The Election and the economy - Referendum on the economy

Densil A. Williams, GUEST COLUMNIST

Prime Minister Andrew Holness has finally decided to announce the date for the election after much teasing at his party's annual conference in November.

Now, the big question is: What are the critical issues on which we we will be voting on election day? The prime minister has given some indication as to the big issue of the day that electors should decide on. He emphatically stated that this election will be a referendum on the economy.

The Gleaner, in its usually biting editorials, has made it clear that the economy should be the talking point for this election. It is, therefore, important for us to identify the critical issues as we focus on the economy as the main talking point for the election.

The Debt

It is true that interest rates have been at their lowest in more than 40 years. It is also true that the exchange rate has remained stable after a massive depreciation in the earlier parts of the last four years. In 2007, the exchange rate was J$69:US$1; in the last 15 months, it has settled at J$86:US$1. It is also true that the inflation rate is low, and in single digit and the net international reserves is just under US$2 billion, which gives us the cushion of more than 12 weeks of imports, a figure that is above the international benchmark.

Critically, while all these things have happened, the number one problem - the high debt stock - has worsened. In 2006, the debt stock stood at roughly J$990 billion; as at August 2011, the debt stock was J$1.6 trillion. So, in four years, we have amassed debt to the tune of J$175 billion per year, which is about J$480 million per day. This is very worrying, since we have not seen the equivalent investments in physical and human infrastructure that will help us to generate the growth to pay for this massive and burdensome debt.

What have we been borrowing for, and where has all this money gone? Before we can mark the ballot on December 29, we will need to have this information in order to make our choice.

At some stage in its life cycle, I think that Jamaica needs to have a serious forensic audit of its debt. The Greeks are doing this, and it is showing up some interesting results. We cannot continue to amass debt at this rate and merely grow by 0.5 per cent. The economy is going to explode very soon if we do not change course.

Well-Respected Publications on the Economy

Recently, a number of well-respected international publications have presented results from their assessment of different aspects of the performance of the Jamaican economy. The results from these publications make for uncomfortable reading.

The World Economic Forum Global Competitiveness Report, which looks at the productivity of a nation, showed Jamaica's competitiveness ranking slipped from 95 in 2010-2011 to 107 in 2011-2012. It also rated Jamaica as having the worst macroeconomy in the world, giving it a rank of 142 out of 142 countries. It is important to note that the variables which measure the macroeconomic environment include things such as: government budget balance, national savings rate, inflation, interest-rate spread, government debt and, the country's credit rating. The data for these variables were derived from hard, objective sources, not people's perception, as some government spokespersons are trying to have us believe. The ranking is valid.

The World Investment Report, the most authoritative source on the movement of foreign direct investment in the world, showed that inflows of foreign direct investments into the economy moved from US$882 million in 2006 to a low of US $201 million in 2010. The 2010 figure is a drop from the US$541 million in 2009 as well.

The United Nations Human Development Report, another very well-respected publication on human-development scores across countries in the world, has shown that Jamaica's ranking moved up slightly from 80 in 2010 to 79 in 2011. But more worrying is the International Monetary Fund publication Regional Economic Outlook, Western Hemisphere: Shifting Winds, New Policy Challenges, which argued that poverty, unemployment and inequality in Jamaica are the worst in the Americas. Haiti, which is regarded as the poorest country in the Americas, has fared better than Jamaica in terms of its income distribution. Haiti's GINI coefficient, the measure of wealth distribution in a country, stood at 59.2, while Jamaica stood at 59.9.

Meanwhile, Planning Institute of Jamaica Director General Gladstone Hutchinson has reported that the poverty rate for 2010 is 17.6 per cent. In 2006, the poverty rate was 9.9 per cent.

Business blues

Still, another important publication, the Ease of Doing Business Report, which is published by the International Financial Corporation, an affiliate organisation of the World Bank Group, showed that Jamaica's ranking in the ease of doing business has moved from 85 in 2011 to 88 in 2012.

The publication generally gives the ranking for a year in advance. Critically, the starting-a-business rank, which Jamaica normally does well at, slipped from 19 to 23 over the same period. Not surprising, the Standard and Poor's (S&P) report on the country's credit rating has revised its outlook from stable to negative. The S&P report is merely a manifestation of the underlying problems in the Jamaican economy.

So, overall, almost all the respected international publications have showed a similar position on the Jamaican economy. The performance of the Jamaican economy is nothing to crow about. All the major indicators are going in the wrong direction. Some change of course is definitely needed. We cannot continue on the same path.

At the end of it all, while there are some positive developments in the economy, especially as they relate to macroeconomic variables such as: interest rate, exchange rate, inflation and the international reserves, I will suggest that the prime minister not exude too much confidence on winning the vote on the economy. If the election is indeed a referendum on the economy, the result is clear to me.

We will have to change direction. The current model is not working. Flashing out nice phrases about who is neoconservative from who is economic liberal is not going to help us. Tough action is needed, and we need a clear direction as to how we are going to deal with that massive debt burden in the face of anaemic growth.

The political parties have to debate this. We cannot go into an election without knowing what clear, measurable actions will be taken in dealing with the debt burden. We need a clear time frame as to when we are going to get this debt down to 80 per cent of GDP, and the steps that will be taken.

Dr Densil A. Williams is a senior lecturer of international business and head of Department of Management Studies at UWI, Mona. Email feedback to columns@gleanerjm.com and densilw@yahoo.com.