At the end of last year the Jamaican Government introduced a stimulus package which by and large won the approval of the business community. As CaPRI has shown over the past of couple weeks, the Bruce Golding administration was following a trend in which governments all over the world, recognising the economic woes that citizens suddenly had to face, introduced stimulus packages that would bring relief to both employers and employees, and hopefully inject some adrenaline in a weak and faltering economy. Despite the good intentions of the Jamaican Government, and the general optimism of the business sector, research only recently completed by CaPRI suggests that the prime minister's stimulus package will ultimately prove to be rather unstimulating.
In our article surveying the business community's reaction to this package, we found that while they didn't believe it would protect jobs, they did believe the variety of tax breaks, loans and concessions would help to maintain or increase their profit margins in the midst of the current global recession. Increased profits would not only be good reason for the business community to celebrate, but also the rest of Jamaica. The logic here is simple: if the package is beneficial for businesses' bottom line, it is reasonable to expect that these improved profits would work their way back into the economy and improve the whole country's macro-economic performance. In other words, everyone should benefit.
Same growth rate
Unfortunately, CaPRI has now found that the stimulus package will actually create no discernible effect on our economic performance as a whole; Jamaica will grow at the exact same rate in the short, medium and long term with or without the stimulus package.
To do our investigation we went to the Planning Institute of Jamaica to use their T21 model. The T21J is a sophisticated simulation tool used to assist economists in national development planning. Given enough details it can provide various scenarios that will be the likely outcome of different macro-economic plans. It takes into account several factors relating to the economy, the environment and even societal factors such as crime.
We used the T21 model to compare how the Jamaican economy would perform in the short run (2009), the medium run (2014) and the long run (2030) with or without the stimulus package.
We then went one step farther: having costed the package we wanted to see whether the money could have been put to better use. We investigated what would happen if the money had been spent in either retraining workers, beefing up our security forces, or providing welfare to our most vulnerable citizens. In every scenario, however, the results were almost identical: The T21 model, measuring GDP, indicates that the Jamaican economy will decline by 2.9 per cent in the short term, will improve by 3.1 per cent in the medium term, and will improve by 3.7 per cent in the long term.
Good option
Given the fact that the economy will perform just the same with or without the stimulus package, and also would have performed the same if the money had been used differently, it is right to point out that Golding's stimulus package is just as good as any other option. It is, however, equally valid to point out that we would have done just as well without it, and we could have saved the money.
Others of us will want to move beyond this fatalism and will want to understand why the stimulus package will have such little effect on Jamaica. The principal reason is simply this: it is far too modest a package to have any great effect. Stimulus packages typically involve injections equivalent to a fairly large percentage of GDP, but in Jamaica, the Government simply doesn't have the resources to have such an impact. It is too heavily indebted. It is not then that the Government was being unambitious, but rather that its hands were financially tied. They did not have enough money to make the stimulus plan actually stimulating.
It must be noted, however, that while the results were almost the same with or without the stimulus plan, a further breakdown by the T21 model indicates that a policy of no intervention by the government would in fact have been the least desirable option in the short term. While the gains of the stimulus package will be notably small, we can congratulate the Government for taking some sort of action.
Yet, it is unlikely that Golding's stimulus package will provide much more than the current smiles on the faces of a few CEOs. What was intended to be a stimulus has perhaps amounted to being little more than a tickler. Moreover, at a time of increasing hardship for many, one cannot but help ask if the government should instead be using its scarce resources to protect the most vulnerable to this recession.
The Caribbean Policy Research Institute (CaPRI), is an independent think tank affiliated to the UWI, Mona. CaPRI may be contacted at info@capricaribbean.org.