No need for separate growth agenda - King

Head of the Department of Economics at the University of the West Indies, Dr Damien King, has rubbished calls for the Government to institute a separate growth agenda while it pursues fiscal reform under the programme with the International Monetary Fund (IMF).

"In many quarters, they are waiting for a growth agenda to appear to give them some reason to have more hope for the future," he said.

However, he said the calls "are at best sort of missing the main point of the problem, and at worse may tempt the minister to become distracted in his attention, and worst, tempts expenditure that undermines the critical part of the adjustment programme".

King was addressing a public forum on the IMF programme, organised by the Department of Economics and the Ministry of Finance last Wednesday.

Outlining the economic context of the agreement, King said he conducted a sectoral disaggregation of the performance of the economy over the last two decades and found that for nearly every sector - except for financial and telecommunications - there was widespread stagnation.

Noting the history of low growth, he said, "What we are dealing with is long-term structural stagnation."

Regarding calls to stimulate the economy, which would require the Government to spend more money in a particular area, he urged against it, saying with the current fiscal problem "there is no point in making the environment for economy activity worse by spending more public money and widening the fiscal deficit".

He also pointed to what he said was "a whole range of solutions that we can describe as enclave solutions", including plans to create special economic zones in relation to the logistics hub.

geographical enclave

"Now, one has to be very careful because a special economic zone or a free zone is a geographical enclave. It literally creates conditions for wealth creation inside of a fence. Unless you do something about the conditions outside the fence, that doesn't get you very far. It doesn't solve the widespread long-term economic problem ... because it's a special zone," he explained.

He said there were other policies that are enclaves, but are defined with a sectoral rather than a geographical boundary.

"So the manufacturing sector wants a special treatment for imported inputs for manufacturing, not for the agricultural sector or the tourism sector. In fact, when the tourism sector asked for that the manufacturers objected because that's what they are producing," said King.

"So even if one or the other of these sectors persuades the minister to create a special regime for that sector, it's an enclave. It does in fact help that sector but cannot address a widespread economic problem that affects all the sectors of the economy."

He also cautioned against the lure of mega projects which it is claimed will have linkages to the rest of the economy.

"All of these kinds of policies are disguised enclaves and so, by definition, cannot address the problems of an economy that has stagnated in nearly every sector for half a century," he said.

Noting that the labour force survey shows that only 17 per cent of the labour force has any training beyond ordinary schooling, the economist said Jamaica need to improve the education and skills set of the labour pool.

"This is the area that potentially has the highest returns to economic development," he said.

fiscal deficits

He said that Jamaica has run fiscal deficits over much of its history and has been running an unsustainable one for the last 12 years, "which has led to this climate where nobody is willing to easily put down capital with a return of longer than two or three years with any confidence, because you just don't know when the next interest rate or exchange rate or debt crisis is going to visit".

The IMF programme, he suggests, is of critical importance in breaking that trend; and that no matter how long Jamaica takes to achieve an acceptable debt-to-GDP ratio, "the most important thing is that the trajectory is sustainable. So we have confidence that the next crisis is not inevitable."

That is why the adjustment programme is not only important, but vital, and it should be recognised that "fiscal reform is the critical element in a programme of economic growth, and it alone has the potential to move Jamaica towards a trajectory of economic growth", King said.

mcpherse.thompson@gleanerjm.com