Prof Wint’s prescription for sustained
SANTA CRUZ, St Elizabeth — Jamaica’s push for sustained growth and development will only be achieved if there is a successful interlocking of the “three pillars” of social stability, investment, and innovation, says leading academician Professor Alvin Wint.
Importantly also, says Wint, there must be “honest conversations” and consensus within the framework of the Social Partnership agreement signed earlier this year about touchy issues such as devaluation and indebtedness caused by Jamaicans’ tendency to live above their means.
Wint told a recent awards banquet, jointly hosted by the St Elizabeth and Manchester credit unions at Bennett’s Catering Hall at Luana, that “the most important reason for Jamaica’s lack of economic success since independence has been its relative level of economic, social and policy instability”.
Comparative stability was the reason Jamaica’s Caribbean neighbours with similar “geography, history and culture” were enjoying far greater economic success, he said.
Identifying crime and the country’s “world leading” murder rate among the causes of social instability, Wint said the society, though agreed on the need to combat criminals, needed to come to a common understanding of how to go about it.
Wint recommended a 10-point plan put forward by fellow academician Professor Don Robotham for consideration:
* Community development and renewal in selected inner cities;
* Addressing failures in the educational system, particularly associated with male drop-outs;
* Breaking the nexus between garrisons, gangs and political parties, including through campaign finance reform;
* Police transformation;
* Strengthening (not weakening) of the civil rights of Jamaicans;
* Gun and ammunition interdiction and control;
* Legislation levying fines on carriers for arms smuggling;
* Appropriate crime-fighting information technology coupled with appropriate research;
* A critique of consumerism; and
* A macroeconomic strategy that reduces rather than exacerbates inequality.
Wint called for national consensus on dealing with Jamaica’s crippling indebtedness and the implementation of policy to ensure that the mistakes of the past are not repeated.
He identified borrowing to finance recurrent expenditure, Government’s spend of billions of dollars on projects such as the failed national airline, Air Jamaica, the sugar industry, bauxite investment partnerships and the rescue of banks and insurance companies as well as unavoidable costs linked to natural disasters as having had a huge drain on the national economy.
He urged “an honest conversation” about the value of the Jamaican dollar, relative to its US counterpart.
There has been widespread alarm in recent months about the slide of the Jamaican dollar (currently priced at about J$105 to US$1) against the world’s hard currencies. Spokesmen for the multilateral lender, the International Monetary Fund (IMF) with which Jamaica has a lifeline borrowing agreement, have said in recent times that the Jamaican currency is actually overvalued, relative to the country’s production of goods and services.
According to Wint, the “honest conversation… should say … that past borrowing… has allowed us to consume at a level that is unsupported by Jamaica’s earnings”.
This, he said, has “led to increasing inequality, as the wealthier in the society benefited from the high interest instruments on offer from the Government that have to be repaid from tax revenues. In this context, the honest conversation must move away from a focus on the nominal exchange rate to a focus on the real exchange rate (that is the rate adjusted for the differential inflation between Jamaica and the relevant trading partner).
“Over the last 10 years, for example, Jamaica has experienced average annual inflation of 11 per cent and the US has experienced annual average inflation of two per cent. The most fundamental theory of exchange rate determination, purchasing power parity, would suggest that, under these circumstances, the Jamaican currency should experience a nominal depreciation of 8.8 per cent per year against the US dollar.”
According to Wint, “even with the significant currency depreciation experienced in 2013, the annual average nominal depreciation of the Jamaican dollar, relative to the US dollar, has been 5.6 per cent over this period”.
He noted that the “pressure for currency depreciation, based upon inflation differentials, has been offset by inflows of foreign currency (from residents and non-residents) associated with foreign direct investment and credit inflows linked largely to the more attractive interest rates offered by the Government of Jamaica”.
According to Wint, professor of international business at the University of the West Indies (Mona), “the debt inflows are largely unsustainable, and simply put off the day in which the country has to reckon with the challenge of living within the foreign exchange resources that flow from its own earnings and the kindness of its diaspora and others.
“Seen from this perspective, a level of nominal currency depreciation that more closely allows the country to recognise its true earning level, and put in place mechanisms to improve its level of earnings, is part of the solution to the country’s debt problem”.
He stressed, however, that “currency levels have to be managed to preserve order and prevent chaos”.
Wint argued that while this year “Jamaica has experienced more rapid nominal depreciation than is warranted by this year’s inflation differential, (it) also has to be taken against the background that in 2010 and 2011 the nominal exchange rate appreciated, despite inflation of 12 per cent in 2010 and six per cent in 2011”.
A source of worry, according to Wint, was that “even with the recent exchange rate depreciation, the Jamaican Government’s wage bill, measured in US dollars, increased by about four per cent per year between 2007 and 2013”.
He warned that “Jamaica has to manage its public sector wage bill. This is the honest conversation that must be had on the exchange rate and recurrent expenditure”.
He urged clear thinking and consensus on other crippling problems such as high energy costs, and the difficulties in doing business and paying taxes in Jamaica.
Recalling that in Jamaica’s catastrophic financial crash of the 1990s, credit unions escaped virtually unscathed, Wint argued that theirs was “an important role” in the social partnership process.
“There needs to be an improvement in financial literacy across the country. As is the case with the country at large, it is critical that residents understand both the power of credit, if used properly, and the potential devastating negative effects if used inappropriately. Our credit unions have been at the forefront in improving financial literacy levels and in managing their own affairs prudently. This needs to continue, but with even greater urgency, given the gravity of our current circumstances,” Wint said.