. It is the use of mainly monetary policy to target inflation combined with a flexible exchange rate.

In his recent Budget Speech, Mr. Shaw for the first time conceded on these two central points of the Davies-IMF model. In his recent letter he repeats the concession. Here is the crucial part:

"First of all, setting prudent macroeconomic targets are not to be confused with 'a model.' The fact that the JLP's targets may coincide with that of the Government's is indicative of universally accepted standards of good fiscal management."

It is precisely this "universally accepted standard of good fiscal management" which has been the bone of contention. Mr. Shaw and the JLP have now accepted this IMF orthodoxy. On this decisive issue, as Mr. Shaw says in his letter, the views of the JLP and Dr. Omar Davies "coincide."

'RUN WID IT'

Further, Dr. Davies was not the first finance minister to resort to a 'run wid it' strategy immediately before a general election. Discussing the general election of February 9, 1989, the late Professor Carl Stone wrote the following in The Gleaner of March 4, 1989:

"The Seaga government had organised its finances to provide for massive public spending on an unprecedented scale in the months leading up to the elections. Millions of dollars were spent in each of the 60 constituencies and many felt that this would possibly bribe Jamaican voters under hardship to reelect the Seaga government. This massive programme of public spending was combined with extensive hurricane relief funds after the devastation of sections of the island by Hurricane Gilbert in September 1988."

In 1988, broad money supply was expanded by 39.7 per cent or $2,527.8 million. This compares to the expansion in money supply by 6.4 per cent or $565.5 million in 1989 under the second Manley government. Part of this JLP expansion was made possible by the last-minute World Bank Emergency Reconstruction Import Loan which, as if by magic, materialised from nowhere in December 1988, two months before the general elections. Good show, World Bank!

The economic difficulties we have faced in the last 15 years arose directly out of the 1991 80 per cent inflation. What the quote by Stone makes clear therefore is that to the extent that they also pumped up money supply in 1988-89, seeking opportunist electoral advantage, to that extent the JLP shares some responsibility for the 1991 inflation and, therefore, for our troubles today.

THE 1980s

We now come to the issue of whether I have unfairly represented the economic performance of the 1980s. Mr. Shaw's objection to 1985 as the focal year is odd. Barring the special circumstances of the 1983 snap election, a general election would have been held in 1985. If a government cannot be evaluated after a normal electoral cycle of five years, how much longer should we wait? Does this mean that were the JLP to come to power in 2007 we are to keep our mouths shut until at least 2014? Besides, the World Bank, the IMF and USAID evaluated the JLP after five years so why shouldn't we?

Mr. Shaw prefers to compare the reduction in the budget deficit to 13 per cent in 1985 with the 1980 PNP budget deficit of 18 per cent. He thinks that moving from 18 per cent to 13 per cent in five years is a major achievement. But if so, he should be praising Dr. Davies to the skies because the budget deficit is now 2.8 per cent! If, instead of choosing 1980 as the base year (an exceptional year by any standard), one chooses 1979, Mr. Shaw will have to admit that in 1985, after 5 years in power, to quote the World Bank, "total output was less than 1979."

He will also have to admit that it was the JLP who began our current high debt crisis in 1981. In 1979 external public debt was 61 per cent of GDP but by 1985 it had almost tripled to 180 per cent of GDP. In 1987, it was still 178 per cent. After the first year, under Michael Manley the debt/GDP ratio fell to 122 per cent.

Moreover, the World Bank states that per capita food consumption declined by six per cent in 1984 and a further one per cent in 1985 and that "for small children, time series data point to some nutritional deterioration in 1984-85, in line with a longer-term trend." The JLP could well make the defence that they were the victim of the collapse of the international bauxite market. But in that case, they must also accept the People's National Party (PNP) defence that, in the 1970s, the Manley government was the victim of the oil price crises of 1974 and 1979.

As for the last two years (1987-88), it is true that there was some improvement in GDP growth and employment. But the jobs and growth which flowed from the Caribbean Basin Initiative (CBI) were not the result of brilliant 'export promotion' by the JLP government. This is the JLP's statist mentality at work once again. It was simply the result of the fact that, in those Cold War days, the JLP had a father figure in the White House in the person of President Reagan. That connection is what produced the CBI out of which the jobs and growth came. When President Reagan went, and globalisation, NAFTA and the WTO came, programmes such as the CBI and the jobs and growth which came with them, disappeared forevermore.

SMALL-NATION MEGALOMANIA

Is a JLP or any Jamaican government of the future likely to receive the US1$ billion in special assistance from the U.S. government which in the 1980s made Jamaica the largest per capita beneficiary of U.S. aid after Israel? Is there the slightest chance of repeating the special US$67 million purchase of Jamaican bauxite for the U.S. strategic stockpile? How likely is it that any Jamaican government will receive the US$133 million from the World Bank and the US$698 million from the IMF that was pledged in the 1980s? Is it possible for Jamaica to once again become the recipient of the highest World Bank commitments in Latin America and the Caribbean, as was the case in the 1980s? Are we likely, in 2007, to return to the 'halcyon' days when Jamaica was permitted the highest use of IMF credits in relation to its quota in the entire world?

This is Jamaican small-nation megalomania running amok. It reveals a dangerous and foolish nostalgia which betrays a breathtaking lack of grasp of the realities of the modern globalised world.

Notwithstanding this unprecedented largesse, in 1983, the IMF agreement was cancelled. Waivers had to be obtained in December 1984, April 1985 and May 1985. The World Bank, the IMF and the Paris Club suspended their Jamaica programme for two years, "for non-credit-worthiness." (World Bank, Country Assistance Note, 1998, page 29). This signal achievement by the JLP has yet to be equalled by Dr. Davies. Such were the realities of the 1980s. Why do you suppose the PNP won a landslide with 57 per cent of the vote (45 seats) in February 1989? The JLP needs to be very, very careful, lest this happens again.