As crisis deepens expect spontaneous outbursts of social unrest, unconnected to any political party. - File
An intense debate has erupted around the details of the $547-billion Budget. The deficit which remains unfinanced is about $55 billion. Government operational expenditure as well as the capital budget will have to be to cut to the bone. There will have to be at least a freeze on public-sector wages. Very likely, there will be a new tax on petroleum products. Equally likely is a substantial increase in bus and taxi fares. Some approach to the International Monetary Fund (IMF) and World Bank looks unavoidable.
Air Jamaica is likely to close before year end. Discretionary GCT and corporate tax exemptions for certain sectors (primarily tourism) will have to be revoked. The proposed reduction in corporate income tax from 33 per cent to 20 per cent - a revenue loss of about $6 billion - will have to be shelved. Some approach to renegotiating the domestic debt will become inescapable. Economic growth is likely to be at least negative three per cent. Instead of job 'creation', we are facing severe job losses. The youth unemployment rate in particular is set to soar.
Grave situation
This is the grave situation that we face. Bruce Golding is to be greatly commended on his decision to take a 15 per cent pay cut. This is an extremely important symbolic gesture, reminiscent of what former Prime Minister Erskine Sandiford did in Barbados in their 1991 crisis. However, this comparison brings out precisely what the problem has always been with this Jamaica Labour Party government and, to some extent, with the Opposition. Unlike Sandiford in 1991, Golding continues to grossly underestimate the depth of the crisis which Jamaica faces. In focusing on the details of the wage freeze and the likely tax package, we run the danger of missing this larger point: The crisis which we face is much larger than either what the Government or the Opposition is conveying to the country. It requires more drastic measures to address it effectively.
In 1991, when faced with a budget deficit of 7.3 per cent, Sandiford not only cut his own salary. In addition, he laid off thousands of public-sector workers. He cut (not froze) salaries by eight per cent for an 18-month period. Jamaica faces a far graver situation than anything faced by Barbados and in a far harsher global environment. The bitter truth therefore is that the measures being taken by the Government in this Budget are simply not enough and the line of criticism so far emanating from the PNP has been even more misguided.
This has been the consistent problem with the Golding government even before it came to power. It was warned during the election campaign that its economic platform was unrealistic. Yet, it persisted with its free education and health-care expenditures and the waiver of stamp duty on some real-estate transactions. In the present Budget, the underestimation of our dire economic situation continues apace. The basic thinking behind this Budget and in the Government's economic calculations is that the current global recession will end soon and the world and Jamaican economy will bounce back by the time the next Budget cycle comes around.
But this is far from being the case. The net worth of US households has declined by 20 per cent. At the same time, the US savings rate has risen to five per cent. What this means is that any discretionary income which people have is not being spent on vacations or the purchase of cars and consumer durables. Most people in the US are trying desperately to pay down their credit-card debt and to build up their savings. This is why new car sales - a primary consumer of aluminium - continue to plunge. As others have pointed out, this newly found conservatism of the US consumer will probably require a substantial new stimulus package later in the year.
Three lean years
What this means for us is the following: We have at least three very lean years ahead of us, possibly four. Translated into Jamaican electoral politics, this means that by the time the next election comes around, the economy will still be in decline, we will still be experiencing job losses, youth unemployment will still be climbing and so will our crime and homicide rates. In a situation such as this what is needed is to drop the perspective of focusing on a single-Budget cycle: We really need to look at our prospects in this global context over the next three years or more in a single budgetary bloc.
No political one-upmanship
We also cannot afford any political one-upmanship from either the Government or Opposition or, for that matter, from civil-society organisations. We desperately need to close ranks, face up to the severity of the crisis and ensure that the steps we take to ease the situation do not tear the social fabric further apart. A society is not a firm and its problems cannot be approached like one would approach a firm's problems. We have to take drastic actions but these must not only be socially just - they must manifestly appear to be just to the mass of the Jamaican people. Otherwise, we will rue the day.
We must never forget that the deficits which we see showing up in our Budget and balance of payments reflect real deficits of low production and productivity in the real economy. None of this is likely to change over the next three years. We must also not forget that what determines how our economy performs is not so much what we do locally. What really counts is the state of global demand for what we have to offer the world: global demand for vacations, for aluminium and for the labour of immigrants which show up in remittances. Consider this reality: the three chief drivers of our economic life - tourism, bauxite-alumina and remittances - are not controlled by us but by economic and political decisions taken elsewhere.
This does not mean we are powerless. There is much we can do (in education, infrastructure development, domestic agriculture, efficient and far-sighted economic management, security, provision of services) to improve the conditions of life for the Jamaican people. But like all small and vulnerable economies, we are market-takers not market-makers. From the time of Columbus, we have been the original export-led economy, overwhelmingly dependent on the ups and downs of the global marketplace. This, among other reasons, is why talk of a Jamaican 'stimulus package' makes no sense. We can do very little to stimulate increased tourist expenditure, aluminium consumption or remittances.
Tough times ahead
Very tough times are ahead for Jamaica and much of the developing world which are likely to last for some time. We should anticipate that a situation such as this is likely to generate spontaneous outbursts of social unrest, unconnected to any political party. The spontaneous protests at the Gran Bahia Principe worksite in St Ann recently would be one such example. Remember: a similar crisis in the 1930s led to 1938!
Also likely is the growth in banditry and new forms of criminality carried to new levels of destructiveness islandwide. This is particularly likely because the vast majority of youth are already alienated from the political process and will not see any point in channelling their grievances into any political alternative. Neither the JLP nor the PNP appears credible to them, so they will simply form their own criminal organisations to fend for themselves. Not all the hullabaloo around by-election victories can hide the disaffection which is proceeding apace at the base of Jamaican society. The lukewarm attendance at the recent opening of Parliament sends a signal that an even wider gap is opening up between the people and both political parties, indeed between the mass of the people and all of official Jamaican society. Make no mistake about it, this gap is going to grow. We had better start reaching out to the people and begin to act with wisdom and a sense of responsibility.
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