International bodies question government’s performance

Published by The Jamaica Observer

By Al Edwards

A few weeks away from its first year in government, the Bruce Golding-led Jamaica Labour Party’s (JLP) performance is coming under scrutiny with the assessment from international bodies not being too favourable.

Many surmise that the government has been unable to keep its promises as outlined in its manifesto, and that the economy continues to lurch in the wrong direction with the administration to date unable to employ adequate prescriptions.

However, the government is at the mercy of escalating oil prices, rising food costs the world over, and a downturn in the United States economy. Such a state of affairs would hamper any small island-state economy, which for all intents and purposes totally relies upon imports.

One of the common criticisms levelled at the present administration is that it has not come up with policy frameworks, which contain both short-term and long- term objectives. This may well be as a result of atrophied administrative muscles due to 18 years in Opposition.

“After 18 years of the People’s National Party (PNP), it was thought that the JLP would revolutionise the governance of Jamaica, galvanise the populace and take measures that would spur economic growth.

“Instead, the country is worse off than it was a year ago, inflation is at about 25 per cent, crime is at an all-time high, poverty levels are on the increase and there is no discernible energy plan to combat rising oil prices. Jamaica may well be facing a downgrade from the more reputable rating agencies because there are a lot more single B sovereigns doing far better than Jamaica, said Sven Wilander of Chase Manhattan’s Research Unit.

The respected Economist Intelligence Unit’s (EIU) country report on Jamaica, entitled, “Jamaica politics: New government beset by problems”, paints an even bleaker picture.

The report reads in part: “After 18 long years in the Opposition, the now-ruling JLP and the new prime minister, Bruce Golding, are finding it more challenging to govern than they might have expected. Within ten months of its September 2007 general election victory, the government is suffering from a decline in popularity over a lack of perceived progress in tackling violent crime and its management of the economy. Rising food prices, in particular, are presenting a challenge to economic policymakers. Further, an ongoing row over dual citizenship is threatening to undermine the JLP’s slim parliamentary majority.

“The new government has made little progress on its election pledges to tackle rising crime. Golding campaigned on a platform of being tough on crime and corruption, but an upsurge in violence – combined with sharply rising inflation – has turned into disaffection with the new government’s performance. Jamaica’s police have also lately complained about the slow progress on new legislation needed to tackle the estimated 125 criminal gangs which account for the vast majority of serious crimes.

“After 18 years of PNP rule, during which the crime problem worsened steadily, it will prove difficult for the Golding government to make quick progress, particularly since confidence in the security forces and the criminal justice system is at an all-time low. As a result, the issue is likely to dog the JLP to the same extent that it troubled its predecessor.”

One of the major problems facing the current administration is rising food prices. With an income per capita of US$3,500 a substantial portion of wages and salaries goes towards food items.

Commodities prices have been escalating both at home and abroad, but implementing a sustainable food security policy and encouraging the consumption of local produce could mitigate that. It is not beyond this administration’s ability to encourage, reward and subsidise local farmers. A country that is unable to feed itself always runs the risk of contending with soaring inflation and is at the mercy of the vagaries of international trends.

Brazil, faced with crippling oil prices in the ’70s turned to ethanol, using its own natural resource, sugar cane and thirty years later is no longer reliant upon foreign imports. Sometimes necessity is the mother of invention.

Agriculture and food security
Many people scoffed at the proposal of minister of agriculture, Christopher Tufton’s that Jamaicans should consume more cassava. Though the idea warrants greater investigation, the sentiment was right.

The fecundity of Jamaica is renowned and it is blessed in that area more so than many other Caribbean islands. It is a resource that has to be efficiently tapped. Necessity is indeed the mother of invention. Identifying the breadbasket of the country and then calibrating its efficiency must be a priority of this government. Jamaica Producers lost J$300 million in a quarter and is having a hard time of it mainly as a result of the decimation of its banana crops due to successive hurricanes and the end of preferential treatment from European markets. Recently a campaign was launched to get Jamaicans eating more bananas and this must be lauded — it is a start. Jamaica Producers should be both helped and encouraged to supply the local market.

The Council on Hemispheric Affairs report on Jamaica, called Debt, Economic Performance and Labour Productivity is also instructive. That report reads: “Since the 1980s, the government has undertaken the responsibility of limiting the state’s role in the economy, promoting the development of export-driven production, reducing the fiscal and current account deficit, as well as eliminating poverty and inequality. Thus far, these objectives mostly have been met with limited success. The debt situation is alarming and continues to hamper economic growth by drawing heavily upon resources that could be put to more productive uses.”

Speaking on condition of anonymity to Caribbean Business Report , a local analyst said: “When it was in opposition, the JLP was critical of the PNP government’s decision to sign onto the Petro Caribe deal which has proven to be a panacea for many Caribbean governments faced with crippling energy bills. Faced with very few options Chavez’s largesse has proven to be a godsend to this administration not just in terms of oil, but also in financial assistance for the Port Authority and a boon to the agricultural sector. Chavez’s munificence though welcomed is not the answer for the JLP.”

Missing growth targets
The Economist’s report on Jamaica makes it clear that it will be difficult for the government to meet its growth targets with inflation continuing to trend upwards for the foreseeable future. The report continues: “On the economic front, the government’s biggest problem is the spike in inflation, the result of the lingering effects on domestic food production of hurricane damage in 2007 and sharply rising global oil and food prices. The consumer price index (CPI), compiled by the Statistical Institute of Jamaica (Statin), showed inflation accelerated strongly during the month of May, rising by 2.4 per cent compared with April (and up April’s rate of 1.5 per cent). Accumulated price rises in the first five months amounted to 9.1 per cent taking 12-month consumer price inflation to 22.4 per cent, more than double the annual rate of 9.5 per cent posted in full-year 2007.
“The government has introduced temporary subsidies on a number of basic food items to help soften the impact of global food price increases, but the food segment of the consumer price index still rose by 2.6 per cent in May. Food carries a heavy weighting in the CPI, accounting for around 40 per cent of the basket of goods used to compile the index.”

Rising energy costs
Jamaica’s energy bill for this year will come in at around US$3 billion and the country will have to find the US dollars to pay for it. Although world oil prices are trending down that could well prove to be a temporary aberration and should by no means be taken as a source of comfort. The Government is yet to come up with a cost-containment plan. The plan to implement ethanol at the pumps by September is foolhardy at best and was ill conceived. The employment of coal and nuclear options must now be considered. The Government should be having talks with oil provinces such as Nigeria, Russia and Norway in order to obtain favourable terms. The employment of alternative energy sources has now become an imperative because Jamaica cannot afford to spend in excess of US$3 billion a year on energy. The government has to be proactive here. Oil for food produce would not be a bad idea to pursue by this JLP government. Make the most of what you have.

Data from the Planning Institute of Jamaica (PIOJ) suggests that activity remained flat in the first quarter of 2008, with real GDP growth estimated at 0.2 per cent. Figures for the second quarter are expected to be released by the PIOJ sometime next week.

Market research company, also conducted a report on Jamaica with its outlook for 2008-09 no less grim. “The new government ran on an anti-crime platform, and will be under pressure to produce results. However, these will be difficult to achieve and the issue is likely to dog the JLP to the same extent that it troubled its predecessor. Raising GDP growth rates is a major policy goal. This will require a reduction of the public debt burden from around 130 per cent of GDP in order to redirect public expenditure from debt service to social and infrastructural investment.

“The fiscal deficit will narrow only gradually as weak growth prospects constrain revenue growth. Expenditure is, moreover, vulnerable to higher than budgeted interest payments or wages.

Hurricane Dean dampened GDP growth in 2007, but there is unlikely to be a strong rebound in 2008 as a recovery in export volumes is hampered by weakening US demand and domestic monetary tightening. Inflation has been driven up by the effect of Hurricane Dean and by high imported food and fuel prices. Inflation will remain in double digits throughout 2008, but a disinflationary trend should hold towards year-end. The current-account deficit will remain extremely large in the forecast period as high oil prices continue to put pressure on the import bill.”

The Report by the Council on Hemispheric Affairs was less gracious.

“The Jamaican economy suffers from serious debt, high inflation and uneven growth rates. Current economic policies, such as exchange rate devaluation and debt servicing, only exacerbate Jamaica’s economic downslide.

“To resolve this crisis, the government must implement measures aimed at sustainable growth, such as improving the quality of education and facilitating credit access for small borrowers. Ultimately, Jamaica may be forced to walk the Argentine road of debt renunciation in order to keep from going under.”

The final assessment remains with the Economist Intelligence Unit which concluded: “With the external environment deteriorating, Jamaica’s persistent fiscal and current-account deficits showing no signs of narrowing, and inflation accelerating sharply, the new government has entered office at a tricky time in terms of economic management. It will have little room for policy manoeuvre, and its electoral promise to speed up Jamaica’s languid economic growth will also likely be extremely difficult to achieve.”