Clarke

While Prime Minister Patrick Manning's announcement that Trinidad is now prepared to supply liquefied natural gas (LNG) to Jamaica is welcome, it is unfortunate that he has come so late to repentance. In 2007 when the viability of the Jamalco US$1 billion expansion project was at stake and the need to improve the energy efficiency of our other alumina plants was obvious, the Trinidadian government declared that it had no gas to supply Jamaica.

This position was reached only after the General Counsel of CARICOM supported Jamaica's case that the gas should be supplied at Trinidad's domestic prices. We can only speculate as to what has caused this sudden and, as far as can be seen, unsolicited reversal of Trinidad's position. Reframing the issue in the context of the massive US$1.5 billion export market it has in Jamaica would certainly have provided a powerful motivation.

My recent articles on CARICOM laid out the issue in as clear a manner as possible. The small benefit Jamaica derives from CARICOM trade cannot justify the enormous cost it imposes on our economy; and only a major compensating benefit, such as natural gas from Trinidad at its domestic prices, could provide an adequate justification.

This is the real issue for Jamaica in its trade with CARICOM, and Trinidadian interests who believe that citing and manipulating Jamaica's trade statistics can obscure that fact underestimate our intelligence.

Prime Minister Manning's announcement is indeed a positive and economically beneficial development for Jamaica. But Jamaicans must understand that LNG from Trinidad will not by itself make us energy competitive. We must use the energy we buy far more productively than we now do. The quantity of energy we consume in producing one dollar of GDP is far greater than any country with which we trade.

Contrary to what obtains in productive economies, Jamaica uses more energy for consumption than for production. The period of highest electricity usage is during evening recreation, not when our productive engine should be running. Vastly more fuel is consumed by the glut of gas-guzzling cars and SUVs on our roads than is used for industrial purposes. We will never be a competitive economy while we continue this wasteful use of energy.

Regional trade holds potential for our development but Trinidad's agreement to provide natural gas to Jamaica at its domestic prices will not resolve all the ills of CARICOM. A comprehensive CARICOM energy policy must be settled. We cannot be in a single market with one section benefiting from low cost oil and gas to the detriment of the rest. We must understand that for CARICOM or the CSME to mean anything we must view ourselves as an oil-producing region where all the energy produced within is available throughout on the same price basis.

enforceable agreement

Manning

There must also be a firm and enforceable agreement for the harmonisation of all incentives, fiscal or otherwise. A free trade arrangement can only be fair if all countries operate on an even playing field. Different incentives operating in the region will have the effect of distorting relative competitiveness.

Among the principal benefits of an economic union, as CARICOM/CSME purports to be, is the efficient allocation of labour. Without the free movement of labour this cannot be achieved. Workers displaced in one country by competition from another country should be free to compete elsewhere in the region for other jobs. A CARICOM immigration policy which discriminates against the working class cannot be in the interest of a country like Jamaica which is losing working-class jobs.

However, CARICOM is a relatively small part of Jamaica's problem. As I have argued before, our problems are rooted in our chronic uncompetitiveness, and this will have to be corrected before we will be able to see any meaningful and sustainable growth in our economy.

Even without taking energy into account, our economy is riddled with uncompetitiveness. Capital is priced at levels several times higher than is available among our trading partners. Our currency's uncompetitiveness must be corrected; but whatever we decide to do with exchange rates, government needs to manage monetary policy in such a manner that the cost of borrowing in Jamaica is little different than it is elsewhere, after adjusting for currency depreciation.

However, government must realise that reducing interest rates to productive business is not sufficient to address the problem. The price of capital in all areas of the economy works its way into the cost of all goods and services produced in the country through the price of locally sourced inputs, including labour. Overall interest rate levels must be brought within range of internationally competitive rates, for production in Jamaica to be fully free of the burden of high interest rates.

The high cost of government must also be separated from producers' costs and not be allowed to make them uncompetitive against overseas competitors which do not bear these unnecessary costs.

The heavy cost of our deeply depleted social capital has got to be addressed. Corruption and crime, in-plant theft and disorder and the cost of the special arrangements and security systems which must be employed to keep them under control become part of the cost of the goods and services we produce and add to our uncompetitiveness. Countries without our social capital deficit do not bear these costs.

But there is hope. The Jamaican people now have an acute awareness of the global economic crisis and its detrimental effect on Jamaica; and will find the difficult economic policies which have to be taken much more palatable than they otherwise would. It is, therefore, imperative that the government use this opportunity to put our economy on course to development.

The major macroeconomic changes needed to bring our productive costs to competitive levels must be taken now. We are struck by Trinidad's present economic competitiveness. But we must understand that Trinidad did not become competitive overnight. Nor is oil the only reason for its success, as some would have us believe. Trinidad made major changes to their macroeconomic arrangements in the 1980s and 1990s which resulted in their cost of living and the cost of their productive inputs being brought to competitive levels.

The great respect and deference given to the productive sectors by their government in shaping economic policies is an example Jamaican governments need to emulate. While the counsel of Trinidad's manufacturers substantially informed government policy, the Jamaican manufacturing sector has hardly risen above nuisance value in the eyes of our government, and was more often consigned to pariah status in Jamaica's economic community; standing behind finance and trading and other sectors. Assistance to Trinidad's productive sector was significant. Strong assistance was provided for retooling, modernising and marketing. Jamaica's producers were largely ignored.

The Trinidadian government recognised a simple truth that seems not to have entered the consciousness of our leaders: it is dangerous for a country to pin its future on any commodity, even one as valuable as oil. The only safe path to a secure economic future is the development of the productive output of its people engaged in value-added production. In Jamaica we have tended to place greatest value on things that are the gift of God, such as our uniquely flavoured spices, our minerals, our beaches; rather than on our people's capacity to be productive, best brought out through adding value in the production process.

My advice to the Jamaican government is that while the LNG supply from Trinidad will be of immense value, the most valuable thing we could get from that country is the lesson of how they managed their economic policies to achieve competitiveness.

different path

Jamaica followed an economic path diametrically different from Trinidad and we are now paying the price while they enjoy the benefits. The path taken by Trinidad was politically hazardous. On the other hand, Jamaica pursued the path of greatest political reward. One-term governments characterised Trinidad's politics; Jamaica witnessed the longest-serving administration in our history. But today Trinidad leads the region in economic development while Jamaica heads back to the IMF with cap in hand.

The IMF and its 'dreaded' conditionality is now filling us with great fear and trepidation, but is this justified? The demonic image of the IMF, which politicians have found it convenient to encourage, simply plays to socialist nostalgia and xenophobic myopia.

A country like Jamaica approaches the IMF because it has, or fears, a structural economic problem. The IMF's role is to help that country fix the problem. The economic targets which, when achieved, will correct the deficiencies in the economy, are usually agreed with the government. Under the fund's Revised Conditionality Framework, it is up to the government to find the policy mix which best combines the country's peculiar socio-economic priorities with the economic measures necessary to correct the economy's problems.

Those who would seek to frighten us with images of economic purgatory under the IMF should first examine our economic performance during the 10 years before we ended our borrowing relationship with the fund and the 10 years after.

Economic growth under the IMF was five times greater than it was after we left. Goods production as a percentage of GDP was over 40 per cent higher under the IMF than it was after. Our trade deficit and our national debt-to-GDP doubled. Significantly, our murder rate doubled as well.

Under the IMF we achieved and maintained budget surpluses and have seen nothing but deficits since. The IMF acted as a brake on irresponsible government and provided the discipline and rigour necessary to avoid the kinds of economic disasters we created for ourselves after we ended our relationship in 1995. We have suffered the economic and financial meltdown of the late 1990s, the debilitating high interest rate policy which led to FINSAC and the destruction of scores of productive Jamaican businesses and entrepreneurs, the crippling of the county's productive engine, the sequestering of nearly all the taxes our people pay to be used to service debt, and the consequent under-financing of our vital social services.

Our government surrendered the 'commanding heights' of our economy to foreigners with no help from the IMF. The IMF was not there when we allowed billions of US dollars to be sucked from our people by Air Jamaica, CAP, National Road Operating and Construction Company Limited and the Sugar Company of Jamaica. How different it might have been if the IMF had been there to save us from ourselves.

Given the depth of the ditch into which we have driven our economy without the IMF, the road to recovery can now only be successfully travelled with the IMF as a partner. I hope this time hubris, political advantage and folly will not cause a premature disengagement before we have arrived at our destination.

Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com