Peter's bitter medicine

Ian Boyne, Contributor

It was similar to our mother's summoning us sternly as children: "Come, you will have to take your medicine!" Peter Phillips was having his first major press conference as finance and planning minister to deliver the bad news that there was a $10-billion hole in his budget and that tax revenues were expected to be down by nearly $15 billion this fiscal year.

So we have to take the bitter medicine. Revenue and grants will be down this year by more than $25 billion because our programme with the International Monetary Fund (IMF) was off-track. (Though, most curiously, the minister is just as silent as his predecessor on what really went awry with the former government's relationship with the Fund.) And there were the inherited arrears of more than $12 billion of recurrent expenditure.

"Given the fiscal challenges in financial year 2011-12, the greater portion of these arrears will be rolled into 2012-13. This will result in significantly reduced capacity for new expenditures in 2012-13." His Supplementary Estimates will be coming on February 21, appropriately just a day before we start penance on Ash Wednesday, and that will entail "significant downward adjustments in expenditure for the current fiscal year". So massive cuts for the rest of this year and massive cuts for next year, too. Out of the frying pan and into the fire?

One thing we cannot honestly say, and that is that the PNP had campaigned promising milk and honey. While urban legend has it that the people voted for the People's National Party (PNP) mainly for the Jamaica Emergency Employment Programme (JEEP), the fact is that it was the media and others which kept pressing the party to speak more about JEEP, and the party kept avoiding the matter. It is not my information that the promise of jobs, jobs jobs was a major feature of platform speeches all over the island.

Issues of trust, credibility and corruption played a larger role in the election than JEEP, and, in my view, while most people had been hurting economically and, indeed, felt that a PNP government would be more compassionate and work in their interests economically, they voted out the JLP for largely non-economic reasons. Certainly those were the issues the PNP played up most.

pnp manifesto clear

The point is that no one can say justifiably that the PNP gave the impression in the pre-election period that things would be easy once they were voted into office. Of course, some PNP persons spoke irresponsibly and carelessly, but generally the party ran a sober campaign rhetorically on the economy. The PNP manifesto was absolutely clear on this. It says plainly: "The PNP is mindful of the economic challenges, both global and domestic, and recognises that there will be limited options within which to manoeuvre."

The PNP manifesto goes on: "The PNP fully acknowledges that there is no easy solution for resolving the economic crisis. There are limited options." The party manifesto unequivocally accepted the Jamaica Labour Party's (JLP) and the IMF's pension, tax and public-sector reform agenda as well as their commitment to fiscal prudence.

Interestingly, too, the PNP, also acknowledged - through it could have opportunistically done otherwise - that "we accept the need for containment of pubic spending and the elimination of waste ... ." Specifically, a PNP administration will engage with public-sector workers in developing an agreed memorandum of understanding to reduce wages and salaries a percentage of GDP".

This led me to say in my column of December 18 last year! (PNP manifesto - Sober, Hopeful) : "The PNP levels with the Jamaican people" that it "fully acknowledges that there is no easy solution for resolving the economic crisis". I went on to say that the PNP's stating that it would work for wage restraint "is certainly not populism! So the PNP levels with the people and tells them they would not change that (public-sector reform)".

In that same column, I expressed delight that the PNP, in its manifesto, accepted many of the economic policies of the JLP, which I said then "is a good thing for the country because it shows the maturity of our political parties in recognising that there is very little space for policy excursion". Therefore, we must cut the propaganda in analysing Peter Phillips' press conference last week. It is not that he or his party had promised economic utopia in the pre-election period while they are now taking us to hell. It is a fact, as I told Julian Robinson on an 'Impact' programme, that some of them in the party were reckless and disingenuous in pooh-poohing the genuine macroeconomic achievements of the JLP, and had discounted the effect of global and structural impediments to the Jamaican economy.

It's time that all of us just level with people and cut the misinformation. We would have to take the bitter medicine, whichever party won the election. Don't let any JLP spokesman tell you any differently.

balanced hopeful

But what is important, and I stressed this in the pre-election period, is that the PNP has a balanced and holistic approach to economic development, while the JLP is mired in this laissez-faire model of economic development which cannot take us out of this crisis. I said frequently before the elections that the JLP's dogma about market-only economic mechanisms and its scorning of state intervention were precisely what would not take us out of this crisis.

The JLP was right to stress fiscal prudence and macroeconomic stability. Its achievements in low interest and inflation rates and a stable exchange rate must not be gainsaid. Even its creative handling of the debt exchange, despite PNP criticisms, was a laudatory achievement which helped with our crippling debt burden. What gives the PNP an edge in economic philosophy is that it recognises that achieving macroeconomic stability is necessary, but not sufficient for economic growth. The JLP's strategy of economic development depends on magic - the 'magic of the market' - and a belief in theology - the 'invisible hand' of market forces to get us past the demand compression, contraction and fiscal austerity. JLP economic policy is too narrowly monetarist.

Peter Phillips, in his press conference last Wednesday, staked out his Government's philosophical difference with his predecessors very clearly: "As important as macroeconomic stability, low interest rates and low inflation rates are to economic progress, global experience confirms that they do not automatically lead to jobs ... . It is important to grow the economy and create jobs. In our strategy, growing the economy and creating jobs is an important part of going forward."

Neoliberals like Ronnie Mason and others are alarmed that $4 billion could be found for JEEP while there is a $10-billion hole, but that is precisely because there is a philosophical difference between them and this administration. This administration seems committed to both actively using the state to leverage resources in agencies like the National Housing Trust to spur jobs and demand as well as protecting the most vulnerable, as Dr Phillips pledged last Wednesday.

Ronnie Thwaites used to put it well when he ran his talk show: "A budget is a theological document." It is not philosophically neutral. It reflects priorities and, therefore, betrays ideological premises. If you believe we should "leave it to the market", including people's welfare, you will construct a budget one way, but if you believe that employment and social welfare - balancing people's lives - are critically important, you can't simply concern yourself just with debt, interest rates, inflation and the net international reserves.

imf policies critiqued

All over the world, elites and also members of the working class are debating this matter of state versus market, the people versus vested interests - the one per cent versus the rest. In Jamaica, we are left behind.

In the 2011 authoritative Trade and Development Report of the United Nations Conference on Trade and Development (UNCTAD) titled 'Post-Crisis Policy Challenges in the World Economy', there is a stout critique of the IMF's narrow, pro-cyclical policies being foisted on its borrowers. "The IMF, despite favouring counter-cyclical policies at the early stage of the crisis, is strongly supporting programmes now being pursued by many countries," says the report.

This week, Minister Phillips, along with his technocrats, will journey to Washington to begin talks with the IMF, but they need to be au fait with the best thinking in development economics, and must be armed with facts to marshal on behalf of us who are at the mercy of IMF theology.

Our technocrats can't be too busy doing policy work that they don't have time to read. In fact, they can't do serious policy work without investing the time to read serious reports, journal articles and books. They must show those fellows in Washington that they are not intellectual dwarfs.

The Trade and Development Report slams neoliberals and the IMF by noting that "the current obsession with fiscal tightening in many countries is misguided, as it risks tackling the symptoms of the problems while leaving the basic causes unchanged". In a frontal critique of IMF dogma, UNCTAD says, "It cannot be assumed that fiscal consolidation would . necessarily lead to an improvement in demand, investment and growth. Despite the lack of solid conceptual foundations, most developed countries have embarked on fiscal tightening, concentrating on the expenditure side ... ." Our policymakers, in negotiating with the IMF, must show that they have a sophisticated grasp of the issues and must challenge, with the weight of empirical evidence, IMF dogmas.

Says the 2011 Trade and Development Report: "A major factor that influences changes in the burden of public debt is GDP growth: It is virtually impossible to lower high debt-to-GDP ratios when the economy is stagnant. Hence, the level of a country's fiscal deficit needs to be viewed from a more holistic and dynamic perspective."

This is precisely the point which Phillips made last week in that press conference.

He and his team must press home that point in Washington and must show the IMF the kind of intellectual prowess we possess this side of the world. We don't need sentimentality and appeals to goodwill and charity to make our case for fiscal space to pursue growth-inducement strategies.

God help us if we can't use hard, cold reason to nudge those IMF bureaucrats in Washington this week!

Ian Boyne is a veteran journalist. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.