Lessons for the economy — mountain bike style

IN October I used a bicycle ride to point out lessons for the economy. Today, I will do so again, using a different type of cycling — mountain bike style.

On Boxing Day, I started with a mountain bike ride from Liguanea to Irish Town and back. I hadn't been on my mountain bike for a while, preferring the road bike because of its speed and smoothness, but having already experienced descending from Newcastle on the road bike, on the rough potholed-filled road, I knew it wouldn't be pleasant. I therefore chose to go up on the mountain bike, which is sturdier, has shocks and much bigger tyres.

The lesson here is that as we go into 2013, it is critical to understand the vision of where we want to end up and ensure that we have the right people and systems in place to ensure we meet those goals comfortably. It is time we admit that Vision 2030, as currently being pursued, will not happen. In many instances, I think we have good people in the public sector but the system they have to work with does not facilitate initiative. So it is tantamount to buying a professional footballer to play in a prep-school competition. In other words, if we are serious about getting investments in the country in 2013, one of the priorities to address is the archaic bureaucracy that inhibits initiative and growth.

We started our journey through Hope Pastures, then unto Hope Gardens, before we made our way up the hill to Irish Town. Knowing fully well that we needed to conserve most of our energy for the climb, we spent the first mile or so just getting warm enough.

Going into 2013, the biggest tasks to face are the completion of the IMF agreement, tackling law and order effectively, the energy crisis, and unemployment. We must therefore recognise that it is essential to plan which tasks to tackle, and how to execute them, in order to receive the maximum benefit. We will not be able to do everything because of scarce resources so we must select the ones which will result in the greatest immediate benefits.

Take the IMF agreement, for instance. I agree with Minister Phillips that we must ensure that the programme is practical and does not leave Jamaica in a worse position. All the prior IMF agreements have not been to the benefit of the country, yet we always return to them. On the other hand, the longer we wait to sign the agreement, the less leverage we will have because it is a race against the NIR level.

When riding up a hill, there is always pain. Your legs burn as the lactic acid builds up and you have to keep drinking to get the electrolytes back in your body. The most important thing to do is to mentally block out the pain as you climb the mountain. If you think about it too much, and allow your mind to get the better of you, you will stop.

In 2013, we must set out at a pace that ensures we get to our destination, also ensures that we achieve our target. Setting impractical goals and making too radical decisions could result in pain without success. I am thinking about the targets under an IMF agreement. In 2010, the targets were unrealistic. Despite this, we continued with them until Minister Phillips recently admitted that we can't just take any agreement. It makes no sense to have pain with no gain. If the agreement is unrealistic all we will have is pain.

Just like riding up the hill we needed to drink, similarly in 2013 if we are to tackle unemployment and bring growth to the economy there needs to be stimulus spending from as early as the first quarter.

After we got to our destination, it was time to make the trek downhill. This is the fun part. Descending the hill at speeds of up to 27 mph, and having to avoid the pot holes, loose dirt, watching for the oncoming vehicles, and ensuring you make the corners without going over the cliffs, brings a certain rush. You have to ensure that you are focused on the task of descent, when going at those speeds; else you could easily end up in an accident. I have seen this happen. However, once things go well, it is most enjoyable.

In 2013, Jamaica will face its own challenges. We will have our own version of a fiscal cliff, as I expect revenues will be weak as the economy remains weak. It would also be bad for the economy, and ultimate fiscal revenues, to increase taxes. So I don't think that is a practical option. What we will have to do is focus on what are the underlying causes of the problems, and "spear fish" rather than "net fish" to solve them. In the past, what we have done is just place a Band-Aid on the problem. So we allow inflation, devaluation, borrow money, or raise taxes. What this has done, however, is just kick the can down the road. The reality we face today, however, is that there are no more roads to kick the can down. We are at a point where the "chickens have come home to roost".

One of the things we must do is take some risks in our policy decisions. I find that our bureaucratic rules are so conservative that nothing usually happens when needed. What we must do is take the risky policy decisions that causes a game changer.

The new year is one that we will either (1) feel the joy (adrenaline) of fixing the economy once and for all; or (2) see significant declines in our economic fortunes.

This takes me back to where I started, however. The journey to success depends on ensuring that the best people are on board and that the system facilitates the needed initiative. When I say correct people I just don't mean public sector workers, but very importantly the boards of public bodies and the leadership that will take the needed decisions.

I don't think the actions we need to take have to be very painful if the correct fiscal policy decisions are implemented. However, the longer we wait then the more painful the actions will have to be.

Inspirational story for 2013

As we go into 2013 there is a true story I have to share with you. I have commented on it already but based on even more recent developments, I think I should expand it.

About 2 years ago I spoke to someone who was an office help, and told her that she should think about starting her own business. At the time she kept saying she wanted to get another job as her contract would soon be up. I kept talking to her and told her that what she would earn rom a job would be insignificant in comparison to having her own independent income. This is a fundamental principle mentioned in the book “Achieving Life’s Equilibrium”, as it is truly the only way to true financial independence.

If you think about it this person had everything working against being a business person. She was not highly formally educated, has always had a job, was a typical person who splurged on new hairstyles and nails every week, and just was not thinking about any form of business.

She eventually came to me about 9 months ago and said she wanted to try her own business but had no capital. As I also explained in the book, I told her that capital was overrated. I sat down with her and discussed what she had a passion for, and she said it was food, as she thought that she could start a business with food. I then explained to her that she should start with no overheads and start small.

Therefore guided her to start with selling slices of a cake. So she started her business with one cake. She did that for about two weeks and then moved to two cakes, then three, and so forth. What it did was to transform her way of thinking, as she stooped going to the hairdresser frequently, as she said she needed to save capital for her business. She also (through discussions with me) started to think about new business ventures. Every day she would come to me and talk to me about a different idea she had. Soon her business expanded to the point where she was dealing with different products, her customer base is growing, and she is now making more money than when she was under contract.

I saw her recently and she has got a mortgage to purchase a piece of land and is starting to build her own home soon. She currently lives in the inner city but says that she wants to move, not because she is ashamed of where she is from. She says that there is a lot of business potential there but what kills it is the violence and the many young boys just sitting on the corner everyday. She says that the environment is disrupting her ability to expand.

I expect that soon she will be looking to hire someone to assist her as she is extremely busy these days and pops in to see me only to discuss new ideas and get guidance as to how to approach her business.

I truly am proud of her, as the transformation has been nothing less than magnificent. I have spoken to many well educated persons, who have been in financial trouble and they were not able to overcome. Why. Because of an attitude and just believing and having the discipline to realize goals.

I am trying to get her to tell her story but she is shy about doing so. I am sure that one day she will be contributing to the employment of the country and paying her taxes as she is organizing her company affairs now.

What is christmas really about? I want to put another spin on what the real meaning of Christmas is. We have come to know Christmas and the new year as a time of festivities and gift giving. And also a time to rest after a long year of work, assuming of course you are employed (by someone or preferably by yourself). However, shouldn't we be viewing Christmas as the following: - at time to reflect on accomplishments over the past year. We always talk about setting new year's resolutions but never review our accomplishments against goals set at the start of the year. We don't really review our personal achievements versus plans. - shouldn't we also be reflecting on how we have individually impacted positively someone else. In other words what is the sense of your life if you have not added to society. Whether it be national building or helping someone to achieve personally or ensuring your child becomes a positive impact - instead of putting ourselves in debt shouldn't we practice prudent spending and ensure that we use it as a time to plan and help others plan for the future. It seems to me that the season has become too commercialized and is really about businesses extracting money from people and ensuring they owe them for the rest of the next year and then start the process again. So when we think about Christmas and our actions, the question must be asked, are we looking at it the wrong way

The economy in 2013

ONE question I get a lot is: what is to be expected of economic performance in 2013? In particular, people want to know about the IMF agreement, the exchange rate, inflation, and GDP growth in particular.

My response usually is: it depends on a few things. Firstly, it depends on the timing of the IMF agreement, and even after we get the agreement signed, it also depends on what the terms of the agreement are. It also depends on what happens in terms of employment and disposable income levels. It depends a lot also on the direction of fiscal policy.

Hundreds of job seekers turn up at the Christian Fellowship Church to to apply for warden vacancies at a Correctional Services Department recruitment drive. Unemployment levels are at 12.8 per cent, according to the latest government figures.

The fact is that there are so many uncertainties that the best one can do is make some general predictions about what can be expected depending on the timing and outcome of the factor mentioned above.

What we can say is that:

1. By the end of 2012 we will be looking at an exchange rate of above 93. Going into 2013, depending on the timing of the agreement and the terms, we could see further slippage of the dollar or stabilisation and a possible small revaluation. The further the IMF agreement appears to be, then the more the exchange rate will depreciate and the longer the wait, the faster the pace of depreciation could be. Therefore, it is crucial that we have an agreement in place as soon as possible. Bear in mind that there is a time within which the agreement must occur, as the race is against the level of the NIR. What I would caution against, though, is purchasing US$ now and putting it down as cash deposits, as the possibility is that unless you have matching liabilities, then it is really too late to acquire US$ and just put it down based on the present available information. In summary, at one extreme, while I do not expect any significant revaluation, if any, at the other extreme, the level of the rate depends on the timing and terms of the IMF agreement.

2. I expect that there will be inflationary pressures, primarily as a result of the exchange rate depreciation in recent months. This, however, does not necessarily mean that we will see runaway prices, as this also depends on what happens with employment and real disposable incomes. The fear here is that if unemployment remains high, and/or disposable incomes reduce, then we could be flirting with an undesirable economic term called stagflation. This simply means the inability to raise prices, because of weak aggregate demand, even though costs have increased. The result of stagflation is always a reduction of business activity, leading to higher unemployment. In any event, I expect that 2013 inflation will be higher than 2012, and may be in the region of low double digits. If it is lower then it means that businesses will come under pressure and some may not survive. Based on the devaluation, some inflation is going to prove necessary for business survival. There are of course certain assets, such as real estate and motor vehicles, where inflation will be higher than the average. It is for this reason that I believe that real estate is a good investment, and, in fact, one should have been looking at real estate as an investment option from a few months ago. This is because prices were depressed and interest rates relatively low.

3. One question that comes up every time I speak about the attractiveness of mortgage rates is, where will interest rates go? I do expect that we will see an uptick in interest rates in 2013, but no sharp increase. The factors that will cause an increase include a weaker Jamaican dollar, and continued trade deficit problems; slightly higher global rates as demand increases for loans with a slow recovery in global growth; and increased risk in emerging market debt, such as Jamaica. However, global rates will still remain relatively low and I think Jamaica's primary source for loans will be from multilaterals, once we finalise the IMF agreement, which means lower debt rates. Financial institutions will also continue to compete for loans, as demand will remain weak and consumers will make more informed financial choices.

4. I also expect that unemployment will decrease in 2013. There are three primary factors that will lead to lower unemployment. The first is that the government will increase stimulus spending and also bring on new projects. Secondly, a signed IMF agreement, and the seeming desire to bring back law and order will lead to increased private investments. Thirdly, I see that public transportation will improve and, also, that more persons will move towards cheaper energy sources (with or without government), resulting in higher disposable income levels.

5. The trade deficit will continue to be a problem, but I think it can improve slightly. This improvement can come as a result of lower dependence on oil, for transportation, retail consumption, and more offices going with cheaper energy sources. I don't hold out much hope for industrial energy use becoming more efficient, however. At the same time, we could see a slight improvement in exports, but primarily oil and food imports could reduce and improve the deficit.

All of this is going to be dependent on fiscal policy, and timing and terms of an IMF agreement. In other words, if the government seeks to raise more tax revenue in this weak economy, then the result could be further contraction of the economy. However, if they seek to provide some stimulus to the economy, whether directly or through projects like the highway and port expansion, then the economy will improve. Another example is with regards to law and order. If the drive to improve discipline continues, then we could see greater security and confidence coming back to the economy.

An IMF agreement that comes too late, or with unfavourable terms, would do little to bring back confidence or improve living standards. Therefore, if we do not ensure that we secure a timely and practical agreement then all the predictions above will be different. The IMF, however, will only be a Band-Aid on a much bigger problem, and if we are not carafe will be back where we are today, just as we are back with a debt problem after the 2010 JDX.

I have to applaud the efforts to regularise the zoning of communities, and importantly, residential communities must be purged of businesses.

At the end of the day, however, businesses and individuals must ensure that they do proper planning now and also continue to monitor the environment, as the range of outcomes is still very dependent on policies going forward. It is important for businesses to work with the necessary expertise in order to make correct business decisions.

To all my readers, happy holidays.

The real effect of austerity

One of the raging arguments since the 2008 global recession has been between those supporting austerity and those supporting stimulus (Keynesians). Everyone knows I have always come down on the side of the need for stimulus, and have even gone as far as to say that we should be moving towards value added debt, as a greater risk is to shrink the economy and standard of living to the point where is difficult to retrieve.

Those in favour of austerity say, lets just deal with the pain now so that we can correct the future. In other words take some hunger now so that we can eat later. The only problem with that is that most of those who propose austerity measures are in a position where the effect will be that they will have less savings, not eat less.

I do realize the need for responsible fiscal spending, but that should be always. Not just in a recession but especially when there is growth. What the pro-austerity persons don’t realize is what is the real effect of austerity.

The real effect of austerity is the impoverishment it creates among those who are already poor. What it does is create a situation where we deepen and prolong the cycle of poverty for the most vulnerable, and even working poor, amongst us. What it does is play Russian Roulette with the lives of people, as there is no certainty that it will solve the problems, as in the case of Europe. What it does is ensure that a child grows up without hope, and wonder if they had done something in a past life to deserve the sort of suffering they have to grow up in.

What austerity does is create a uncaring attitudes and uncivilized behaviour that causes people to be callous to each other. What it does is create a lack of resources that causes the justice system to be unjust, the police not to have the resources to protect the people, that results in a general level of indiscipline and lack of law and order in the society because we can’t even afford to pay jurors to deliver justice, because they are hungry.

Austerity is another way of saying, if my family and I are ok then we can ask others to make the sacrifice.

I was motivated to put this on paper because of a very recent situation where someone I know very well was murdered leaving a family and friends to ask the question, why? and having to live with this reality for the rest of their lives.

I am not saying that this is directly linked to an argument around fiscal austerity but just saying so to highlight the fact that if we do not have enough funding to deal with the social waywardness, to make sure the police are effective, to ensure children have equal opportunity and proper nutrition growing up, to ensure that men can find adequate employment to raise their families and live their lives with dignity then we will have a problem.

We will have a problem like Greece, where they have applied fiscal austerity for over three years and still have an unemployment of over 25%, which is higher among youth. Where they have regular worker demonstrations because of the impact of austerity on the ability of people to eat. And still they don’t expect any significant improvement in their debt to GDP ratio until after 2020. So what happens until then to the vulnerable.

As the PM says, we have to balance people’s lives while we balance the books.

So the next time we speak of fiscal austerity, and not responsible fiscal spending, while not recognizing the need for stimulating the economy, as the US, China, and Brazil have, as opposed to Europe, and we have also realized the need as is evidenced by JEEP and such programme; think about what the real effect of austerity is, and then put yourself in that situation.

Restructuring Jamaica for growth and development

I think it is patently clear to everyone that the policies for Jamaica's growth and development have not worked. Since the 1970s, the country has been generally on a downward trajectory. We have seen pockets of growth, but the general trend has been a decline in our economic and social fortunes.

Recently we have seen where the Jamaican dollar has been depreciating, and the latest fiscal numbers show that we are significantly behind on projections for revenue and the primary surplus targets. It is also important to understand that the last half of the fiscal year is always the most challenging for meeting revenue targets and for cost containment. This is because (i) the greater amounts of revenues are always targeted towards the last quarter, and (ii) the lack of accrual accounting for expenditure means that earlier commitments always show up in cash expenses towards the end of the fiscal year.

Jamaica’s balance of payments problem is dominated by the cost of food and oil, which now stands at almost US$88 a barrel.

Because of these situations, we are once again faced with the need to have an IMF agreement. Continuing our long courtship with the IMF since the late 1970s. This consistent need to be with the IMF should tell us that the policies we have pursued are just not working, and it is time for a shift. Jamaica faces structural deficiencies and until we tackle these head on, and solve them, then we will continue having to run to the IMF for macroeconomic stability support. Just like a child who runs to his parents every time he makes a bad decision and needs financial support.

So how do we address these structural deficiencies and put Jamaica on a path for growth and development. I deliberately did not say put us "back" on that path, because the truth is that even during the periods of growth since 1962, the fact is there was a failure to address these structural deficiencies, hence why we always fall back into economic and social malaise.

The first thing we need to do is understand the current challenges we face, and prioritize those risks to our development, just as any company would do. So what we must do is identify all the challenges and look at what value they can create if they are dealt with. In effect we need to perform a SWOT analysis of Jamaica. This is something I have written about and so will not get into any details.

My own view is if we were to perform that analysis then we would see that the main risk to Jamaica's economic and social development lie in three primary areas. The first is the balance of payments, which the problem is dominated by the cost of oil and food. The second is the cost of crime, which in my mind is the lack of law and order. And the third is the cost of the bureaucracy. My own analysis shows that if we were to just focus on policies to quickly eliminate these threats (risks) then we could easily add upwards of $100 billion to the GDP.

This is not to say that there are no other risks of importance, but as Jimmy Moss-Solomon said to me once, when your time or resources are limited just focus on the priority areas and execute well. If we were to focus on these three areas then we could start seeing significant economic and social positives within three to six months.

The current situation that faces us today, however is that we have a fiscal and balance of payments challenge. Today the fiscal challenge is more critical, although not what is going to solve the long term problem. The IMF programme of 2010, or any other one, as shown by the history, will not solve either the fiscal or other economic challenges. All it can do, as with the past programmes, is provide a temporary reprieve. The solution is with us.

One simple example comes to mind, and this speaks the mindset of the Jamaican people. When this administration came to power, various groups called for the removal of GCT on electricity, as it was a promise that was taking too long. My view at the time was the GCT should remain, and that the proceeds should be used to fund credits for "compliant" tax payers who chose to go with renewable energy solutions at home. The public would have none of that. Imagine if we had done that and we were able to get a 30 per cent reduction in electricity consumption as a result. We also would have had more work for people in energy solutions, and for each dollar saved it would have gone directly to consumption. Hence raising living standards.

So that single policy decision would have resulted in reducing our import bill by at least US$200 million ($18.4 billion), which would have gone into the pockets of consumers, and into the economy. It also would have increased GDP spending, as this is money in the hands of those with a greater propensity to spend. It would have increased the profits of companies and resulted in a lower demand for foreign exchange and could have spurred local production of renewable energy solutions.

There are other policy decisions that the public pressured governments into taking the wrong action, which could have resulted in GDP growth if it had gone the other way. The reality is that many times the policy actions we pressure governments to take result in our own demise, and then we end up blaming our governments for something we wanted them to do because it was in our short term interest.

One MP who I think has done good analysis and taken a practical decision on pension, and ultimately fiscal, reform is Mikael Phillips. Let's see what will play out with this.

We can still take those policy decisions and cause a paradigm shift in our economic and social fortunes if we want. It doesn't take anything more than the will to do it and the cost is negligible compared to the value added that will accrue.

With each day we do not take that action though, the options narrow. Today we are faced with a situation where we need to conclude the IMF agreement, but the fact is that we can do things that will significantly decrease our dependence on the agreement. It is only through restructuring the deficiencies in our economic and social framework that we will find a sustainable solution to economic and social development, just as Lee Quan Yew did in Singapore.

Inspirational story of a business start up from nothing

I really must share with you a very inspirational story, and one that I think is an example of how a change in attitude and perspective, can move us from financial dependence to independence. This was briefly referred to in “Achieving Life’s equilibrium”, as an example surrounding the principles of wealth creation outlined. Financial dependence for me is having to rely on “direct” employment from someone else for income. This is not to say that employment is a bad thing, as it depends on the job. What it says though that even while employed you should be constantly seeking to increase your financial independence through savings, or acquiring assets (real or intellectual) to enable your transition to have some income independent of “direct” employment. This is the concept that pensions are founded on.

Back to the story then.

From about two years ago I have been discussing with a group of contract workers that they should seek to establish their own business, and take the steps to do so while they are employed under the contract, so that they don’t have to rely on employment in the future. They included mostly office workers, those you would think would have been more accommodating of the idea. There was also one person who was what we call the “office help”, who when I first spoke to her about it resisted and said that she was trying to get another job and would continue to do so. Will refer to her as Rose for this article. This was in the height of the first recession.

Most of the other persons (those who you would think would gravitate to self employment) continued to search for a job also, and some even said it was too much to think about and go about starting their own business. After working with Rose for a few months, and talking to her about the expenditure choices she makes, and what she needs to prioritize I got through to her finally. I then gave her advice on how to start her own business with very little capital, a common excuse I hear from many, which I always say a lot of capital is not necessary. She started her business by discussing with me what she could market, and I went though with her what people would demand and why they would want it. She went about securing the goods and started selling into the market. She has been doing this for approximately one year now and was able to supplement her income, to the point where the income from the business has now replaced if not surpassed what she was getting from employment. And the income, and market is growing daily.

I continue to mentor her and show her ways in which she can improve her income, and she has been doing so. She was able to secure a mortgage through NHT, and is now able to generate her own income to offset the mortgage payment. She also comes to me with ideas almost everyday and I guide her as to what will work and what won’t. She is now thinking of expanding the business, and securing a loan to get some equipment, and I have shown her how to go about expanding it. She is even thinking of employing someone in the near future because of the amount of work she is seeing.

Recently herself and some office colleagues ended their contract, and the others gave a traditional farewell speech, and say how sorry they were to go. She on the other hand said she was grateful for the opportunity she had and that she has acquired the necessary tools to expand her business and thanks everyone, and looks forward to developing her own income.

It just goes to show that moving from one stage in life to the next is really a matter of perspective. I look forward to continuing to give her advice as she continue to expand her horizons, as she is truly an example to follow. She had little knowledge of business, but was willing to listen. And she had very little capital but was able to match the market with the product and turn over the little capital while reducing the risk.

I think she will do very well. 

Why is Jamaica back in recession?

THE recently released Planning Institute of Jamaica numbers show that Jamaica is technically back in recession. I say technically because although there has been no change in Jamaica's economic structure, and underlying problems since Independence, the technical definition of a recession is three consecutive quarters of decline.

We have joined the ranks of Great Britain and Spain who experienced double dip recessions also. I did not say Greece, because they really have never come out of recession, and therefore is still on their first dip. These countries got there because they contracted fiscal spending, and similarly this would have contributed to our own double dip.

An IMF agreement won’t solve Jamaica’s underlying challenges and create economic independence. (Photo: AP)

The fact, however, is that Jamaica's double dip recession is not caused by any fundamental change in the structure of our economy. The structure of the economy has remained the same since Independence and this is one of our primary problems. We have failed to transform the economy from a basic one to either an efficiency or innovation-driven economy, as is supported by the Global Competitiveness Report.

Over the period 1962 to 1972, and the mid 1980s to early 1990s, Jamaica saw its period of greatest growth, which was eroded significantly by the 1972 to mid 1980s decline, and recent period after the 2008 recession. It was not helped by the very slow growth period of the 1990s either.

But Jamaica's economy has not really been much different over these periods, and because of the lack of proper strategic policy and planning, even though we had periods of significant growth in the 1960s and late 1980s, we have failed to maintain the momentum. It would seem clear, therefore, that Jamaica's economy has suffered more from strategic policy failures than anything else. Or should I say governance.

Because of the underlying challenges in the economy, it was therefore, not difficult to predict that with uncertainty surrounding an IMF agreement, the dollar would have devalued and the economy declined. This is the same thing that would have happened in any part of Jamaica's history, if we had a lack of external capital (whether through debt or equity) coming to the country. So there is no difference really between the current situation and past ones, with the exception of the level of confidence that exists at any point in time. The 2008 global recession, consequent drying up of privately available capital, and higher risk aversion, would no doubt have made it much more difficult.

If you look at any of the decades, since Independence, and even before, you would see that Jamaica's economy is highly dependent on capital inflows. Whether it is classified as remittances, foreign direct investments, or other private capital flows such as deposits. Therefore, the only way that we have been able to keep our economy stable is either through borrowing, grants or remittances.

These are what have kept our consumption levels vibrant and our NIR high. Therefore, after the 2008 recession, when there was a (i) lack of private capital (as there was a flight to safety); (ii) slowdown of global investments; (iii) slowdown in remittances; and (iv) reduction in grants; then the only place that one could go to access any funds were the multilaterals. But the multilaterals will only lend to us if we have the seal of approval of the IMF. This is why the IMF has become so relevant globally again. Not because they have had successes, but rather they hold the key to funding for many countries.

If you look at the history this is also the reason why we were able to grow, when we did, and why we declined also. In the 1960s there was a lot of private capital (loans and equity) flowing into Jamaica as a result of banana, sugar, bauxite, and tourism. In the 1970s, because of the lack of confidence, created by the rhetoric of the policies then, that capital retreated. In the 1980s, the IMF seal of approval was in play and much capital flowed back into Jamaica, as showed up in our debt to GDP ratio, which hit 212 per cent in 1984. In the 1990s up to mid 2000s we again saw significant capital inflows, in the form of debt and direct investments. After the 2008 recession, however, that private capital dried up and only the multilaterals were left standing.

This analysis therefore shows us that public policy has failed to change the economy from external (colonial) dependence to independence. This also impacts our fiscal accounts, which is heavily dependent on taxes. The solution we have always pursued, to our fiscal challenge, is to either cut expenditure or tax more. Even during the growth period of the 1980s, our solution was to cut expenditure by reducing the public sector significantly. In the 1990s, we increased the public sector once again and sought to solve the fiscal problem by taxing more. This tax policy was carried into the current century and continues, where today it has come to a compulsory end as the economy has reached a point now where more taxes have a negative effect on the economy and revenues.

The reason why we have not been able to solve the fiscal crisis with this approach is because increased fiscal revenues primarily depend on growing the economy, which we have not been able to do.

It is for this reason I say that, even though an IMF agreement is necessary because we have made it so, it still will not solve the underlying challenge and create economic independence; which as Norman Manley said, should have been the mission of the generation after him.

To solve the problem, we need to change the equation in the balance of payments, and focus on creating a trade surplus. This is why solving energy, food imports, and law and order are critical to achieving a viable economy going forward.

Failing to do this will only continue our frustrated attempts to grapple with economic stability and the fiscal accounts, and we will never get rid of our economic masters.

Understanding the effect of an IMF agreement

IN recent months, there has been significant attention placed on the need for Jamaica to have an IMF agreement in place and its timing.

Most persons have correctly stated that it is critical for Jamaica to have an IMF agreement in place, and even more so because of the speculative effect on the US dollar, that it is essential that an IMF agreement be in place as soon as possible.

I also agree that we need an IMF agreement, as quickly as possible, so as to bring greater certainty and confidence to the markets. However, I have always maintained that it is even more important that we balance the need to have an agreement in place with ensuring that we have an agreement that will assist in the "real" development of

the country.

And I say this against the background of the last agreement, which I, along with Ralston, were the first calling for an agreement (with much criticism), but after it came we were also the first to say that it would not have been successful (again to much criticism). I don't think that we have to discuss whether it was successful or not, for the result is there for all to see.

It is against this background that I say it is very important we have an agreement that will speak to the development of the country, and not one which, like the last one, projected oil imports would move from 14 per cent to 14.5 per cent of GDP over the period of the agreement. We must have an agreement in place, that will, as the PM has said, balance people's lives while balancing the books. Because the reason for governance is not to just balance books but to ensure that the standard of living of Jamaicans improve.

With that said, however, this does not mean that timing is not important, as uncertainty surrounding the timing of an agreement will also cause much hardship on the people of Jamaica.

Uncertainty will no doubt lead to higher interest rates and inflation, primarily as a result of the depreciation of the Jamaican dollar. The timing must therefore be aligned with the level of the NIR, and the conditions we agree to.

I have always maintained that while it is certainly the most desirable state to have an agreement in place before the end of 2012, it is not necessary to bring back confidence and certainty to the market.

This is so because investors do not emphasise the current conditions in a market, as much as the future conditions. And in fact, the current condition is assessed in order to predict the future. That is because the nature of an investment is that you make a return in the future not the current.

Unless of course you invest in a Ponzi scheme. Therefore, while many are still arguing about the need to have an agreement in place now, the truth is that the holders of money have long gone passed that period and is now looking at the effects on next year. In fact I think that most investors would have already dismissed the notion that an IMF agreement is coming by the end of 2012, and would have positioned their portfolios accordingly.

What is important, in order to remove the uncertainty, and bring back confidence in the market, is communication around the timing of an IMF agreement. This also must be very transparent and said with a certain degree of certainty.

It is also very important that the agreement be in place before the NIR reach critical levels. My own view is that much of the demand for US dollar is speculative, and not based on immediate demand for business purposes. However, this is to be expected as businesses, and individuals, will seek to improve their financial position and guard against foreign exchange losses, which can have a very debilitating effect on a business or person.

It therefore is a waste of money to be running ads that seek to encourage persons not to speculate on currency else they could end up losing. This is a liberalised market economy, where money is an investment like equities or bonds.

So if an investor sees that they can make money betting on money, then let them take the risk. If they get burnt then it is just like any other investment. What will ultimately discourage persons from speculating on money is when the risk of the investment opportunity is too high for the expected return.

In terms of how much money we can expect to get from an agreement, I believe that Shaw is correct that in the ordinary course of an agreement it will be US$400 million. This is because the IMF lends to countries on a quota arrangement and the last agreement had used up our quota, as far as I remember, to the tune of the US$1.2 billion. It therefore is logical to assume that under the rules, we would only be entitled to an additional US$400 million.

However, I don't see this as a big problem. The fact is that the real immediate challenge the government faces is the fiscal account, and therefore what the government needs is budgetary support. If you cast your minds back to the last IMF agreement, in addition to the IMF loan, an additional US$1.2 billion was supposed to come in from multilaterals, which primarily would be used for budgetary support. You will also remember that in order to have access to those funds it was necessary to have an IMF agreement in place.

This is the real value of an IMF agreement, not necessarily the IMF money. And this is why the BOJ governor has indicated that the US$800 million we received from the IMF is still sitting there, as we never needed to draw down on it for balance of payments (BOP) support, which is what it was available for, as we had a strong NIR.

The declining NIR means that unless we see remittances and earnings increase or imports decrease relative to earnings; or investment funds coming in as a result of confidence being restored, then we will need to draw down on the IMF funds. If we get to that point, then we will see even further declines in the economy. An IMF agreement will lead to investment flows coming in.

Let us be very clear, however, that an IMF agreement will not solve our current economic predicament, particularly if the policy focus is similar to the last agreement. The only way to sustainably solve our economic problem is to recognise that our major challenges are the BOP, and in particular energy and food costs, and law and order. Which if both are addressed properly can add over $100 billion to the economy, with minimal pain, outside of a cultural shift, which will also see increased disposable incomes for Jamaicans.

Why does Jamaica need austerity?

I read with interest the call by Chris Zacca, the PSOJ President, to advise Jamaica's about the austerity measures we are about to undergo with the IMF and it reminded me of a statement made by our PM, Simpson-Miller a few years ago, that it is important to balance people's lives while balancing the books. To many this may have seemed like an election statement, but nothing could be truer about the way we need to approach our future. In any negotiations with the IMF it is important that this is born in mind, especially as I hold to the belief that austerity is. Other necessary to see prosperity in Jamaica. In fact my firm belief is that austerity will only lead to more prolonged suffering for Jamaicans. Europe has experienced this and along with the IMF is retreating from the original austerity focus in favour of the previously rejected stimulus. I want to hear from the voices that were once very much in favour of austerity measures being imposed. I believe Jamaica can easily address much of our economic challenges if we allow ourselves to implement fiscal solutions to our law and order energy options. These hold the key to our economic turnaround and not fiscal austerity. Thee should of course be responsible fiscal spending, but austerity will drive us further into the ground. If we take the appropriate fiscal actions and the necessary calculated risks we can avoid austerity and see robust economic development.

Sandy reveals our vulnerabilities

HURRICANE Sandy has, based on media reports, had a devastating impact on Jamaica. From media reports we will be left with a bill of billions, something we can ill afford now. It will no doubt change the IMF negotiations flavour and result in having more relaxed targets. Any other approach could prove suicidal to our economy.

There are reports of widespread flooding, damaged infrastructure, at least one life lost, and downed trees. This comes when the world is going through their own economic challenges, and in particular Europe (including the UK) and the US, which are our largest donor countries. This implies that the economic aid we have become used to, after disasters, will not be what we are used to, which has never been enough.

Let us remember that this was only a category one hurricane, and we must give thanks for that, else we could have been seeing much more significant damage to our very fragile economy and infrastructure. I deliberately did not say “natural disaster”, as my friend Leachim Semaj would remind me that there are no natural disasters, there are only disasters caused by man’s actions. This is true of the situation Jamaica faces after Sandy.

The fact is, the reason we have so much damage and displacement is because of poor leadership and governance since Independence. It is due to poor governance why we find ourselves in the situation where we still court the IMF in an on-off relationship, since the 1970; why our real per capita GDP is what it was in the early 1970s; why the Jamaican dollar was more valuable than the United States (US) dollar in 1969 to where one US dollar now buys in excess of 91 Jamaican dollars; why law and order generally, murders, in particular, has got so bad that Jamaica is known just as much for reggae music and athletics , as its criminals. I could go on.

So when I hear of persons being flooded out, damaged infrastructure, persons at shelters asking for pampers, or of Jamaicans risking their lives to pick up fallen fruits off downed trees so they can eat dinner; I know it results from poor governance.

Because if we had any idea of what vision we wanted for this country after we received political independence then we would not be where we are today.

I don’t know if anyone else sees it, but we are rapidly getting closer to Haiti than to other countries. What we must understand is that these situations do not happen overnight, but with continued neglect and degradation over time. If we do not start seeing reality, instead of ignoring the signs by saying we should look at positives only, then we will be there soon.

The blame of where we are today, however, is not of our leaders only, but all of us. We were the ones who continuously elected our leaders, even though they neglected us during the five years between elections, and won our affection back with a plate of curry goat, a beer and a rental car. This is the majority electorate, but there were some also who sold their souls to the politician for a waiver or favour. This culture is so chronic that the hotel I wrote about last week was willing to offer only me, of all the dissatisfied Jamaicans, some redress because I threatened to write about the experience.

I know we are not serious about development because we have failed to recognise what will really solve our problem. Unless we see that our fundamental problem is productivity and the balance of payments, then we will always be courting the IMF. I have on many occasions pointed out that addressing our energy crisis and law and order are the only things that will solve our economic, social and fiscal challenges. Anything else is fiddling while Rome, I mean Jamaica burns.

The irony is that addressing these challenges will mean less economic and social pain for Jamaica, than the fiscal approach the IMF has only three years after espousing austerity indicated it was an incorrect approach, and is now supporting stimulus along with responsible fiscal spending. As far as I am concerned, responsible fiscal or personal spending should be in place even in good times. In good times you should save and invest to ensure that in bad times you can spend. The simple logic of Keynesian economics.

I cannot understand why we have not been able to address the energy crisis. Let me first say I agree with the Government’s decision to reduce their involvement in the LNG project. Apart from the fact that Government should rightly, as Paulwell always says, not have any role in determining the energy choice, my view from the start has always been that coal is a much better option for Jamaica, from a cost and supply perspective, for industrial use.

For retail use I am very much in favour of renewable energy. I have personal experience to show. My last light bill was $2,663, and I was able to have electricity when JPS went down during Sandy and the batteries powered my refridgerator, lights, phone batteries, and the radio throughout the night. While I have electricity, my Internet provider’s service went down, which is the frustrating part. This from a system I started three years ago, and added to it as able to, and I am now almost off the grid, which I don’t want to be as the wise financial decision is to use the cheaply provided first 100 KWH from JPS.

Imagine if we had kept the GCT on electricity and used it to create a fund that could provide a credit to persons who install renewable energy at home. The benefits would have been (i) permanent energy use reduction in the short run; (ii) increased disposable incomes; (iii) increased productivity; and (iv) reduction of approximately US$300 million ($27 billion) to US$400 million in imports. Combine that with providing JUTC another $1 billion per year to roll out a much more comprehensive service, reducing the need for personal transportation. This could reduce our import bill by another US$300 to US$400 million. And then if we improve law and order, and add another $50 billion (conservative) to the economy. We would solve our fiscal, economic, and some social issues all at once, and it could be done within six to twelve months.

Instead we have created a situation where our people risk lives to pick up fruits off fallen trees during a hurricane, after 50 years of self-governance. Indeed, Sandy has revealed our vulnerabilities, which in my mind is more in the way we have governed ourselves. Indeed Leachim, there are no natural disasters, only disasters created as a result of man.

Cycling: A lesson for Jamaica’s development

LAST Saturday, I was among a group of men and women, who cycled from Kingston to Negril, as a part of an annual charity ride. Respect is due to these men and women who pay to ride, and support charity each year, enduring 158 miles and approximately 11 hours of pain.

We started the journey in two groups, at 4:30 am and 5:15 am, setting out on the route over Mount Rosser via Fern Gully to Montego Bay and on to Negril. There was an immense amount of planning before, as preparations had to be made for the riders with refreshment and one lunch stop, appropriate support vehicles, police escorts, and ambulance support.

Much like with cycling over long distances, economic development requires planning and preparation for challenges. (Photo: GeS)

This is one of the first areas Jamaica fell down in. We never really determined the route we were going to take to development, and therefore never really prepared and laid out milestones. The result is that we have taken many paths but never seeming to reach because we have never known our destination. We were certain we wanted political independence, but then what.

As we set out, the first real hill we tackled was Mount Rosser. A very important lesson was learned here. Those of us who have ridden that hill before know that you need to manage your energy going up the hill and approach it between seven and nine miles per hour (mph). There were overseas cyclists who went up the hill with a burst, and were soon seen walking with their bicycles up the hill. We completed the hill at our moderate pace.

In similar fashion, Jamaica has never really planned for challenges, and always seem to be reacting. Two examples come to mind. The first is that every year we seem to be caught off guard by nature — rains or hurricanes — simply because our system of parish governance never seems to truly keep the country in a state of readiness. We know that heavy rains come every year, but we do not keep drains cleaned or have heavy sanctions for people who litter. We continue to allow people to build in vulnerable areas after they have been flooded. Or we fail to apply proper town planning and allow businesses to invade residential areas, eventually turning them into slums.

Secondly, in 2008 when it was apparent that the world was going into recession, we never looked perturbed, and acted as if it was going to pass us by. When we started to prepare was when the worst had passed globally, and even today we still do not seem to have come to grips with it. In other words, we knew that the hill was coming but still continued to ride at 20 mph.

The next challenge was going down Fern Gully in the pouring rain, and even more, getting to the end of Fern Gully and meeting the everlasting road works. We were fully aware of the dangers of Fern Gully when it is dry, and when wet it is more dangerous, as you have little brakes. However, if you are aware of the danger, then you ride a certain way — slowly and what we cyclists say as in your drops (holding on to the lower part of the handlebar). Failure to do so will result in what happened to some persons — you fall and suffer serious pain.

What was most discomforting though was the man-made challenge of the road work at the end of fern gully, which is illustrative of the disregard we have for taxpayers in this country. How can we be doing that sort of work in a tourist town (forget about the insignificant citizens for a while) and have the road in that state, and even so for such a long period. We must show our people respect. But I guess they love it as I have heard no complaints.

After a few more hours of riding we made it to Montego Bay, where we stopped to have lunch. We were feeling the pressure of the ride, and wanted to finish, but knew that if we didn’t stop to eat lunch the probability was high that, even though we may finish, we could have done so with much more suffering.

This is a lesson for the world, not Jamaica alone. In perilous economic times, stimulus is necessary. You may be able to make it through but what is the sense of doing so if you are going to make your suffering worse in the process.

With 10 miles to go I was riding behind some cyclists who allowed a gap to open between the group in front. After 148 miles I had little energy to catch up with the group and hit a mental block. Two cyclists (Richie Bowen and Chris Foster) rode up at 25 mph — I was down to 19 mph — and gave me their wheel, which means ride behind them and be protected from the wind to build back my momentum. However, I was not ready to respond until a minute later when Chris Bicknell came at the same speed and gave me his wheel and I went with him. After a few minutes we were tiring and slowing to 21 mph, Billy Perkins went in front and carried us up back to 26 mph.

There are two lessons for Jamaica. We can only develop if we stop the tribalistic approach to politics and come together as a nation, and we can’t join organisations, and expect to benefit, without first being ready ourselves. The EPA, Caricom, and the CCJ come to mind. These are good for us, but only if we prepare ourselves to take advantage of them.

Even with all the pain of the ride, it was fun and for a good cause. The worst part was when I got to Ocho Rios, and after nine hours and 23 minutes in the saddle (total ride time), I, along with other guests, spent two hours trying to check in at Riu, even though we made reservations before. The other experiences at the hotel were very good, but to get to them was a problem.

What really irked me though was when I expressed my disgust and said I was going to write about it, at that time I was asked what could be done to make it better for me. There was no such gesture before to the other guests. I flatly refused the offer as it would have meant that I would have compromised my principles. How could I accept an offer selfishly, when all the other Jamaicans were suffering also? I was insulted that they would think I would have done such a thing, but maybe others have before, and could be the reason why we continue to receive such service in this country.

Growth options for Jamaica

STATIN'S final estimate of the 2012 second quarter growth, shows that the economy declined by 0.2 per cent, when compared to the similar 2011 period. This was as a result of declines in the Goods Producing and Services sectors of 0.2 and 0.1 per cent, respectively, and was the second consecutive quarter of decline being registered.

The truth is that this decline was always expected, given the fiscal consolidation measures, the resulting decline in employment, and the fact that the transport projects have not yet come on stream fully. This is also in light of the fact that the global market has weakened, and the IMF has even downgraded its projection for global growth, which forecast has been impacted by the continuing Euro zone crisis and the impending "fiscal cliff" in the US. If the latter is not resolved soon, then we could be looking at even further declines in the global market.

Increasing production of crops, such as Irish potato, will help to reduce Jamaica’s massive food import bill.

What do these scenarios hold for Jamaica's immediate future? This is especially in light of the pending IMF agreement. The reality is that the IMF agreement, whenever it comes, is really just a band-aid solution on a really bad cut. All it will do is slow down the haemorrhaging, but cannot solve the challenges we face. In order to get on to a path of sustainable development, we must deal with our structural issues. My own view, is that it is because of these fundamental structural issues, coupled with the global slow down, why the IMF has recently downgraded the growth forecast estimates from one per cent to negative 0.5 per cent.

My opinion, however, is that Jamaica, even now, has the capacity to grow even beyond the initial one per cent projection if we were to aggressively adopt the correct fiscal policy options. If we will do it depends on execution, which we have not been accustomed to in Jamaica as far as I can remember.

The first thing we must do is realise that our long-standing focus on the fiscal, to the detriment of the trade, side of the equation is a primary problem we face. The reason for this is that the country's economic challenges come primarily from the fact that we have had a continuous balance of payments deficit, which has resulted in the following:

* Exchange rate depreciation

* Increased debt

* Relatively high interest rates

* Relatively high unemployment rate

* Relatively high inflation rates

* Continued fiscal deficits

These in turn result from crime, low productivity, bureaucracy, and relatively inefficient taxation systems.

Therefore it would seem obvious that if we do not apply policies that fix the challenges of productivity, crime and bureaucracy, then we will not be able to increase the needed competitiveness of our production in order to reverse our BOP fortunes. Without fixing these issues then it is only a temporary solution to get another IMF agreement. We have been flirting with the IMF since the 1970s, and our economic performance has been much less than adequate.

It would seem to me therefore that the policies that we have pursued over the decades have not supported sustainable economic development. The only way for us to deal with this situation is to earn more than we do externally. The logical approach therefore is to resolve the issues of productivity, law and order, bureaucracy, and our tax system. The latter is being dealt with through tax reform but will not be meaningful unless the other structural weaknesses are addressed to a significant measure. This of course if we want to see true economic development take place.

My own view therefore is that the forecast of negative 0.5 per cent is only realistic if we do not address the structural issues. If, however, we take steps to address the structural problems then growth of above one per cent is very probable.

The straightforward BOP areas that can give us those benefits are energy and food. These account for 45 per cent of imports, and therefore it would seem logical that driving policies, within the context of scarce resources, must focus on dealing with these BOP areas. The question therefore is what is causing these imports to be so high. How can we reduce our energy cost and food import bill? This is the question we need to address.

I have on many occasions gone through the strategies we need to adopt to reduce the energy and food import bill, and so will not address here again. Suffice it to say if we reduce these costs by 30 per cent then it would eliminate the trade deficit and solve our fiscal and macroeconomic challenges. The fact also is that this is a path of lesser resistance than trying to deal with challenging external competitiveness head on, as this requires for us to deal with our internal competitiveness, which is necessary before we can even start to think seriously about external competition.

My own computations indicate that if we are to effectively address these structural issues, then you could see an effect of approximately $100-billion improvement in the GDP. The big question, however, is will we seriously challenge these structural issues, having not done so effectively before.

The need for this is even more evident, given the study of debt by the IMF recently that concluded that fiscal consolidation without policies to drive growth will only result in economic stagnation.

So my view continues to be that Jamaica can see growth in excess of the previously projected one per cent, but only if we approach fiscal policy from the angle of addressing certain structural deficiencies.

Cheap energy, low crime key to growth

Over recent months, there have been a significant amount of discussions about the need for an IMF agreement, and what will be our fate with and without one in place.

While I agree that, because of our present circumstances, an IMF agreement is essential if we want to maintain some amount of macroeconomic stability and confidence, the fact is that as a country we really didn't need to have an agreement if we had addressed certain structural issues.

Improving law and order is a critical structural issue that needs to be addressed for there to be growth in Jamaica.

I believe that an agreement was necessary at the time of the 2008 global crisis, simply because the fact that markets were closed meant that an IMF agreement would instill confidence in our financial partners. However, if you look at what needs to be done to solve our balance of payments problem, and our growth challenge, and resultant fiscal issues, it will become obvious that if certain structural issues are resolved, then an IMF agreement becomes redundant.

I am not going to go into any detail on this, as I have done so on many occasions. But suffice to say that oil and food account for 45 per cent of imports, or just about US$3.5 billion. If certain structural issues were addressed, that results in a 30 per cent reduction in the cost of these items, then we will be speaking about an annual reduction in FX outflow of US$1.05 billion. You would also be looking at eliminating your trade deficit in four years, and local economic activity would expand.

Two of these structural issues I want to look at today are energy and crime, as I believe that these two are the most pressing issues we face. Certainly not the IMF agreement. And until we realise this fact, and solve it, then we will have a very long marriage with the IMF.

The issue of energy I have always maintained is the largest financial crisis we face, as the cost is a major deterrent to doing business in Jamaica. It is a primary reason why most businesses are formed in services, rather than production. Recently, however, there was an announcement that the government is going to change its role in the LNG project.

I see no problem with that, as long as no one electricity production company controls the supply of LNG. This could lead to monopolistic practices, which would put us back in the situation that Paulwell is trying to rid us of. I have also always maintained that I do not see any significant savings from LNG. The truth is that I don't care if someone wants to invest their money in it, as long as the minister continues to push for liberalisation of the production and distribution of multiple sources of energy.

The other critical structural issue that needs to be addressed — if we want to see growth in this country — is law and order. This includes crime, and particularly the brutal crimes we have seen over the last two weeks. I say law and order because if we are to solve the incidents of murders and rapes, which we all are so sensitive to, then even though legislation changes, such as DNA, and better investigation training is necessary, it is far from sufficient.

When I hear people talk about the need for tougher legislation and greater crime-fighting resources, I wonder if we are really serious about solving crime. Or more importantly, if we really understand what is necessary to fight crime. Recently, five brutal rapes were committed. I hope that the response is not like when we had a spate of missing children, including young Ananda at the time, where everyone responds with disgust and then it is forgotten until another outrageous incident occurs.

Because if we are really serious about solving crime, and at the same time fixing the economy, then we cannot be speaking about measures to deal with criminals, after the crime is committed. We will need to address the problem of lack of law and order, that is what leads to crime. We must deal with the indiscipline on the roads, the violation of the night noise act, the violation of the zoning laws, and, very importantly, the very slow process of the court system.

What we need is a society ruled by law and order. Not one where we are concerned about the murders and rapes when they occur, but as citizens still continue to practise the indiscipline on the roads and ignore our neighbours' right to peace and quiet.

There is a very strong link between law and order and economic growth and investment. People, and companies, don't reside in a country just because murders and rapes are low, which of course is necessary. But they reside in a country because there are opportunities and the society is a disciplined one, where people's rights are respected and enforced quickly.

So while we continue to comment on the IMF agreement, we must remember that, while it is necessary given our predicament, that it will not by itself solve our problems with prosperity and growth. If we get an IMF agreement without addressing the structural challenges, then we will still continue to face balance of payments, fiscal and economic issues.

Good governance is essential for economic recovery

SINCE 2008, the global economy has been going through a tumultuous time. However, the challenges faced, the global economy will one day recover. We will all forget the 2008 recession, and relegate it to the history books, only to be taught in economics and finance classes. In another 20 years, the children of today will become adults, and the cycle will begin again, eventually leading to other recessions and depressions. The 2008 recession will only be remembered when we fall into another recession or depression and at that time people will compare that future recession with what happened in 2008.

In fact, we may find at that time Europe may once again talk about austerity measures as a tool to end economic stagnation, only to find out again that it does not work.

Factors affecting economic growth have more to do with how we construct our social relationships.

So, irrespective of how we may feel today, the world economy will once again rise and there will be prosperity, waste and even greater consumerism. Even here in Jamaica, we can see that motor vehicle, and other personal loans, are once again on the rise and we haven't even turned the corner as yet. But this is the natural progression of economies. The smart person will, of course, realise this and start acquiring the undervalued assets in anticipation of that rise once more.

Every time there is a global crisis, however, there is always some power and economic shift. Some economies will take greater economic prominence, such as what we have seen with the shift to the BRICs. And some economies, and societies, will face greater challenges and may not recover. For example, coming out of the ‘80s and ‘90s boom, we saw Japan's economy being stagnant for a decade. Now it’s Europe's turn, and luckily for the world, the US escaped a similar fate by stimulating the economy rather than applying austerity.

The bigger fear, however, is that the economy will not recover from the downturn but result in social degradation. Countries that come to mind include some in Africa, and even closer to home Haiti. So even though markets and economies will naturally go through cycles (captured in the theory of the Fibonacci Sequence), there is always the fear to guard against factors that will prevent them from coming out of a slump in the cycle.

This is why socioeconomic relationships, and structures, in a society are so important. In other words, this is why a focus on macroeconomics to the detriment of the social side is very dangerous, as what it does is lead to deterioration if not properly managed. For this reason I support the policies being pursued by Barack Obama, and not the “shock and awe” that the Republican policies would once again bring to the US economy. In fact, Bill Clinton, in his speech at the convention this week, correctly said in saying that those policies would only lead to economic challenges again, as they were the very same policies that caused the problem in the first place.

But what are some of the factors that make a society stay in the economic slump cycle? We could look at our own situation and ask that question also, as we have been in an economic slump since the 1970s. Some may argue that they have seen development. True. But as an accountant, my view of development is when it is done with equity, rather than debt. If you have to rely on debt to achieve development then you are in a slump.

The factors that prevent an economy from emerging from a slump are societal in nature. The factors have more to do with how we construct our societal relationships, which also filter into our economic relationships. Fundamentally though, it has to do with governance and our political system more than anything else.

It’s how we govern that determines our crime levels, law and order, bureaucracy, and priorities. This was the primary principle that Clinton addressed in his speech. Governance is the main factor that continues to drive the US economy to be the longest dominant superpower, and also why so many people flock to their embassy. Because with whatever imperfections they may have, in my view, it is the best of an imperfect world. And if I get any messages from any Jamaican, who has migrated to the US, disagreeing with me on this point then…

Another very important factor that comes directly out of governance is the issue of law and order. This is the most damaging factor that can ensure that an economy does not emerge from a slump. If there is no law and order, then there will be indiscipline. And if there is indiscipline then there will be crime. That is such a simple equation that if it formed the main part of the math curriculum, we would have had excellent results at CXC.

Because people are more impacted by major crimes, we tend to focus on them rather than the underlying cause of lawlessness. This is what the US has mastered. Irrespective of whatever else is happening there, they have established a system of law and order in their country where everyone is treated the same.

So even while the global economy is moving ahead on all engines once more, we have to understand that if we don’t solve the problem of law and order, there will be no improvement in our justice system. There will be no improvement in productivity. There will be no improvement in income levels. There will be no improvement in the fiscal accounts. There will no improvement in our debt situation.

And law and order does not just mean that citizens be held accountable under the law, but more importantly, that those responsible for upholding the law are being seen to do so in the interest of the citizen.

So as we move forward to take advantage of the coming economic recovery — that will see a new economic balance between countries — which side will we be on?

We must agree on education

Based on some discussions I was having on Facebook recently, I have made a decision that I will offer no public commentary (written, interviews, or public presentations) on the macroeconomic environment, debt, IMF, or any predictions on where the economy is going, for the next few months. That is not until late January 2013. I will restrict any public commentary to any specific issues, more to deal with matters outside of any discussion on the macroeconomic environment, such as public sector rationalization, education, crime, energy etc.

I will still however accept any calls from anyone in the media who wants an explanation of certain issues, which I do give occasionally. Just that it will be for their own personal consumption. The reason for those who have asked is that I want to focus on some specific issues I think are very important and leave the economic issues to those charged with the responsibility for it.

What I would like to discuss today, however, is a matter that came up during the last administration, and has arisen again. In the last administration both the then education minister and the opposition spokesperson on education, agreed that children should not be forced to pay auxiliary fees to school, as everyone must have access to education. This time it is the current education minister who is saying that students must pay the auxiliary fees, and the opposition spokesman is saying that they should not for the same reason.

On the first occasion I was a member of the Jamaica College (JC) school board, and saw the negative effect that the lack of these fees can have on the general quality of education, as there would be no resources to run the school. A big part of the problem is that government does not provide enough funds for a school to even exist, much less to provide quality education.

My position is the same today as it was then. That is auxiliary fees are essential for the school to run, and government should not expect that the schools can run without filling the funding gap, which they don’t have the money to do. If the students do not pay this fee then how can we expect that the equality of education will improve, particularly in the schools that are already struggling to keep up with the more traditional high schools? How can we expect to turn out greater productivity in the work force if we do not provide quality education att he secondary level because of lack of funds?

It is for this reason, and my first hand experience, why I am fully in support of the position of the education minister on this. We always say that we want someone to lead by doing what is right for the country, and not popular or politically motivated. Well this is an example of a principled position.

In our 50^th year of independence, how can we seek to encourage this dependency syndrome at such a basic level? The auxiliary fees average maybe around $10,000 per year. That is the equivalent cost of a phone, a few weeks call credit, a pair of shoes, two trips to the hairdresser, or going to a party or two. Why would we want to encourage any parent out of making the right choice for the sake of their children? What sort of society would we encourage when we do that.

In any event the solution cannot be for persons to pay auxiliary fee if they want. The system must be that auxiliary fee must be paid, and if you need help then seek some assistance through the government programme. But not continue to give the people a fish rather than teach them how to fish. Or is it that politicians still want people to remain dependent on them for handouts, lest they lose their power.

I see for example that politicians have come out against the recent eviction of some squatters, and saying that government must find a place for them to live. If the land is owned by a private individual don’t we understand that when as politicians we make these sounds that we are saying that private capital is not welcome? And if we scare private capital then will it not mean that the same people we are trying to help will only get poorer? Or are we content with how our society, and dependency syndrome, has developed over the last 50 years and want to continue it.

When someone has eight children, with another on the way, is it the responsibility of government, and other taxpayers to take on that responsibility. Please let’s start the change we need in this country and not start teaching the next generation that they should rely on government for everything. Auxiliary fees, especially at such small amounts, must be compulsory and I fully support the minister on his stance. It is all about taking personal responsibility for our actions.

If after we gained “political” independence in 1962 this was the theme throughout the society, we would have seen much higher standards of living today. Instead we have a lower literacy rate than Barbados and Trinidad, and we had no choice but to reverse the “free” education policy started in the 1970s, which to my mind was a good thing but did not have the structural support.

The other issue I want the minister to deal with is the dreaded GSAT exam. Years after it has been implemented we see where there seems to be a greater disparity between traditional and non-traditional high schools generally, worsening CXC results, and more importantly children focusing so much on academics that they shun in many respects the very important development aspects of sports, socialization, and health.

I see much academic talent coming out of the schools, but child health issues is a problem, and I find that the teamwork ability that we get from sports is lacking in many of the children. Maybe it’s because the other distraction is just sitting around a computer and video game.

Minister, I don’t know how many people will support you, but I am totally in your corner with this one, primarily because it is the right thing to do. If we disagree on everything else, one thing we must agree on is education.

After Jamaica 50, Olympics comes economic reality

NOW that the euphoria of the Jamaica 50 and Olympic celebrations are over, many of us are now getting back to reality. This reality has always been present for some of us, unlike the Jamaican in the diaspora who sent me a Facebook message to ask that us residents not discuss the challenges Jamaica faces during the Olympics as she didn't want to read about anything depressing during that period, so that she could enjoy the Olympics. In my words, why don't you natives in Jamaica stop talking about the problems there so that we in the diaspora can enjoy the successes Jamaica has in the Olympics without any distractions.

This is the reason why I do not support the diaspora being given the right to vote, or make any decisions affecting Jamaica and Jamaicans.

Governor of the Bank of England, Mervyn King, who was at the forefront of the UK’s austerity drive three years ago, this year said that if the austerity measures were continued, the UK economy would continue to decline.

So us residents now, have to deal with the reality of the need to have an IMF agreement in place, continuing to deal with the fiscal and crime challenges, and two days after our birthday seeing unemployment raise with the addition of another 207,000 persons to the unemployment line. This will no doubt push more people into the informal sector of the economy.

Going forward though, us natives will have to find a way to address the development challenges we face. We must seriously ask ourselves. Have we been tackling the problems correctly, and what do we need to do to ensure that we increase the quality of life for us as citizens?

Another question we must ask is: How do we do so in a challenging global environment? I think it is very clear for the world to see now that the austerity measures that Europe embarked on three years ago have not been working and will not work. In fact, Mervyn King (governor of the Bank of England), who was at the forefront of the UK's austerity drive three years ago, was quoted in February as saying that if the austerity measures were continued the UK economy would continue to decline. This, after it slipped back into recession. Greece, which is in its fifth year of recession, recently saw another annualised GDP decline of 6.2 per cent. King was only this week quoted as saying that he saw no end in sight for the Euro debt crisis.

The US, on the other hand, under the leadership and insistence of Barack Obama, chose to increase the debt and stimulate the economy. This has resulted in the US economy seeing small but consistent GDP growth. The US should be thankful the Republicans were not in charge, else they would still be in recession.

In the case of Jamaica, we have sought to consolidate on the fiscal side, but also we have introduced some stimulus measures. These include the JEEP programme and we have restarted JDIP. In addition to that there is the intention to kick-start the projects under the Ministry of Transport, which cannot come soon enough, as the growth projection numbers without them will be stagnant and you could be looking at increased unemployment.

However, while these are necessary to keep the wheels of the economy turning, it is far from sufficient if we want to start the engine of development. We need to change how we think about solving these economic problems that has plagued us since the 1990s. That is development must be driven by two things: (1) the main focus must be on the Balance of Payments; and (2) we will need to get projects on the ground to stimulate the economy through greater employment.

If we can succeed with these focus areas then the fiscal accounts will not be a problem. It is even more critical to deal with these, as without addressing these fundamental problems the fiscal accounts will always have a problem. And the truth is that, if, as S&P says, our fiscal choices are restricted much further then the fact is that the next area to look at for reducing will have to be the public sector wage bill which, in my view, would be disastrous to the economy.

Many will say that the public sector is too bloated, and needs to be cut, and will even agree with the no more than nine per cent of GDP argument. My question is on what basis do you say that the public sector is too bloated and what is the magic of nine per cent. Many persons who say that do not have any evidence to support that argument apart from what the IMF has said. My argument is that with unemployment being over 14 per cent, consumer and business confidence falling, and the IMF agreement not yet finalised, we would be suicidal to think about putting more people on the unemployment line.

What we must therefore do is, while providing the jobs stimulus needed (and it must be done strategically), our focus must be to grow the overall GDP, and not narrowly focus on debt reduction. I agree that our debt must go down, and not just the debt-GDP ratio, which can be inflated away. However, we must reduce the debt not by sucking the life out of the economy, but by increasing the income available to pay it off. Greece tried the "squeezing the life out of the economy" way, and they are in their fifth year of recession.

My own view is that it is not difficult to do this. It, will however, require no lesser office than that of the prime minister, to make sure that it is co-ordinated with all ministries. I have mentioned on many occasions the method by which this can be achieved, and so will not bother to reiterate. But suffice it to say that between energy, crime, and transportation, you are looking at over $100 billion that can be added to the GDP.

One other thing I would like to mention here is my synopsis of what I think the way forward for the energy sector should be. I am in full support of the view expressed by the energy minister that the distribution monopoly, currently held by JPS, must be broken up if we want to enjoy the benefits of lower energy prices on a sustained basis. My own view has always been also that we could end up regretting any decision to focus on LNG only as a replacement, as the price of LNG is projected to increase. Diversification must be the answer, but more importantly it must be diversification led by multiple players in the market, not by a monopoly.

Minister Paulwell, full speed ahead. You are on the right track as you have done already with the telecommunications sector.

Jamaica 2012: A time for reflection

I didn’t watch the full Emancipation message delivered by Prime Minister Portia Simpson Miller, but did see excerpts of it. I think she has hit the nail on the head when she said that Jamaica needs to use the occasion of the 50th year of Independence to reflect. We need to reflect on what went wrong with our development, because where we are today is not where most of the people, in 1962, thought we would be.

I have talked to some persons who, in 1962, felt a sense of pride seeing the Jamaican flag replace the British flag. However, many of them today question whether we made the right decision in 1962 to seek Independence from Britain. We have only recently seen where Britain stepped into the Turks and Caicos to restore confidence in the public bureaucracy there. Maybe if we were still a colony they would have stepped in to do the same here.

Prime Minister Portia Simpson Miller lays a basket of flowers in tribute to the ancestors during the Emancipation Jubilee celebration early Wednesday morning at Seville Heritage Park in St Ann.

My own view is that despite the fact that we have failed miserably to deliver a better tomorrow for the children, it was indeed the right decision for us to seek Independence in 1962.

There is no arguing the fact that we have failed miserably to deliver the hope that was promised in 1962. It was Norman Manley himself who said that his generation had accomplished the mission of seeking political independence, and the next generation had the responsibility of achieving economic independence. Can we truly say that he would be happy with what we have achieved? Can we even say that he would be happy with the way we have treated our political independence, where we have developed two tribes, that I remember clearly would kill each other because of the colour shirt worn in the run up to the 1980s election.

Would he be happy with the fact that even 50 years after we are still very much divided among party lines, not so much at the level of the politician, but more so at the level of the ordinary citizen. Would he be happy to see that elected officials are abusing the person in parliament responsible for carrying out the “law” there. Would he be happy to see the way we abuse the rights of our citizens, by keeping them locked up without charge, or for the way that the justice system is administered. Would he be happy to see how we have developed relative to the rest of the region.

We could also ask the same question of another of the founding fathers, Alexander Bustamante, who in 1938 led the labour riots and went to jail for the cause of the working class. Would he be happy to see that in 2012 the GDP per capita is the same as it was in the 1970s.

And if we are uncertain about the answers we would get from them, then ask one who was around at that time who is still alive today, Edward Seaga. Ask him if he is happy to see how Jamaica has progressed over 50 years despite the sacrifices he has made to stay in public life.

If the answers are that they are happy then we have much to celebrate. But if they are not happy then as the Prime Minister said, we must take time to reflect on what we have done and what we need to do.

I am sure that there are many things right about Jamaica, and I think it is still potentially the best place to live. The things that are right about Jamaica can be seen in the “Wray” and “Digicel” ads, and are things we speak of every day. The culture, food, sporting accomplishments, the relaxes atmosphere, the beauty of the island, our tourism, our bauxite, and our people. These are the things that we speak of when we talk about Jamaica. But these things have existed since 1962, and are either as a result of the working class or individual achievements.

Even our tourism and bauxite has survived against the odds. Our tourism has thrived because of the ingenuity of a few, who because they saw that tourism could not exist in its original form, because of crime and environmental degradation, bought beautiful pieces of Jamaica and locked away the tourist in all-inclusive resorts. Bauxite has survived because of foreign investments and previously high demand, because for 40 years we have failed to address the policy issues that would have made these plants more competitive through energy.

I agree also that we have seen much infrastructure development, but not enough. When I look at documentaries on Singapore I see stories of high-rise buildings, and a lot of industrial construction. Most of our own infrastructure development has happened from government intervention, or housing developments, which again through the NHT is government intervention. So even the infrastructure development is not because of well, “development”, but rather government intervention from debt.

We do have the raw material needed for development. These are all the things I mentioned above. But we are like a child turning 18 in 1962, who our parents gave all the tools to succeed. We had a strong dollar, bauxite, tourism, growing industries, good transport system, and concessionary prices for goods we produced. What they never taught us, however, was to govern our people in such away that we could realise their full potential, but rather left us with a philosophy that bureaucratic structures and the security forces are there to control the people rather than protect them. So 50 years later when we would be 68, that child turn adult, is now up to his ear in debt and has managed to isolate all his friends and family, because of the divisive way in which he sets one set of family against the other, never trusting anyone.

So it is indeed a time to reflect on what we want for the next 50 years, instead of just thinking about the massive party that is planned for us during these celebrations. Because after the party what? For if we are satisfied with the last 50 years of development, then sure lets party and go back to what we have always been doing. But if we are not satisfied, or can’t answer either way, then as the prime minister said, let’s reflect on what went wrong and what we need to do.

At 50, Jamaica still not truly independent

ON August 6, 2012, Jamaica will celebrate 50 years of political independence. I deliberately say political independence, because after 50 years we still have not come to grips with how to manage our finances, and consequently our economic fortunes. In fact, we have never truly been economically independent, not even in the booming 1960s, and so we can safely say that we are still economic slaves.

In the 1960s, even when we were growing at rates in excess of 10 per cent per annum, we still were supported to preferential rates for sugar and banana, and so we never really stood on our own two feet fully. During that time we were learning to walk, and started to creep with help from the old colonial masters. Today, as a 50 year-old adult, we still remain on the breast of other countries, and so in our 50th year of self- governance we are clamouring for support from the IMF.

Jamaica has made much progress over the 50 years, but a lot of the development is as a result of debt, not earnings. (Photo: Aston Spaulding)

There are some who like to hide their heads in the sand and say that we have much to be thankful for as we have achieved much. They point to our sporting and cultural success; the amount of road and building constructions; more access to communications, cars, and other luxuries. I, for one, would never deny that Jamaica has not made progress because we have in many respects.

We have become a very powerful international brand; a lot of development and institutional establishment have taken place; there has been much social and legislative improvement; our tourism product is number one; and we have seen a lot of commercial development.

However, when one looks at development and success, it is never done in isolation. So while there is no denying that we have made much progress, the truth is that a lot of the development we have seen is as a result of debt, not earnings. This is tantamount to a person of 50 years having a house, car, and other assets, as a result of either debt from the bank (loans) and/or gifts from his parents (grants). He has not, however, developed enough to be able to afford these things from his own ability to earn.

Also, development and success must be seen relative to others. In 1962, Jamaica was seen as the jewel of the Caribbean, and in fact we were visited by Lee Quan Yew,

as an example when he was developing Singapore. Secondly, we were in a position to refuse Federation with other Caribbean countries because we were fearful that their poorer economies would have been a burden to us. Well, today much of our economy is owned by two of those economies — Trinidad and Barbados.

* In 2012, our GDP per capita is the same as it was in the early 1970s — 40 years later.

* We have one of the highest murder rates in the world.

* We have one of the highest debt-to-GDP ratios in the world, and only recently we were being compared to Greece.

The fact also is that when you look at the areas of our excellence — sports, tourism, culture, and music — these are all based on the exploits of individual Jamaicans, and has nothing to do with any support structure provided in the Jamaican environment. In contrast, the Jamaicans who have done well in these areas, such as Bolt, Ottey, Powell, Fraser-Pryce, Louise Bennett, Bob Marley, Butch Stewart, Ranny Williams, etc, have all done so in spite of the many challenges faced in the Jamaican environment.

Our governance has failed us miserably, so that 50 years after colonial rule, we still find that the lower-income classes are discriminated against. We have areas (inner cities) where many Jamaicans cannot go to. In fact, we have greater access to other countries than we do in these areas within our own country. We find almost on a daily basis that there is a conflict between the police and our citizens, or we find that our governance is executed in such a way that we find it easy to tarnish the name of people, as a result of our political parties or bureaucrats believing that they have a right to impose anything they want on citizens who do not share their views.

So 50 years later, our citizens are still under a form of colonial rule.

Fifty years after, we have a school exam in place (GSAT) that encourages class discrimination, as based on the school you end up at you are seen as either having a future or not. I am happy to see that Minister Thwaites is trying to change this because we cannot continue to expose our young to this type of discrimination.

And if we talk about business development, we see that the businesses that dominated close to 50 years ago are virtually the same that exist today. Little or no private sector innovation, which is reflected in the number of listings on the equities markets over the period.

Back to the issue of discrimination, though. This discrimination is reflected in how we treated the issue of the Jamaica 50 song. My main issue with the nonsensical approach to this Ja 50 song business is not the play out of the polarisation of the people by the arguments about the song, but that we ignored the festival song competition as the avenue to select the song and chose to give the spoils to a select few. The competition has historical value and I think it would have been best to choose the Ja 50 song from this competition, and provide a cash prize of around $2 million, and so open it up to the creativity of our Jamaican citizenry. This for me was a reflection of how we have developed.

The governance that has got us to this point also manifested itself in the disgraceful behaviour in parliament a few weeks ago, when there was a blatant refusal to obey the rules (law and order) by those who are supposed to uphold it.

So after 50 years, and being born after Independence, I think Jamaica can be the best place on earth to live if we take our governance seriously. We still have the potential to be the most attractive place on earth to live, but we must all take responsibility by realising that we are all Jamaicans, and not two tribes living in one country. If not, then in another 50 years the children will be asking about the lost 100 years of Independence.