BUDGET DEBATE 2006/2007

PRESENTATION BY

AUDLEY SHAW, M.P.

OPPOSITION SPOKESMAN ON FINANCE & THE PUBLIC SERVICE

TUESDAY, MAY 2, 2006

“A TIME TO CHOOSE”

Order Of Speech

In My Presentation This Afternoon I Will:

Mr. Speaker, What Is The Background Against Which We Are Today Engaged In This Budget Debate, Quite Apart From The Proud Declaration Of The Finance Minister, Reminding Us Of His Thirteen Years In That Role?

The Minister’s Pride In His Years Of Service Makes It Necessary For Us To Look Carefully At The Results Of His Stewardship – Indeed, His Legacy Must Be Subject To Rigorous Scrutiny.

But Before I Do So, Where Are We As A Nation Today, 44 Years Since Independence And After 17 Years Of The Reign Of The People’s National Party Government?

Inflation On Basic Food Items

The Legacy Of The Finance Minister

The State Of The Nation Just Described By Me Mr. Speaker, Is Most Certainly A Part Of The Legacy Of This Finance Minister And His Government, But Let Us Look At Some Of The Numbers, Especially The Ones The Minister Shows No Appetite To Dicuss During His Presentations.

The Cummulative Growth For The Entire 13 Years Of The Tenure Of The Finance Minister Is 8.6% Which Is Roughly The Same Amount That The Jamaican Economy Grew By In 1987 – In One Single Year Under The Jamaica Labour Party Government .

Per Capita Income

One May Consider Various Indices In Examining A Country’s Human Development, But One Commonly Used Index Is Per Capita Income As Illustrated In The Chart Below.

Per Capita Income (Usd)

Source: Caribbean Development Bank

Treasury Bill Rates

Treasury Bill Rates 1995-2005 (May) %

Source: Caribbean Development Bank

This Is Another Illustration Of How The Management Of The Jamaican Economy Has Impacted Negatively On The Capacity Of The Productive Sector To Perform And Grow.

In Its Desire To Mop Up Liquidity The Government Has Used Treasury Bill Rates To Set The Pace For Market Rates To Move To Astronomical Levels, Thus Effectively Retarding Industry, As Manufacturers Cannot Meet The High Cost. The Available Statistics Show That In The Five Years To 2005 Treasury Bill Rates In Barbados And Trinidad And Tobago Averaged Between 2.2% And 4.9% Respectively (See Chart) In Jamaica, The Comparable Rate Was 16.5%. At Such Staggering Rates It Is Difficult To See How Our Manufacturers And Producers Could Compete.

The Even Higher Treasury Bills Rates Between 1992 And 1996 Which Led To Commercial Banking Rates Averaging 53.0% In The 1990s, And Which Led To The Financial Sector Collapse Leading To A Bill Of $130 Billion And The Fire Sale Of Many Homegrown Jamaican Businesses. (Island Life, Mutual Life, Cement Company, Banks, And Even The Very Life Of Jamaica (Loj).

Average Exchange Rate

Average Exchange Rate

Source: Caribbean Development Bank

In Looking At Changes In Exchange Rates Against The Us$ In The Ten Years To 2005 Across Three Caribbean Common Market Sister Economies – Jamaica, Barbados And Trinidad And Tobago.

What Is Of Note Here Is That While The Currency Of Barbados Has Remained “Fixed” At B$2.0 To Us$, And The Trinidad And Tobago Dollar Has Been Relatively Stable At Between T/T$6.0 To $6.3 To The Us$. Jamaica By Contrast, Has Seen Its Currency Fall Against The Us Dollar From J$35.5 In 1995 To $64.5 At The End Of 2005, A Decline Of 81.6 Percent. The Situation Is Even More Startling When We Compare The Change From 1989 When The Exchange Rate Was J$5.75 To The Us Dollar To The Out-Turn Last Year. In Jamaica ’s Case There Has Been A Most Precipitous Fall Of Some 1021 Percent Compared With 46.5 Percent Fall In The Value Of The Trinidad And Tobago Currency.

This Marked Difference Between The Three Countries Can Be Attributed To Jamaica’s Extra-Ordinarily Poor Economic Management Which Has Effectively Undermined The Country’s Productive Capacity And By Extension The Strengthening Of The Local Currency. This Is Reflected In A Worsening Trade Deficit As Jamaica’s Competitive Position Has Grown Progressively Worse.

Inflation (Change In Cpi) %

Inflation (Change In Cpi) %

Source: Caribbean Development Bank

In Tracking Inflation In The Three Sister Caricom Countries, The Inflation Burden Has Been Most Severe For Jamaicans, Rising To Peak At 81 Percent In 1991, And Later, Falling To 26.4 Percent In 1996. In Contrast, Barbados Which Recorded Little Or No Inflation In 1998, And Trinidad And Tobago , Have Been Successful In Containing Increases In The General Level Of Prices To Low-Single Digit.

At The End Of Last Year Jamaica’s Inflation Rate Was Galloping At A Rate 10 Times That Of Barbados And 4 Times That Of Trinidad And Tobago.

Summary

Mr. Speaker, This Is A Part Of The 13-Year Legacy Of The Minister Of Finance And Planning. I Wonder If This Was The “Reality Check” To Which He Referred On Thursday?

But The Greatest Legacy Of All For Which He Will Be Long Remembered Is The Legacy Of Debt.

The Debt Problem

Mr. Speaker, Over The Period Since I Have Been The Opposition Spokesman On Finance, I Have Been Quite Consistent In Bringing To The Attention Of This Honourable House, And To The Country, The Increasing Problems And The Risks Which The Fast Growing Cost Of The Rapidly Expanding Public Debt, Impose Upon The Already Over-Burdened Taxpayers, The Economy And Indeed Every Man, Woman And Child.

The Rapidly Expanding Public Debt, Which Is Fast Approaching The Trillion Dollar Mark, Is Now A Tightening Noose Around Our Necks. This Debt Is Also A Tightening Noose Around The Operations Of Every Business, Whether Large, Medium, Small Or Micro, And Those Yet To Get Off The Ground.

Mr. Speaker, When The Jamaica Labour Party Demitted Office In 1989, The Size Of The Public Debt (Including Govt. Guaranteed Debts) Was J$31.3 Billion. Of That Amount, The External Debt Was Us$4.0 Billion Or J$22 Billion, And The Domestic Debt Was J$9.3 Billion. The Country’s External Debt Was Structured Around Medium And Long-Term Relatively Inexpensive Loans, And With Institutional Arrangements For Some Flexibility In The Management Of The Economy In Times Of Severe External Shocks, Such As From Adverse Changes In The Major Export Earning Sectors, Escalating Oil Prices And Natural Disasters.

The Jamaican Economy Was Placed On A Sound Path Of Economic And Export Growth, In Order To Earn And Service Its Debt Obligations And Build Back Foreign Reserves, Which Were Fully Depleted In The Decade Of The 1970s.

Mr. Speaker, After Being In Government For Seventeen Years, And Pursuing An Economic Model, Which Some Persons Now Claim To Be Inseparable From Its Conceptualizer, After 1990, The Jamaican Economy Has Not Managed To Grow By Even The 2.9 Percent Recorded In The Hurricane “Gilbert” Year Of 1988.

The Davies’ Economic Model Has Failed To Deliver Neither Real Growth In Wealth Creation Nor The Economic Development Of The Country And Improved Well-Being Of The People. However, The Economic Model Has Produced Some Undesireable Results; And We Can Note Some Of Them:

3.1 Bank Of Jamaica Losses From Mopping Up Liquidity

There Was 230% Expansion In The Money Supply Between 1991 And 1995 Which Resulted In A High Interest Rate Policy To Aggressively “Mop-Up” The Excess Liquidity. So, The Pre-Occupation Of Monetary Policy Became The Mopping Up Of Liquidity, At Any Cost. In This Year’s Budget Alone, $8.0 Billion Or 2.2% Of The Expenditure Budget Is To Cover The Bank Of Jamaica Losses Up To Financial Year 2004/05 For Its Liquidity, And For Mopping Up Activities.

Mr. Speaker, These Massive Losses At The Bank Of Jamaica , And Which Are Being Borne By The Already Over-Burdened Taxpayers, Represent A Small Fraction Of The Massive Transfer Of Wealth From The Poor To The Rich. A Condition That Has Persisted Over The 17 Years Of The P.N.P. Government.

3.2 The Fast Growing Debt Servicing Burden

The Public Debt Is Now At $847 Billion, And With Estimated New Borrowings Of $136 Billion For This Budget, The Total Debt Will Be Close To The Trillion Dollar Mark, By The End Of This Fiscal Year. By The End Of This Fiscal Year, The Debt Will Be 32 Times The Size It Was In 1989. And What Do We Have To Show For This Massive Debt?

Jamaica ’s Present Real G.D.P. Per Capita Is Just About The Same Level It Was In 1971, Mainly Because Of The Mismanagement Of The Economy By The P.N.P. Government.

The $92.4 Billion That Is In The Budget For Interest Payment This Year, Is Almost Three Times The Size Of The Total Public Debt In 1989.

3.3 An Emerging Debt Amortization Crisis

In This Expenditure Budget, Debt Amortization Is Put At

Total Debt Obligations As A Percentage Of The Total Budget This Year Is 59.0% Down From 65.0% Last Year. On The Face Of It, This Might Suggest That The Strategy Of Lengthening The Tenor Of The Debt Is Reaping Success, And So More Budget Resources Will Now Be Available To Finance Critical Non-Debt Areas Of Expenditure, Such As Education, Security And Health. But, A Deeper Analysis Reveals A Different Picture.

Loans On The International Capital Markets By G.O.J.

An Analysis Of The Amortization Schedule Of The Public Debt Indicates That 51% Or $435.54 Billion Falls Due For Payment Within Five Years. Another 24% Or $205.0 Billion Will Fall Due For Payment Within 5 To 10 Years, And The Other 25% Will Fall Due For Payment In Over 10 Years. Approximately 57% Of These Amortization Tranches Relate To The External Debt And To Which Several Billion Dollars Of Devaluation Charges Would Be Added, Under The Prevailing Floating Foreign Exchange Rate Mechanism.

3.4 Why So High?

Earlier This Year , The Minister Of Finance Raised Us$250 Million With A 30-Year Bond At A Coupon Rate Of 8.5% On The International Capital Market To Pre-Fund The Government’s 2006/07 External Borrowing Programme.

But Is Not This Very Expensive Long-Term Money? I Think So. And Does This Really Reflect Any Meaningful Shift In The Government’s High Interest Rate Strategy? I Think Not!

In June 1998 The Minister Of Finance Raised Us$250 Million In A Bond Issue At An Interest Rate Of 10.875% With A 7-Year Maturity, Dated For June 10, 2005 . On The Surface, It Would Appear That The 30-Year Bond At An Interest Rate Of 8.5% Is A Much Better Deal Than The 7-Year Bond At 10.875%.

But Looking Beyond The Surface, It Is Recognised That It Is More Costly To The Economy And Has Locked The Economy Into A High Interest Rate Mode For The Long Term.

The Accumulated Interest Costs On The 30-Year Bond Will Be Just Over 3 1/3 More Than The Accumulated Interest Costs On The 7-Year Bond.

Mr. Speaker, The Latest 30-Year Bond At 8.5% Is Clearly Not In The Best Interest Of The Country. The Minister Of Finance Must Seek Cheaper Sources Of Long-Term Financing From Multi-Lateral And Bilateral Sources, And Use It To Replace This High Cost Long-Term Bond, Which Is Further Tightening The Debt Noose Around The Economy.

Recently Mexico ’s Government Had Raised The Foreign Money It Needed For 2006 And 2007 As Cheaply As The U.S. Would At A Spread Of Little More Than A Percentage Point. Spreads On J.P. Morgan’s Index Of Emerging Market Bonds Fell Well Below 2.3 Percentage Points, The Lowest On Record. According To Goldman Sachs, Countries Such As Brazil Were Borrowing At Margins Not Seen Since Britain Was The World’s Banker And Gold Its Standard Of Value.

Why Were Spreads So Low? The Common Answer Is Global Liquidity, The World Has Got Richer, Except Jamaica . The Government Has Issued Bonds At Mind-Boggling Returns To Foreign Investors Largely Because Public Confidence In Its Management Of The Economy Remains On The Downside. In Other Words, The Government Borrows At Rates In The High Double Digit (13%) Compared, For Example, With Our Caricom Partner, Barbados , That Now Borrows At 4 Percent.

Mr. Speaker, Its Massive Debt Burden Accompanied By A High Interest Rate Policy That Has Militated Against Meaningful Investment In The Productive Sector Will Be The Lasting Legacy Of This Finance Minister.

Public Bodies – A Tale Of Neglect Of Duty

Mr. Speaker, The Management Of Public Bodies Under This Government And This Finance Minister, Leaves Much To Be Desired.

Mr. Speaker, Of The 12 Public Bodies Reported On, At Least 75% Of Them Are Making Losses And Some We Are Not Able To Comment On, Such As The Jamaica Urban Transit Company, For Which No Accounts Have Been Presented.

In Ministry Paper 21/05 The Minister States That The Sugar Company Was Projected To Make A Loss Of $112 Million For 2004/2005. Mr. Speaker, Would You Believe That Actual Loss For 2004/2005 Is $1 Billion As Reported In This Year’s Ministry Paper.

A Glaring Example Of This Neglect Of Duty Is The Interest Charges Incurred By The Sc.J. According To This Year’s Ministry Paper Interest Charges For 2004/2005 Interest Cost Was $381.32 Million, 40% Of Total Losses. For 2005/2006 The Interest Cost Was Projected At $485 Million With A Net Loss Of $400 Million. But Hear This Mr. Speaker, The Actual Interest Charge For 2005/2006 Was $800 Million And, More Alarming, I Understand That At Least 65%, That Is, $520 Million Of The Interest Charge Is Due To Overdraft And Excess Overdraft Charges, Which Run Into Interest Rates Far In Excess Of 25 Percent.

Mr. Speaker, This Is Unbelievable Mismanagement, This Minister Needs To Inform This Parliament As To Why A Company That Is “Insolvent” Is Paying $520 Million In Overdraft And Excess Overdraft Interest Charges, Which All Have Now Been Converted Into A Long-Term Loan. Why Wasn’t The Loan Established Before And Did The Overdraft Facility Receive The Approval Of The S.C.J., The Governor Of The B.O.J., And The Minister Of Finance? This Is Gross Dereliction Of Duty And Is A Fiscally Reckless Approach To Public Affairs.

In Addition, There Are Liabilities Of $3.8 Billion, Liabilities Due For Payment Within The Next 12 Months, And Real Current Assets Of $327 Million, How Will These Short-Term Debts Be Financed, Are We Going To Continue To Operate An Overdraft Account And At What Price To The Profit Of The Banks And Certainly Not The Small Cane Farmers Or The Sugar Workers.

4.2 The Accumulated Loss Of Air Jamaica Is Us$1 Billion Or J$65 Billion. Liabilities Stand At Us$642 Million Or J$43 Billion. Mr. Speaker, The Company’s Current Liabilities, That Is Liabilities Which Have To Be Paid Within A Year Is Us$220 Million Or J$14 Billion, Which Represents 4% Of This Year’s Total Budget Or 8% Of The Recurrent Budget. The Three Largest Components Of The Current Liability Are:

Unsecured Bank Overdraft – J$1.5

Trade Creditors – J8.5 Billion

Air Traffic Fees – J$4 Billion

To Compound Matters The Current Liabilities Do Not Include Loan Repayments Of Us$340 Million And Lease Obligations Of Us$64 Million, And The Only Assets Available To Pay The Current Liability Is Us$43m Or J$2.8b.

The Minister Needs To Advise Us How Will Air Jamaica Fund The J$11 Billion Of Net Current Liabilities.

4.3National Water Commission For The Last Two Years The Commission Has Accumulated Losses Of J$2 Billion And Is Projected To Make A Loss Of J$1.3 Billion For 2005/2006. In Addition The Commission Is Projected To Spend J$1billion On Capital Projects. Minister, Are There Any Budgetary Implications Here?

4.4 The National Housing Trust .

4.4.2 I Also Notice The Nht Has Entered Into Joint Ventures With Selected Developers And That Advances To These Developers Are Currently J$986 Million Of Which $345m Is Considered Uncollectible. Is The Minister Prepared To Say Which Development(S) And Who Are The Developer(S) Which This J$345m Relates To? And Why Are These Sums Uncollectible?

4.4.3 In Respect Of The Harmonisation Limited At Harmony Cove, Is The J$685 Million Spent By Nht On This Project Only Relating To Land Or Does It Include Fees, And If Yes, What Are These Fees For? Minister, I Have Been Receiving Many Compliants As To How This Project Is Proceeding And This Side Of The House Will Be Very Vigilant On This Important Matter In The Near Future. These Concerns Include The Lack Of Transparency On The Terms Of The Agreement And The Qualifications Of The Joint Venture Partner.

4.5Student Loan Bureau. Firstly, I Acknowledge The Reduction Of Interest Rates On Student Loans By The S.L.B. However, 12% Interest Rate To Students Is Still Too High. Mr. Speaker, A Well-Run Business Struggles To Survive At An Interest Rate Of 12% How Do We Expect Our Students To Survive? In Fact, Each Year We Have Thousands Of Students Leaving The Universities Who Are Unable To Find Suitable Jobs And Meet Their Obligations. No Wonder Our Tertiary Graduates Are Migrating In Such Numbers.

I Must Also State My Total Dis-Satisfaction With The Level Of Service Provided To The Students, In Particular, The Inconvenience That The Students Face When Applying For A Loan Such As Over-Nighting In Parking Lots Just To Secure A Number For An Interview. This Is Totally Unacceptable.

In Reviewing The Ministry Paper I Notice An Allocation For J$360m To Build A New Office. I Want To Register My Objection To This Plan. We Have Too Much Empty Buildings Downtown, Kingston , To Be Spending J$360m On A New Office. We Have Too Many Poor Kids Not Able To Get Higher Education Because Of A Lack Of Funding, Too Many Indebted Students Leaving The Universities, Debts Which These Students Will Not Be Able To Pay Given The Lack Of Economic Opportunity , And Yet We Are Prepared To Spend J$360m On Building An Office. Where Are Our Priorities? I Recommend That We Scrap This Latest Monument To Extravagance And Reduce The Interest Rate To Students To Single Digit. (-9% Or Less).

4.6 Pension Funds

4.6.1 The Government Talks About Pension Reforms To Protect The Interest Of Pensioners.

I Challenge Their Own Management Of Pension Funds And Find Them Wanting.

My Understanding Is That Government Currently Owes Pensioners Almost $2 Billion In Withholding Tax For Almost A Year.

The Actual Loss To Pensioners At Interest Rates Could Be As High As $260 Million Per Year, Based On Lost Interest Income.

This, Mr. Speaker, Is In Breach Of The New Pension Regulations Where Pensioners’ Funds Are Not To Be Left Idle. So, Mr. Speaker, Not Only Is The Government Depriving Poor Pensioners Of Their Monies For Their Retirement Years, They Are In Breach Of The Regulations.

4.6.2 Mr. Speaker In Respect Of The Pension Reform Where The Fsc Will Become The Regulator Of The Industry, We On This Side Cannot Disagree With Regulation To Protect The Pensioners But We Certainly Do Not Agree With Over Regulation Which Defeats The Purpose And The Intent Of The Regulation In The First Place.

I Notice That The Regulators Expect To Earn Income Of J$125 Million From Fees To Be Charged To The Pension Industry.

In This Proposed Scale Of Fees It Is Clear That The F.S.C. Will Be Building Up Considerable Annual Surpluses Of $90 Million At The Expense Of The Pension Industry And The Poor Pensioners.

5. Expenditure Understated/Revenue Overstated

The Expenditure Budget

The Minister Of Finance Supported By The Cabinet Of Jamaica , Continues To Tell The Country Only A Part Of The True Story Concerning The Expenditure Budget.

The Expenditure Budget Is Understated, The Full Extent Of Which Is Dependent On The Final Outcomes Of Such Big Ticket Expenditure Items As The M.O.U., Air Jamaica And The Sugar Company Of Jamaica, And Other Public Bodies.

The M.O.U. Has A 2-Year $11 Billion Gap Between The Unions’ Request And The Government’s Offer. In This Fiscal Year The Gap Is $4.0 Billion.

In Relation To Both Air Jamaica And The Sugar Company Of Jamaica , Several Billions Of Dollars In Financing Are Needed. The Question Is Whether The Minister Intends To Bring Portions Of These Obligations Into The Budget Or He Intends To Recklessly Allow The Entities To Incur Rapacious Overdraft Charges Without The Guarantee Of Parliament?

Equally, The Obvious Intention Of The Government To Spend Some $18 Billion In Petrocaribe Funds Beneath The Close Scrutiny Of Parliament Is Itself Indicative Of The Length To Which The Government Will Go To Corrupt The Budgetary Process.

The Minister’s Promise Of No New Taxes Is Also To Be Taken With A Grain Of Salt. He Said The Same Thing On April 18, 2002 . (“Read My Lips, No New Taxes”). After The General Elections That Year It Was Revealed That A $8.2 Billion Payment Was Made To Public Sector Workers Without The Knowledge Or Approval Of Parliament. The Minister Also Admitted Then That He Had To Take On Board To The Budget Obligations For The S.C.J. And The N.W.C., Of Several Billion Dollars, As Well As $4.0 Billion In Additional Interest Charges.

What Followed Was A Record Tax Package Of $14.5 Billion In Order For The Minister To “Correct It”.

The Minister Has A Duty And An Obligation To Bring The Real Picture Of Expenditure And Revenue To Parliament So They Can Be Properly Debated.

Mr. Speaker, Today Jamaica Stands At An Economic Cross-Roads.

6 . The Time Has Come For Us To Choose

There Is A Real Difference Between The Opposition And The Government On The Question Of How Jamaica’s Economy Should Be Managed, And This Difference Is Growing. As This Government Has Shown, Years Of Mistakes Take Decades To Solve. The Choice The Jamaican People Make Now About Which Economic Path To Pursue Will Determine Jamaica’s Economic Fortunes For The Next Decade And Beyond .

First, We Can Choose, To Continue To “Muddle Through.” Jamaica Can Simply Continue Its Current Policies And Hope Against Hope That Somehow Things Will Change. The Definition Of Insanity Is To Repeat The Same Thing Over And Over And Dream Of A Different Outcome. This Is A Policy Of All Pain And No Gain. This Is Dr. Davies’ And The Pnp’s Strategy.

Second, Jamaica Can Choose To Make A Wild And Incorrect Shift In Policy. It Could Abandon What Little Prudent Macro-Economic Policy It Has, Squander The Tough Sacrifices The Jamaican People Have Been Asked To Make And Embark On A Populist Campaign. This Approach Is Not New, It Has Been Tried And It Has Failed. It Is Reckless, It Is Simplistic, It Is Deceptive And Irresponsible. This Is A Policy Of Less Pain Now, More Pain Later And No Gain At All. This Is The Policy Of Others In The Government – A Policy Appropriately Named – The Crash Programme.

While The Government Cannot Even Decide Among Themselves What Policy It Plans To Adopt, Let It Be Clear That The People Of Jamaica Must Choose To Reject Both Plans. Jamaica Needs A New, Creative, Aggressive And Comprehensive Strategy That Delivers Real Economic Development. This Mr. Speaker Is The Strategy I Will Deliver Today.

Macro-Economic Stablization And Going For Growth

For The Purposes Of My Presentation, I Will Focus On The Policies That Are Needed To Spur Broad-Based Investment, Growth And Economic Development. This Alternative Economic Strategy Which Has Three Components: (1) Prudent And Credible Macro-Economic Policies, (2) New And Creative Debt Reduction Strategies And (3) An Aggressive And Export-Oriented Industrial Policy.

6.1 A Commitment To Prudent And Credible Macro-Economic Policies

The First Component Of Our Strategy Is To Successfully Pursue Prudent Macro-Economic Management . With Levels Of Debt That Stand At 131% Of G.D.P. And 60 Percent Of Our Budget Dedicated To Interest And Amortization Payments, Any Plan To Revive Our Economy Must Begin By Attacking This Massive Barrier To Success. Let It Be Very Clear: We Did Not Create This Problem, But We Cannot Afford To Ignore It.

Plans By The Government To Embark On A Massive Social Spending Campaign Are Not Sustainable And Only Kick This Problem Further Down The Road. The Jamaican People Deserve The Dignity Of More Than Just A Hand Out; They Deserve A Strategy That Provides A Real Way Out. A Strategy That Is Rooted In The Opportunity To Learn How To Fish For Oneself, Not To Get A Fish.

In Our Strategy, Prudent Fiscal Management Is Critical. Dr. Davies Claims To Have A Similar View, But The People Of Jamaica Should Not Confuse Intentions With Results. We Have Had 13 Years Of Good Intentions And No Significant Economic Development – No Results. We Need Look No Further Than Dr. Davies Own Promise To Balance The Budget By This Fiscal Year. Even With The Immense Sacrifices The Jamaican People Have Been Asked To Make – Higher Taxes, Lower Wages, Fewer Social Services – The Budget Deficit Still Stands At 3% Of G.D.P.

Mr. Speaker, These Macro-Economic Policy Failures Have Not Been The Result Of Natural Disasters, They Have Been The Result Of Human Disasters. The Human Disasters That Construct And Continue To Implement Failed Economic Policy, Human Disasters That Shamelessly Run With It When An Election Is On The Horizon, Human Disasters That Consistently Over-Run The Cost Of Capital Projects.

Jamaica Has Consistently Failed To Meet Its Fiscal Targets – But The Problem Is Not The Targets, The Problem Is A Team That Has Failed To Implement Them. We Do Not Therefore Believe That A Policy Of Fiscal Discipline Should Be Abandoned, We Believe That Jamaica Must Abandon A Government That Is Too Uncommitted To Good Governance And Too Incompetent To Implement All The Critical Macro-Economic Variables.

Proposals To Fix The Exchange Rate Will Not Fix The Problem. While We Agree That This Issue Requires Greater Study As We Fully Recognize Its Merits, We Believe That Such A Policy Could Be Inappropriate For Jamaica At This Time .

Fixing The Nominal Exchange Rate Could Lead To Significant Losses Of International Reserves And Decreased International Competitiveness. Even Worse, It Could Risk International Confidence In Our Economy And Make Jamaica Vulnerable To Speculative Attacks.

Despite Some Investment Taking Place , The Jamaican Economy Is Still In A Fragile And Growthless Mode, With Too Heavy A Reliance On Debt To Take Any Unnecessary Risks At This Time.

Despite These Negatives Mr. Speaker, There Are Many Success Stories With Respect To The Fixed Exchange Rate System Including China , The Eastern Caribbean , And Many Latin American Countries, Many Of Whom Recently Fixed Their Exchange Rates. So We Need To Discuss The Matter Further Before Coming To Early Conclusive Positions. ( Argentina Is Likely To Grow By 7% In 2006, Third Only To China And India , So Our Analysis Cannot Only Be Limited To Argentina .)

6.3 New Debt Reduction Solutions

Last Week, Dr. Davies Tabled His Annual “Debt Management Strategy” Paper. This Document, Written More For The Benefit Of Creditors Than For The Jamaican People, Contains Not One Single New Idea On How To Confront The Single Greatest Threat To Our Economy.

While We Believe Very Strongly In The Principle Of Prudent Fiscal Policy, We Also Believe New And Creative Solutions Exist. Let Me Share Just Three Examples With You:

We Estimate That In Just Three Years This Policy Alone Could Lower Debt To G.D.P. Ratio By 8% And Interest Expense By 3% Of Revenue. Whatever The Nature Of The Structure That Is Used,

It Is Clear That Any Government Serious About Debt Reduction Should Use Petrocaribe As A Debt Reduction Tool And Not As A Social Spending Slush Fund – Or Another Crash Programme By Any Other Name .

6.3.2 But Petrocaribe Is Just One Option. Within The Revenue The Government Collects Each Year Are Flows Denominated Or Linked To Foreign Currency. Like The Petrocaribe Agreement, These Flows Are An Unused Debt Fighting Tool. If Separated And Securitized, Bonds Backed By These Flows Would Receive Interest Rates Significantly Below Jamaica ’s Eurobonds. The Proceeds Of These Bonds Could Then Be Used To Repay More Expensive Debt And Lower The Annual Interest Burden. A Similar Structure Has Been Successfully Implemented In Mexico , Venezuela And Russia And Could Be Implemented In Jamaica .

6.3.3 The Third Example Is To Borrow A Block Of Funds From A Consortium Of Multilateral Institutions (Idb, World Bank And Cdb) I.E. Us$1.0 Billion And Use This Low Interest Cost Funds To Replace Expensive Instruments As They Mature, Thus Reducing The Demand For High Cost Instruments With The International Capital Markets.

These Combined Initiatives Will Cause A Reduction In Interest Cost On The Budget, Reduce Commercial Interest Rates And Redirect Private Sector Investments Into The Goods And Services Producing Sectors Of The Economy. This In Turn Will Cause Our Factories To Reopen, Our Fields To Be Planted, Our Exports To Grow And Our People To Be Gainfully Employed.

6.4 An Aggressive Export-Oriented Industrial Policy

Mr. Speaker, Any Economic Strategy Need To Move Beyond Merely Managing Debt And Lay Out A Specific Plan On How To Generate Growth. As Usual, There Was No Such Plan In Dr. Davies’ Presentation.

Over The Last 17 Years, Jamaica ’s Main Exports Have Remained The Same As Total Exports Have Declined As A Share Of G.D.P. The Technological Intensity Of Our Exports Has Been Allowed To Decline, While Our Neighbours In The Caribbean And Central America Have Successfully Transitioned To Higher Value Added Products.

Jamaica Must Be Seen As A Business, So It Should Not Be Holding On To A Declining Market Share In An Increasingly Competitive Market. It Would Have Failed To Diversify Its Products, Even As Its Competitors Moved Into More Specialized Goods And Services. It Would Be Unprofitable And Overleveraged. It Would Be Paying Its Employees Less In Wages And Giving Them Less In Benefits And It Would Be Losing Its Employees To The Competition.

Jamaica Needs A New Business Plan. This Business Plan Must Be Export-Oriented, Aimed At Diversifying The Economy And Focused On Developing Service Sectors In Which Jamaica Is Globally Competitive. Such A Policy Must Be Aggressive, Firm Centric And Managed Directly At The Very Highest Levels Of Government By A Ceo Prime Minster And A Cfo Finance Minister.

This Is A Strategy That Has Been Successfully Implemented Not Only In Singapore And Ireland , But In Our Own Region By Costa Rica . By Making Investments In New, Fast-Growing Sectors A National Priority. These Countries Have Overcome Obstacles No Greater Than Those Of Jamaica . The Result Has Been Higher Economic Growth, Lower Unemployment And Higher Wages.

Many Such Opportunities Exist In Jamaica Today. Agri-Business, Light Manufacturing, Health Tourism, Retirement Villages , And Business Process Outsourcing, Are Just Some Examples. Any Industrial Policy Must Take Advantage Of These Favourable Global Trends. All These Sectors Are Examples Of Activities In Which Jamaica Possesses A Competitive Advantage.

6.5 Business Processing Outsourcing

Let Us Look At Business Processing Outsourcing. The West Indies Are The Only English-Speaking, Low Wage, Literate Labour Market In The Western Hemisphere . We Are Perfectly Situated To Be The Off-Shore And Outsourcing Mecca For North America . Call Centers Are Just An Example Of The Potential That Exists; Jamaica Could Be Processing United States Income Tax Returns, Drafting British Legal Documents And Be Engaged In Other Higher Value Businesses.

We Estimate That If Jamaica Captured Just 1% Of The Global Market Share In These Businesses By 2010, It Would Generate 50,000 Jobs Directly, Another 120,000 Of Jobs Indirectly And Create A Domestic Industry With Us$1.5 Billion In Annual Sales.

6.6 A Revival Plan For Agriculture – Think Globally But Act Locally

The Jlp Believes That An Important Part Of Our Economic Salvation, Must Be The Revival Of Agriculture And Agro-Industry Within The Globalised Economy. Not Only Will We Pursue The Revival And Diversification Of The Sugar Cane Industry – With Or Without International Partnership – We Intend To Aggressively Promote Diversification Into A Range Of Other Crops, Including Long-Term Tree Crops On Large Acreages Of Arable Land That Now Lay Idle.

Equally, We Will Put In Place A Support Programme For Small Farmers That Allows Them Access To Affordable Credit At Single Digit Interest Rates. The Provision Of Subsidized Inputs Such As Fertilizers And Insecticides Must Also Be A Part Of The Plan. The Present Crop Incentive Programme Of The Ministry Of Agriculture Is Grossly Inadequate And Highly Discriminatory. Our Hard Working Small Farmers Deserve A Break.

6.6.1. A Clear Strategy Is Needed For Rural Development

Special Initiatives Are Urgently Needed To Assist Small Farmers In Rural Communities Islandwide To Be More Productive.

In Addition To Available Credit At Low Interest Rate And Subsidized Inputs, Special Financing Must Be Made Available Through The Development Bank Of Jamaica To Provide The Seed Capital For New Initiatives Such As Greenhouse And Tissue Culture Technology That Can Yield Greater Productivity And Wealth For Our Rural Folk.

The Project Being Undertaken By The Christiana Potato Growers Co-Operative In North East Manchester Show The Dramatic Results Of Greenhouse Technology In Which Tomatoes And Sweet Peppers Have Been Bearing In

Abundance For The Past 8 Months, On The Same Plants. This Compares With A Plant Life Of Only 2 Or 3 Months Using Conventional Methods.

The Government’s Constant Refusal To Assist Our Farmers On The Premise That The W.T.O. Will Not Allow Subsidies Is Totally Untrue And Shows The Government’s Lack Of Concern For The Back Bone Of Our Country, The Farmers And Rural Communities. I Quote From The International Chartered Accountant Magazine:

“….Figures Produced By The O.E.C.D. Suggests That The Developed World Spends Around Us$1 Billion Each Day On Support Of Its Agricultural Communities… The E.U.’S Commissioner For Trade Responded By Saying That There Are Legitimate Reasons For Any Country To Support Its Agriculture In Order To Achieve Security, Safety, And The Quality Of Food Which Is Produced…This Figure Of Us$1b Embraces Higher Prices Paid By Consumers And The Cost Of Tariff Protection”–

Industry And Commerce

With More Than 50% Of The Work Force Being Non-Productive – We Need Incentives For The Private Sector. Here Are Some Suggestions:

For Jamaica To Seize These Tremendous Opportunities, It Needs A Prime Minister And A Minister Of Finance That Believe Investment Promotion Is A Top National Priority And Are Willing To Be Personally And Actively Engaged In Aggressively Selling Brand Jamaica.

Mr. Speaker, Given The Global Environment We Now Live In And Our High Dependency On Fossil Fuel We Do Not Have Many Levers Available For Us To Make Jamaica Competitive. Those That Are Under Our Control We Must Utilize Them Effectively To Ensure That We Create A Competitive Jamaica . One Such Tool Available Is Taxation, That Is, Our Tax System.

For Too Long We Have Continued With A Myopic View Of A Tax System Focusing Only On Short-Term Gains And Ignoring The Long Term Possibilities. We Had Wonderful Opportunities In The Past To Adjust Our Tax System, Such As, The Mou And The Buoyancy On The Capital Markets.

We Do Not Support The Piecemeal Approach That The Minister Is Taking In Respect Of The Recommendations Of The Matalon Report. So Far, He Has Increased G.C.T. And The Tax Threshold As Recommended By The Report But The Other Aspects Of The Report Have Been Totally Ignored. We Are Interested In The Following Matters:-

Minister, We Are Fully Prepared To Discuss These Tax Matters Amongst Others During This Financial Year, So I Implore You To Start To The Debate With Urgency.

New Energy Policy Needed

Apart From The High Cost Of Debt Servicing And The Consequent High Cost Of Commercial Bank Credit, The Second Major Problem That Militates Against The Pocketbooks Of The Jamaican People As Well As Impacting On The Competitiveness Of The Jamaican Economy, Is The Government’s Failure After 17 Years, To Implement A Cost Saving, Energy Efficiency And Conservation Policy.

Mr. Speaker, The Government Has Failed To Deal With The Cost Of Electricity Production Although They Remain Shareholders In J.P.S.Co. But Have Allowed The Use Of Fuel Guzzling Turbines Without Making Any Effort To Protect The Pockets Of Consumers.

They Have Also Failed To Move Aggressively With Ethanol For Transportation And Biogas For Electricity Generation.

Mr. Speaker, They Have Failed To Even Look To The Heavens Because Solar Energy Is Being Ignored – Energy Has A Major Impact On The Economy – In Terms Of The Factors Of Production, Household Usage, And Its Overall Impact On The Inflation Rate.

6.9.1 J.P.S.Co.

The Divestment Of The Jamaica Public Service Company Limited Was Supposed To Yield Greater Efficiency And Cost Savings To Consumers, But The Terms Of The J.P.S.Co. Licence, Combined With The Inappropriate-Expensive-To-Operate Technology Being Used By The Jpsco, Weigh Heavily Against Our Light Bills Which Now Resemble Or Exceed Our Mortgage Payment Obligations.

The Government After Itself Pursuing Inappropriate Electricity Generation Policies Since 1989, Also Failed To Require Radical Change To Be Implemented By Mirant.

And Now, The Government, In Its Latest Attack Of Youthful Exhuberance, Instead Of Using Its 20 Percent Ownership In J.P.S.Co. As A Leverage For Demanding The Right Investment Mix In New Technology, Proposes To Sell Its Remaining Shares In Such A Vital Company, Leaving The Jpsco, To Plunder The Pockets Of Jamaicans Even As The O.U.R. Looks On In A State Of Absolute Impotence.

Given The Importance Of Energy To Jamaica’s Survival, And Taking Into Account Rising Oil Prices, The Jlp Will Be Obliged To Carry Out A Review Of The Divestment Of The J.P.S.Co. To Mirant, With A View To Seeing How Greater Efficiencies Can Be Achieved.

The Jlp Will Be Presenting A Comprehensive Energy Policy That Takes Into Account Our Unique Potential Within The Context Of Available Technology.

Mr. Speaker, Every Year I Speak About The Massive Corruption That Takes Place In Government And Every Year The Response Has Been The Same, Silence. Silence From The Media, Silence From The Church, Silence From The Government Members Of Parliament, Silence From Business Communities. It Is As If We Are Immune To The Corruption, At Times It Baffles Me.

This Silence Has Led To A New Level Of Arrogance Among Senior Government Servants Who Feel That They Can Do Anything And Get Away With It Because “It’s The Runnings”. It Is An Act Of Gross Disrespect To The People Of Jamaica .

It Is In This Context That I Wish To Repeat The Call Of The Opposition To Immediately Appoint An Appropriation Committee Of The House Under The Chairmanship Of An Opposition Member.

The Leader Of The Opposition Has Also Tabled Critical Legislation In Parliament Aimed At Stemming The Corruption In The Award Of Contracts. We Urge Quick Passage Of This Legislation.

Conclusion

Mr. Speaker, Today Jamaica Faces Real Economic Choices. As I Have Shown, There Is A Difference Between The Government And The Opposition On How The Jamaican Economy Should Be Managed And This Difference Appears To Be Growing:

The Government Is Divided Internally On The Question Of Economic Policy And Has No Clear Plan To Generate Growth; The Opposition Has A Clear And Comprehensive Economic Strategy Which We Have Put Forward Here Today.

The Government Is Divided Between Partially Implementing Half-Hearted Fiscal Measures And Moving Towards A Populist Approach, The Opposition Is Solidly Committed To The Successful Implementation Of Macro-Economic Prudence.

The Government Has A Long Track Record Of Missed Targets And Is Losing Credibility As A Result; The Opposition Has No Such Legacy And Has Strong Credibility With The Domestic Private Sector And International Community.

The Government Is Bankrupt Of New Ideas, The Opposition Has Put Forward Today Three New And Creative Solutions To Lower Our Debt Burden, As The Necessary Precondition To Spurring Investment And Growth.

The Government Believes That If You Get The Macro-Economic Situation Right You Can Sit Back And Wait For Growth, The Opposition Believes That An Aggressive, Export-Oriented Industrial Policy Should Be A National Priority And Should Be The Natural Partner To Macro-Economic Stabilization In Order To Move From Borrowing Our Way Towards Poverty Alleviation To Earning Our Way To Wealth-Creation.

Mr. Speaker, These Are Just Some Of The Fundamental Policy Differences That Exist. But Let It Be Clear, By Far The Largest Difference Between The Government And The Opposition Is The Difference In Our Ability To Successfully Implement Whatever Policy We Choose.

7. How To Create Wealth Through A Production Culture

Mr. Speaker, I Wish To Leave An Issue Before This Parliament And The Country For Consideration And Debate As We Contemplate Our Future. This Is, The Urgent Need For A Production Culture In Jamaica .

At Present Our Capital Is Not Being Deployed In A Productive Way That Can Lead To Generating Investment And Growth In Job Creating Technology-Driven And Foreign Exchange Earning Endeavours.

The N.I.R. Is Built Up On Borrowed Money, Running Up Losses At The Bank Of Jamaica At Taxpayers Expense.

Funds Borrowed On The Local And International Capital Markets Are Being Used Principally To Service Other Debt Instruments And Recurrent Expenditure.

None Of These Initiatives Either Individually Or Combined Represent A Sufficient Condition For The Creation Of Wealth On A Significant Scale And This Is So Because Funds Borrowed At High Interest Rates That Crowd Out Productive Investments, Merely Continue The Transfer Of Wealth From The Poor To The Rich.

And Funds Garnered From Remittances Have A Downside, As It Provides Some Relief To The Population, But It Discourages Individual Efforts At Improving Productivity Here At Home. Too Many Jamaicans Are Living Marginally From The Surpluses Of The Productive Output Of Jamaicans Overseas.

Annually, The Inter-American Development Bank (I.D.B.) In Its Report, Has Commented On The Important Role Of Remittances To Countries, Noting The Growing Dependence On This Source Of Inflows. The Bank Has Warned That This Is “Non-Sustainable” As A Prolonged Downturn In The U.S. Economy, For Example, Could Hit Hardest Latin American And Caribbean Workers In Terms Of Unemployment, Because Many Are In The Service Sector, Pending U.S. Immigration Legislation Further Complicates This Issue.

On Two Counts, The Deployment Of Our Labour Force And In Our Use Of Capital, The Government Is Not Employing Wealth-Creating Policies.

Adam Smith, Writing 230 Years Ago, Put It Best When He Wrote “An Inquiry Into The Nature And Causes Of The Wealth Of Nations.”

On The Productive Use Of Labour, Adam Smith Said:

“The Annual Labour Of Every Nation Is The Fund Which Originally Supplies It With All The Necessaries And Conveniences Of Life Which It Annually Consumes”.

He Further Said That The Proportion Between What Is Produced And What Is Consumed, Must Be Regulated By Two Different Circumstances.

“First, By The Skill, Dexterity And Judgment With Which Its Labour Is Generally Applied; And Secondly, By The Proportion Between The Number Of Those Who Are Employed In Useful Labour, And That Of Those Who Are Not So Employed.”

“Whatever The Soil, Climate, Or Extent Of Territory Of Any Nation, The Abundance Or Scantiness Of Its Annual Supply, Must Depend Upon These Two Circumstances”.

And On The Productive Use Of Capital, Adam Smith Wrote:

“It Is Not By Augmenting The Capital Of The Country, But By Rendering A Greater Part Of That Capital Active And Productive Than Would Otherwise Be So, That The Most Judicious Operations Of Banking Can Increase The Industry Of The Country.”

On Both The Counts Of The Productive Use Of Labour And The Productive Use Of Capital Advanced By Adam Smith, Jamaica Has Been Found Wanting, And, Our People In Consequence Suffer On The Vine Of Mediocrity While Our Capacity For The Pursuit Of Excellence Is Compromised.

For Jamaica To Embark On A Path Of Wealth Creation We Must Commit Our Labour And Capital To A Production Culture.

I Invite The Minister Of Finance, The Government And All Jamaicans To Enter Into This Debate On How To Achieve A Production Culture.

8. It Is Time For A Better Life

Mr. Speaker, With The Progressive Corruption Of Our Institutions, With Its Tentacles Spreading Far And Wide, There Is Now A Clear And Present Threat To Jamaica’s Democracy.

Time Is Not On Our Side. Our People Are Struggling, Hungry, Bewildered, And Impatient, And This Can Lead To An Outburst Among The Population. It Is Time To Choose A Clear Path To A Better Life, A Life Of Peace, Gentility And Prosperity.

Unsecurred

The Choices We Make Are Not Just About Our Political Arrangements, They Are More Importantly About The Kind Of Nation That We Want To Build And Preserve For Future Generations.

Mr. Speaker, I Close By Quoting One Verse Of A Song From A Hymn Book Presented To Me By My Mother Before She Died:

“Lord Jesus Teach Me How To Choose – A Thousand Choices Bar My Way. I See In Each A Destiny, So Help Me Wisely Choose I Pray.”

Thank You, May God Bless You All And May God Bless Jamaica !

Audley Shaw, M.P.

Opposition Spokesman On Finance

And The Public Service

Tuesday, May 2, 2006

&n