Dear Editor,
As we come to the end of another year, it is critical that we take time to reflect on our economic mistakes, examine achievements and plan the way forward.
According to the report ‘Partners in Austerity: Jamaica, the United States and the International Monetary Fund’, produced by the Centre for Economic and Policy Research (CEPR), Jamaica has had the worst economic performance in the Western Hemisphere for the past two decades, based on average annual GDP growth rate. Jamaica is also currently running the most austere budget in the world, with a primary surplus of 7.5 per cent of GDP, which was later revised to 7.0 per cent. Needless to say, this economic calamity has greatly affected the Jamaican people as real wages continue to fall, crime increases, and unemployment remains high.
Many continue to deny this reality and live in a virtual world of economic accomplishments. Notwithstanding the harsh economic reality for average Jamaicans, the country is the third highest recipient of foreign direct investment in the Caribbean, according to the 2015 Investment Climate Statement by the US Department of State. Additionally, the Jamaica Stock Exchange is now the global number one for 2015, according to Bloomberg. It is obvious that big investors are reaping the reward at the expense of the Jamaican people’s sacrifice as bigger profits coincide with practically the doubling of the poverty rate since 2011 — now 39 per cent, according to the American Counselling Association.
The article ‘Profits Without Prosperity’ by the
Harvard Business Review discusses how this process works. Also, according to ‘One Hundred Years of Austerity’ by
BloombergBusiness, fiscal austerity is a modern invention and has produced its fair share of disasters, as occurred in Germany and Japan in the 1930s, and Romania in the 1980s. Consequently, when the 2008 economic crisis struck, the advanced economies. including Germany, introduced stimulus programmes, increasing spending and/or cutting taxes. In developing economies, some countries have recovered fairly quickly after taking International Monetary Fund (IMF)-prescribed austerity medicine, while others, like Jamaica, are suffering from prolonged economic misery.
One often-cited success story is Latvia, a Baltic nation of two million people. After obtaining an IMF bailout in 2008, Latvia decided to down its “bitter medicine” all at once, slashing spending immediately rather than spreading the pain over several years. After a harsh 20 per cent economic contraction the economy returned to growth by late 2010 only after the end of austerity and has outpaced most of Western Europe since then. Even the IMF’s chief economist Olivier Blanchard, in 2013, said that efforts among wealthy countries to shrink their deficits through tax hikes and spending cuts actually damaged their economies.
According to CEPR 2015, one of the main issues with Jamaica’s economy is that interest payments have remained high, displacing important investments. Additionally, given the continued austerity budget, even if interest payments are reduced, the savings will likely not go to increased capital spending. Consequently, the current economic policy is likely to yield long-term economic suffering. As a developing nation plagued by low growth, increase expenditure on infrastructure could play a key role in stimulating growth in Jamaica. This may be achieved through decreased austerity or meaningful debt relief. The policies undertaken in 2016 will be critical to Jamaica’s economic progress.
Kemmar Webber
kemmarwebber@gmail.com
As we come to the end of another year, it is critical that we take time to reflect on our economic mistakes, examine achievements and plan the way forward.
According to the report ‘Partners in Austerity: Jamaica, the United States and the International Monetary Fund’, produced by the Centre for Economic and Policy Research (CEPR), Jamaica has had the worst economic performance in the Western Hemisphere for the past two decades, based on average annual GDP growth rate. Jamaica is also currently running the most austere budget in the world, with a primary surplus of 7.5 per cent of GDP, which was later revised to 7.0 per cent. Needless to say, this economic calamity has greatly affected the Jamaican people as real wages continue to fall, crime increases, and unemployment remains high.
Many continue to deny this reality and live in a virtual world of economic accomplishments. Notwithstanding the harsh economic reality for average Jamaicans, the country is the third highest recipient of foreign direct investment in the Caribbean, according to the 2015 Investment Climate Statement by the US Department of State. Additionally, the Jamaica Stock Exchange is now the global number one for 2015, according to Bloomberg. It is obvious that big investors are reaping the reward at the expense of the Jamaican people’s sacrifice as bigger profits coincide with practically the doubling of the poverty rate since 2011 — now 39 per cent, according to the American Counselling Association.
The article ‘Profits Without Prosperity’ by the
Harvard Business Review discusses how this process works. Also, according to ‘One Hundred Years of Austerity’ by
BloombergBusiness, fiscal austerity is a modern invention and has produced its fair share of disasters, as occurred in Germany and Japan in the 1930s, and Romania in the 1980s. Consequently, when the 2008 economic crisis struck, the advanced economies. including Germany, introduced stimulus programmes, increasing spending and/or cutting taxes. In developing economies, some countries have recovered fairly quickly after taking International Monetary Fund (IMF)-prescribed austerity medicine, while others, like Jamaica, are suffering from prolonged economic misery.
One often-cited success story is Latvia, a Baltic nation of two million people. After obtaining an IMF bailout in 2008, Latvia decided to down its “bitter medicine” all at once, slashing spending immediately rather than spreading the pain over several years. After a harsh 20 per cent economic contraction the economy returned to growth by late 2010 only after the end of austerity and has outpaced most of Western Europe since then. Even the IMF’s chief economist Olivier Blanchard, in 2013, said that efforts among wealthy countries to shrink their deficits through tax hikes and spending cuts actually damaged their economies.
According to CEPR 2015, one of the main issues with Jamaica’s economy is that interest payments have remained high, displacing important investments. Additionally, given the continued austerity budget, even if interest payments are reduced, the savings will likely not go to increased capital spending. Consequently, the current economic policy is likely to yield long-term economic suffering. As a developing nation plagued by low growth, increase expenditure on infrastructure could play a key role in stimulating growth in Jamaica. This may be achieved through decreased austerity or meaningful debt relief. The policies undertaken in 2016 will be critical to Jamaica’s economic progress.
Kemmar Webber
kemmarwebber@gmail.com