by Jermaine Spencer, Economist
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Since the start of the Coronavirus\COVID-19 pandemic, there has been a bitter and somewhat acrimonious debate about what the priorities of governments ought to be. On the one hand, there has been an approach adopted by persons in the public health field which promotes the use of quarantines and other enhanced social distancing measures to contain the spread of the virus The challenge with that approach, we have seen, is that it places a heavy burden on economies. Unfortunately, the heaviest incidence of that burden is borne by the poor and the persons least able to compete within any given economy under normal circumstances. On the other hand, there is the neo-liberal free-market economist “light touch” approach that argues that societies should merely carry on and do some social distancing. The major criticism of that approach is that at first glance it would appear to prioritize economic profit and rent-seeking behaviour over human lives. However, when one looks at the attending problems from a downward economy, such as loss of human life from hunger, poverty and homelessness, the criticism of the approach does appear simplistic. Rather, a more nuanced thinking is to recognize that both sides of the debate have at their core the maximization of human potential and the minimization of loss of life from this pandemic.
In Jamaica’s case, the policy position adopted by the government is seemingly driven by the circumstances of its economy and society, rather than epidemiological notions of hastening herd immunity as articulated by the Swedes. It would appear that, after almost four years of using States of Emergencies to manage a crime problem, the island’s security forces have been stretched to the limit and are thus seemingly incapable of manning a 24-hour islandwide curfew scenario for an indeterminate period. Further, it neither has the financial resources of China to fund a state welfare system to hand cash and resources to everyone to ensure compliance nor are the citizens universally resourced as in the British Virgin Islands. Yet therein lies the Prime Minister’s problem: how do you reopen a country that was never truly closed, to begin with?
Notably, reopening the economy references the need to repair and restart supply chains. Within the Jamaican COVID-19 economic context, the major policy actions would be to lift the 12hour curfew; end the restrictions on the movement of St. Catherine residents and reopen the ports, BPO and the personal care service sector. Where the 12-hour curfews are concerned this would allow for a resumption of nightlife, however, it was COVID-19 that mothballed nightlife, not the curfew itself. Also reopening the cruise and airports are of dubious benefit if planes are empty and cruise ships remain in port.
The reopening of St. Catherine is of especial interest. The reason for this interest is that, whereas Kingston and St. Andrew have been experiencing a process of de-industrialization, St. Catherine remains a centre of manufacturing and agro-processing; agriculture; global business process outsourcing; distribution; education; electricity generation etc. On the surface lifting the restrictions on movement within and outside the parish would bring normalcy to business operations there and in Kingston. Where these business operations include some of the largest companies in Jamaica such as Jamaica Broilers, GraceKennedy, Tru Juice, Worthy Park, Wisynco among others. However, reopening by Prime Ministerial decree does not mean there is a business case for reopening. In fact, given the potential long term closure of the Tourism Industry and Remittances, the case for a private sector lead recovery does seem optimistic in the short to medium term.
The Policy Options
It is the public sector that, therefore, must lead the recovery. In the United States and Europe a public sector lead recovery has been in the form of bailouts both of individuals and firms. In Jamaica, without a massive increase in public sector debt such an approach seems out of reach. In fact, the pace at which the CARE Funds were exhausted almost seem indicative of the constraint the public purse has in respect of this matter. Notwithstanding, the government in its tabling of the First Supplementary Estimates may have to consider the possibility of running a sizable budget deficit. In such a scenario, government revenue from taxation and all other revenues are less than its spend in the economy. This does raise the question of how will we be able to afford it without raising our debt levels significantly.
One consideration is that the government develop a programme of public investment in non-road infrastructure. This programme of public investment would utilize the reserves, that ought to have been built up under the IMF years along with resources from the NHT and Universal Service Fund. As part of the IMF programme, Jamaica was required to run a budget surplus of the magnitude of 8% of GDP per annum. A budget surplus represents a situation in which a government spends less than the total amount of its revenues from taxation and all other incomes for a particular year. The Jamaican economy averages GDP output of USD15 Billion. Over a seven year period this should amount to USD8.4 Billion in reserves. Assuming that the reserve calculations are accurate and that the monies are still somewhere in the treasury and accounted for this would represent a cash cushion of 56% of GDP. These would then be added to both the sizeable but under-utilized resources of the NHT to target the building of low income housing to build resilience in communities. As well as roll out of broadband internet access across the country to ensure that the digital divide between urban and rural; as well as within wealthy and poor neighbourhoods within urban areas are built.
Another proposal that has been placed on the table is for there to be a globally concerted programme of debt reduction and rescheduling. This is an exciting proposal, which unfortunately, does require coordinated efforts among international players with divergent interests. However, given Jamaica’s past experience with both JDX and NDX is not impossible and could provide a template for genuine coordination among developing nations to press multilaterals and other creditor institutions to consider debt reduction as opposed to aid.
In the end “Reopening the Economy” sounds good but it may be a misdiagnosis of what the current COVID-19 Economic challenges have in store for the Jamaican economy. There have been restrictions placed on movement and a particular sector was closed by government decree for a limited period of time, but the major issues were and remain outside our control. Ultimately, this crisis does require the leadership of the public sector which in turn will have to rethink its use of neo-liberal economic thinking to both reflate the economy and prepare it for the realities of the Post-COVID era.