Persaud

Today it is commonplace to talk of governments creating a stimulus package, or, for those who like sweeter sounds: 'counter cyclical short term economic policy'.

This is understandable. Everyone wishes to alleviate hardships created by the spread of recessionary impacts generated by Wall Street's meltdown and the previous decades of 'globalization' that make international economic connections, the knock on effects, so immediate.

Jamaican discourse is no different. Many have looked to the Government to fashion a stimulus package that will cushion the harsh blows.

Missing from these discussions though, is perhaps the most important question and its answer: where are the funds to come from? In the 1960s, that nationalistic and some would argue, difficult Frenchman, General Charles De Gaulle described use of the American dollar as the world's reserve currency as that 'exorbitant privilege' from which the United States benefited.

This privilege was and still is, the ability of the US to avoid what in international monetary terms is described as an 'effective external constraint'.

It could assume debt in its own currency while transferring any potential exchange risk to its creditors.

This is the condition in which the Chinese central banking authorities and sovereign fund find themselves.

They have been running huge trade surpluses while accumulating them in the form of investments in US Treasury bonds and other US dollar-denominated financial instruments.

The US on the other hand has been incurring balance of payments deficits without the need for adjustments, like the International Monetary Fund would insist on for Jamaica or Thailand in similar circumstances, precisely because foreigners are only too willing to hold on to their claims, their wealth, in the form of United States dollar denominated assets - De Gaulle's 'exorbitant privilege'!

Monetary and fiscal policy

The problem with this mechanism for organising and handling the international monetary economy is the inevitable disconnect between monetary and fiscal policy among the nation states that it more or less guarantees.

These are the potential problems that give the German and French finance ministries pause in pushing stimulus packages and cutting interest rates on the Euro.

Policy makers of the G-7 came to understand these problems and we now have G-20 trying its hand at finding a more viable mechanism, one that is not fraught with possibilities for conflict.

So US President Barack Obama can get a stimulus package of over US$780 billion passed through Congress and the world, for the most part, applauds in full support.

Why? The world stands to benefit as the US is the engine of consumption growth for the whole far-flung globalised economy.

It is the world's largest economy, most technologically advanced and the only hope for quickly getting out of the mess - to use the word of US pundits currently like - it got us into in the first place.

So why won't Jamaica simply pass a $700 billion stimulus bill in Parliament - even if it's denominated in Jamaican dollars?

Because Jamaica cannot avoid the 'external constraint', no one wishes to hold untold sums of Jamaican dollars in an asset portfolio and that stimulus cannot be financed from thin air.

The realm of the absurd

In current conditions borrowing that money will be particularly costly and to generate funds to repay quickly seems like moving into the realm of the absurd.

If Jamaica is to create a genuine stimulus package, it will entail an entirely different set of policy choices and impacts.

It will entail, apart from access to 'soft windows and funds' the multilateral institutions are likely to runas short-term responses to the recession, reallocation of cuts from the pie that are already in the oven.

Private business operates on the basis of profits which require consumer demand to generate sales. It is a simple circle but where can the government intervene to stimulate if it does not have the funds at its disposal?

Will attempts at stimulus simply create excess demand for foreign exchange, fuel inflation and ultimately another round of devaluation?

Choices are difficult

The choices are difficult but unavoidable. There must be enhanced revenue collection that targets avoidance and evasion of genuinely owed taxes, efficiency at all levels in the economy should be strictly pursued, efforts at energy saving should be redoubled while the much talked about modernisation of facilities for our agricultural sector may finally find true champions.

Should the efficiency of domestic food crop production and distri-bution be improved, that alone will have a big positive impact on people living on the edge.

Funding for retrofitting energy using devices could also go a long way.

Use funds more efficiently

So would reduction in usage of huge SUV gas guzzlers to transport one person a mere five miles in what is permanent rush hour traffic almost all across the island. Such actions are not spectacular, but they both save and use funds more efficiently.

This at the moment might be the best, or the most we can do.

Finally, what of the idea of that social contract? Is the crisis sufficiently tough to make us understand that we are really all in it together and that the massive differentials in what stakeholders take away from the table cannot be a good thing?

Notice this one was left for last. It may be a non-starter and wishful thinking, yet if we could tackle it successfully what a greater place this would be.

wilbe65@yahoo.com