Leadership in this time of crisis
REFLECTING on the agreement with the International Monetary Fund (IMF) for a US$1.3-billion loan over 27 months and the consequent new tax package, Prime Minister Bruce Golding correctly concluded that the Jamaican people will judge him “by the strength and quality of leadership” he provides in this time of crisis.
Based on the goals he and finance minister Audley Shaw outlined at a special sitting of the House of Representatives on Thursday, the prime minister will have to deliver the kind of political leadership that he has long promised but not yet shown, if the judgement is to be kind.
At the end of a sombre presentation, Mr Golding again promised much, declaring that what’s required now is “not leadership that strives for popularity”, but leadership that is about “securing the country’s future”.
At issue is whether the prime minister will stick to ‘securing the country’s future’ or follow one of the iron laws of politics which states that the purpose of politics is to win and maintain state power. Violating the ‘law’ can mean political oblivion. It cannot be assumed that the prime minister has set out on a path he knows will end in the political wilderness, hence we must assume that he believes he has a good chance of succeeding.
In the short term, ‘success’ will be measured by the extent to which the prime minister and his colleagues can convince voters that there is no alternative to the bitter medicine people are being asked to swallow, and can show definite signs of improvement and return to health in the medium term.
The basic outlines of the crisis are clear enough. Economic growth has been minuscule for most of the past two decades and the country has been borrowing to survive. According to Mr Shaw, the cost of servicing the debt has exceeded total revenue from taxes and grants in all but three of the last 10 years.
This situation has been exacerbated by the global economic crisis. “Jamaica has been hard hit by the global economic crisis, in particular through a sharp decline in bauxite and alumina output, a fall in remittances and a slowdown in tourism revenues. The economy is expected to shrink by around 3.3 per cent in 2009,” the IMF said in a statement on their website on Thursday.
Among other things, the present situation means that Jamaica can no longer get loans from the world’s capital markets: There is little money to lend and the little that is there is not available to countries like Jamaica which has a hard time meeting its obligations. So the IMF is the only place to turn, but there are conditions.
According to the IMF statement, the basic goals of the agreement reached with Jamaica include addressing the country’s economic imbalances and putting “Jamaica on a path of sustainable growth”; resolving the problem of an “unsustainable” debt position currently at over 130 per cent of GDP and other weaknesses in the economy.
Among other things, the Golding administration has committed itself to implementing a credible medium-term fiscal framework and a proactive debt management strategy to put the debt-to-GDP ratio on a clear downward path.
“This involves a coordinated set of fiscal reforms to: (i) strengthen public finances, including through new fiscal responsibility legislation; (ii) reform public enterprises and public sector employment; and (iii) make the tax structure more efficient.
“Measures could include a mixture of controls on public sector salaries, some tax increases, as well as cuts in other spending.”
As a first step, Government has had to embark on a new tax package that could have political fallout because the burden has been placed most heavily on middle-income and poorer consumers and could also constrain economic activity.
The package includes new taxes on cigarette and petroleum products; an increase in the basic General Consumption Tax (GCT) rate from 16.5 per cent to 17.5 per cent; introduction of GCT on most basic food items besides rice and counter flour. GCT will also be introduced on household electricity usage above 200 kilowatt hours per month.
The measures take effect January 1 next year and are expected to yield some $21.8 billion in a full financial year.
More can be expected as the prime minister signalled that property taxes will go up at the start of the 2010-2011 financial year next April.
The finance minister sought to cushion the impact of some of the tax measures by announcing an increase in social safety net spending to protect the most vulnerable. These include a 50 per cent rise in the budget of the PATH (Programme of Advancement through Health and Education) cash transfer and the schoolfeeding programmes. These will soften the blow, but the package is a big blow nevertheless.
Another big test for the prime minister will be control of public sector salaries. He firmly declared that the public sector wage bill, now at $125 billion (up from J$84 billion when the Government took office two years ago) will not be allowed to rise over the next two years.
However, he will have to contend with the fact that the public sector unions have not given up on the seven per cent increase they were forced to forego this year despite a contract saying they have a right to expect it. He will also have to contend with the fact that teachers will expect their retroactive entitlements and the health sector expects reclassification. These concerns will make it extremely difficult to hold the line on public sector wages.
On the matter of public sector reform, the prime minister should lead by example and deliver on his promise to cut the size of the political executive ahead of the longer reform process he has set in motion. But this could mean shortening political careers and could cause resentment among JLP parliamentarians.
Another big challenge is tax reform, which would bring more people at different levels of society into the tax net. This is a laudable goal but it will run up against vested interests accustomed to waivers, concessions and a culture of non-compliance.
Another is that the Government will have to pass laws that will force it to adopt prudent fiscal policies. This is a straitjacket on the independence that ministers of finance have enjoyed, even if that means running unsustainable deficits.
So Mr Golding is right that these are times of crisis requiring leadership that has the courage to take the right decisions in the best interests of the Jamaican people and not in relation to the shortterm political interests of the party in power.
A recent Gleaner Editors’ Forum with a range of past and current leaders in various spheres of political and business life concluded, “The tendency of leaders to opt for easy political shortcuts at the expense of long-term developmental goals for Jamaica has been blamed, in large measure, for many of the ills besetting the country, 47 years after it gained Independence.”
“The state of leadership is weak. It is not providing guidance and not sufficiently mindful of the problems facing the country,” asserted Edward Seaga, who served as prime minister between October 1980 and February 1989.
Mr Golding seems to agree. Over the next few months we will see whether he will do more than just talk the talk. It is important that we get it right, that it is fair and it provides real hope.
kcr@cwjamaica.com