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There have been various comments made about the Budget, presented by persons both within and without this Honourable House. It is not possible, nor necessary to respond to all these comments, but I think it is imperative that I speak to the major points made by three prominent spokespersons, namely, the Leader of the NDM - Mr Golding, the Opposition spokesman on Finance, the member from North East Manchester, and the Leader of the Opposition. BRUCE GOLDING, President, National Democratic Movement I begin with Mr. Golding, and apart from his obligatory personal attack on me, the real substantial point he made was that an additional $800 million could be saved by further reducing interest rates by an additional one percentage point during the fiscal year. There are several technical weaknesses involved in this suggestion, and these should be known to Mr. Golding and his advisors. The first is that in estimating what should be allocated for domestic interest payments for any fiscal year, the Ministry of Finance makes assumptions on the likely movement in interest rates. However, it must be noted that whilst the Government and the BOJ have some influence on interest rates, by and large, these are set by the market. For example, Treasury Bills interest rates are determined by an auction system. Hence, unless the Government is in a position to reject bids if they do not meet with its desired interest rates, those rates are determined by the bidders. At present, interest rates on the LRS are indicated by the Government, but these must be set at levels which will ensure that the target sum required is taken up by the market. Government cannot simply set and interest rate, based on its own desires but rather on what the players in the market is willing to accept. Clearly, the BOJ, through its reverse repurchase operations can send a signal, but this signal must be consistent with what the market is willing to receive. There can be no one who would be more pleased to have interest rates decline more rapidly than we have programmed, than the Government. However, the intimation that this be done unilaterally by the Government, thus saving hundreds of millions of dollars in expenditure is technically flawed. More important, it is dangerous, in that it suggests to the public that there is an easy solution which the Government, should be adopting but which it, for whatever reason, is failing to implement. Mr Golding should and does know better. Such utterances give nice "sound bites", and attract headlines, but they do nothing to move us towards a resolution of a very serious problem. The Opposition Spokesman on Finance gave a wide ranging presentation, and again I wish to commend him on his flexibility in proceeding to speak despite the fact that both the Prime Minister and myself made interventions of some significance just prior to his presentation - interventions which had an impact on the overall structure of the Budget. There are several points which the Opposition Spokesman raised and most of these can be dealt with in private correspondence and exchanges. However, it is important to publicly speak to three specific issues:
Let me begin with the issue of the article written by the Minister of State from which Opposition Spokesman quotes -in order to illustrate disagreement in the Government camp about the economic model. The fact that the Minister is able to write and publish such an article, is a clear indication of a fundamental difference in approach to analysis and self-examination which characterizes this Administration, as opposed to others. Nothing in that article is different from what others, including myself, have said before. For example, with respect to the cost of the adjustment process, in my Budget presentation last year, I said that the policy that we have adopted has had severe costs. There is a cost to private individuals and there has been a cost to the Government. Did that reflect a crack in the Government? The article states that high interest rates are not in the medium/long term compatible with economic growth and development. But the Minister of State acknowledges that in the short-term, high interest rates are a painful necessity. I now turn to the attempt by the Opposition Spokesman to create discord where none exists. He quoted from the article by saying "Transition from deflation to sustainable growth has eluded us - and we have found it difficult to engineer the necessary and sufficient conditions to achieve growth." The Opposition Spokesman ended his quote at that stage but the Minister of State continued the sentence by saying "largely because of the persistence of our attachment to outmoded ideas and to archaic relationships within and between the components of the nation: government, private sector, trade unions, the media, the public at large". Hence, by deliberately ending the sentence half way, the views of the Minister of State have been deliberately twisted out of context. I now turn to the charge that the Government has "technically defaulted" on some debts by the rescheduling of interest payments. Question - What is a default? Default arises when there is failure to pay an obligation in part or in full on the due date. However, no default arises if prior to the due date there is agreement between the lender and the borrower to alter the terms of the agreement, either through the rescheduling or pre-payments. Thus the deferral of LRS interest payments through rescheduled agreements is not a default, technical or otherwise. There has been no default in the payment of interest or principal to any creditor. Interests have either been paid in full or rescheduled by mutual agreement. No amounts have been left unpaid. It is a pity that the Opposition Spokesman would have found it necessary to be so careless in his language on such a sensitive issue. I now turn to the claim that the Government could improve its fiscal position by "swallowing its pride" and borrowing from bilateral and multilateral at interest rates of three to five percent. I have reviewed all possible interest rate of the various institutions from which we borrow. They range from a low of two percent for certain CDB loans to a high of approximately seven percent for IDB loans. We have accessed loans from the World Bank, the IDB and the CDB. For example, we have borrowed $25 million from the CDB for the sugar industry at 2.5 percent. We have borrowed $10 million from the IDB at 6.9 percent for the SIF. Although the Opposition Spokesman did not say this, I suspect that he was advocating returning to a borrowing relationship with the IMF. I wish he would make the point explicitly. If the IMF is the main institution he has in mind, he should say so. This Administration, through the Prime Minister and myself, have on several occasions articulated our position with regard to borrowing from the IMF. At the same time, we have indicated clearly that we remain full members of that institution, and we are in the process of repaying our debts. Furthermore, there are the normal Article 4 consultations. We exchange views on a wide range of issues including macro economic policy. However, we will not seek to borrow from the IMF as there are fundamental policy differences in terms of the macro economic conditionalities, which they would seek to impose when we seek to access funds. During their last visit to Jamaica, we agreed with the IMF that the reduction in the Budget deficit was the major objective. We both agreed that we needed to return to surplus in the medium term as our major priority. In the process they argued that there was need for a significant tax budget and I quote - "Hence, credible new measures generating a budgetary impact of about 5 percent of GDP will be required in fiscal year 99/2000." In other words, the IMF argued that we need a tax package of approximately three times the size of that which was imposed this time around, and they gave clear advice of how this tax package should be structured. My challenge to the Opposition is to tell this House and this country whether they are advising acceptance of this recommendation in pursuit of obtaining funds from the IMF. Would they be willing to accept a $12 Billion tax package including a tax on gasoline, increased GCT, Surtax on individual income tax for incomes in excess of $1 million? RT. HON. EDWARD P. G. SEAGA, PC, MP : The Leader of the Opposition has raised several issues in his presentation and cited a comparative study looking at five small economies over a 25 year period - Jamaica being one of them. I would like to debate the Leader of the Opposition on this matter in some forum but this is not the appropriate time. Even though he attempts to posit the years under JLP administration as reflecting correct economic policies and those under the PNP as demonstrating "inappropriate policies" sometimes his reasoning breaks down. The dichotomy which he advances the view that appropriate policies were pursued under his direction does not explain why the country had no International Reserve, maintained exchange controls and price control under his guidance and experienced high levels of inflation during the years 1983-85. He was totally in charge then. At the same time, he has been forced to concede that since 1996 the policies, which have been pursued, have yielded results consistent with the model which he advocates. He presents statistics showing the extent to which the Jamaican dollar is backed by Net Reserves. Furthermore, given the projected improvement he was forced to conclude, "if these improvements occur the economy will be on a recovery path, although still leaving some ground to cover, light will begin to appear at the end of the tunnel". The Leader of the Opposition's prescription for successful economy is a low inflation growth model. On this we have no quarrel, but we insist that one of the prerequisites - low interest rates - cannot be imposed by fiat, but must be built on credibility. We then get to his stock prescription, the adoption of the three bills which he has proposed on various occasions. The public must be reminded that these three bills have been subjected to a most exhaustive debate in this Honourable House. In that debate we have exposed technical weaknesses in their formulation and have further demonstrated that countries which have adopted similar legislation e g Argentina - have been forced in times of crisis to alter this legislation in order to permit the Central Bank and the Government the flexibility to deal with the problems at hand. We, on this side, have no difficulty in engaging the Opposition in yet another debate but we feel that it will lead to nowhere. To bring this stalemate to a conclusion, I am proposing to the Leader of the Opposition that we submit our respective positions to a set of international experts selected by the International Monetary Fund and seek from them their assessment of his proposals as well as the approach which we prefer. I have already spoken to the relevant IMF officials and they stand ready to put the technical team together to assess the proposals. Over to you Leader of the Opposition. || Previous | Table of Contents | Next ||
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