1. Signaled in my opening the need to “raise the bar” as it were, in the debate. From public reaction, as well as from Media comments, this has occurred.
2. Some of the proposals put forward have greater appeal initially than when they are subjected to detailed scrutiny. More of that anon.
3. Two persons who have never spoken before in Opening Budget Presentation – the Prime Minister and the Opposition Spokesman on Education.
4. As regards the Opposition Spokesman on Finance, and LO, they covered a variety of issues; not possible to deal with all.
Approach will be to address some of the specific issues raised by each and then deal with (4) ‘BIG TICKET” items which have significant implications for policy formulation and the direction of the country.
1. First contribution to Budget Debate. Opposition Spokesman on Education and Youth but presentation ranged much wider.
2. Contribution was refreshing. Obvious that he had carried out a fair amount of research.
3. Raised many issues which all here, as Members of Parliament, are confronted with on a regular basis. 4. Do not agree with him in certain cases. However, his presentation provides the basis for further deliberation.
5. Expressed views of family life, limitations faced by single parent households. Have no doubt that Minister of Education and Youth will facilitate further discussions.
6. Prime objective is to encourage, but feel obliged to caution against the attempt to downgrade NW’s contribution to Education. Do not try to re-write history.
7. The drive to provide educational opportunities at the secondary level for children from poor and working class households, came from NW. Introduction of free places through “eleven plus” examinations.
8. For my own part, this was my route to secondary education and then tertiary studies. Most from my generation and socio-economic background would only have achieved this because of NW’s educational initiatives. They spawned the founding of a whole set of new high schools and technical high schools, e.g., Glenmuir, Vere Tech and St Andrew Tech.
C: SHAW: SPECIFIC ISSUES
1. Fixed Exchange Rate: Pleased to note that after many years of debate the Opposition has taken a definitive position on this matter. Suffice it to say that the rationale provided by the Opposition Spokesman on Finance sounds almost like a direct quote from several previous presentations which I have made.
2. No intention to tarry long on the matter. Now that we have an identical policy position we can jointly assess issues such as the approach to monetary policy within the CSME. The Administration has long argued that given our commitment to a flexible exchange rate, it is not possible for a unified exchange rate policy, given the commitment of some countries to fixed exchange rates.
3. Calculation of Devaluation: Opposition Spokesman, in usual dramatic fashion states “the situation is even more startling when we compare the change from 1989 to the outturn last year. In Jamaica’s case, there has been a most precipitous fall of some 1,021%.”
4. New arithmetic. An exchange rate cannot decline by 1,021%. In fact, the maximum anything can decline by is 100%.
5. It may seem as a minor point but if we cannot get basic numbers straight, it is not possible to have a useful debate.
6. SLB: The Opposition Spokesman whilst welcoming the reduction of interest rate on loans nevertheless takes the opportunity to slam the Bureau on various counts.
7. He argues that each year there are thousands of students leaving the universities who are unable to find suitable jobs and meet their obligations. “No wonder our tertiary graduates are migrating in such numbers”.
8. Need first to address the issue of the level of migration of tertiary graduates. For some time, many persons including some of our own academicians have been quoting an IMF study by Prachi Misha suggesting that 80% of tertiary graduates in Jamaica have migrated over the 1965-2000 period.
9. Must confess that whilst I have always known the figure to be incorrect, I was prompted to do further research at the suggestion from the Member of Parliament from North Central Clarendon. As such I went to the original papers which revealed a fatal flaw in the author’s assumptions.
10. The paper based its conclusions on surveys taken in the US and other OECD countries. Whenever a tertiary trained resident of those countries identified himselves as a Jamaican, the assumption was made that he was trained in Jamaica (QUOTE FROM PAPER).
11. If this had been applied to the member from North Central Clarendon or Opposition Spokesman on Finance, they too would have been included as Jamaican-trained tertiary students who migrated.
12. Opposition spokesman also expressed concern about the level of service provided for students applying for loans. A basic problem was that too many students waited until the last moment to put in their applications.
13. Partly resulting from a motion moved by the Member from Western St Mary, the problem has been greatly reduced by allowing applications to be submitted online. This year, just over 7,000 applications were received, fully 2,581 were submitted online.
14. Cost of Pensions Legislations: Until recently, there was the absence of legislation/regulations for pension industry. Only addressed in the Income Tax Act because of tax concessions granted.
15. Too many in the industry wish to preserve this concession without any corresponding need for transparency in their operation. As such there have been roadblocks and challenges every step of the way. Let it be clear that the only beneficiary from increased transparency and regulation are pensioners.
16. Opposition must be careful that it does not become part of the problem, doing the bidding of those who wish to maintain, for whatever reason, the status quo. As such, on our way to passage of the relevant legislation there have been many “red herrings”.
17. One such “red herring” is that because the pension fund managers will be charged fees by the FSC this will mean a reduction of pension benefits. We do not resile from the principle which obtains in most other jurisdictions, that the regulation of an industry must be funded by the firms in the industry. The alternate option would be that this funding would come from the Consolidated Fund.
18. The clear commitment stated explicitly by the FSC, and by me, is that once all pension funds and management organizations have been registered, adjustments will be made to the fees charged, depending on the level of inflows. Same principle operates with regulation of the insurance industry and there is no quarrel here.
19. The notion that there will be $125 million received by the FSC from fees is mere speculation as no one, neither those who have conjured up the figures nor the Government, knows the size of the industry. Similarly the claim that the FSC will be building up annual surpluses of $90 million at the expense of the poor pensioners is downright misleading.
20. As I have said, no one can give an estimate at this stage. Secondly, as has been said before, the commitment is to adjust fees in line with costs, once we have full registration and a clear assessment of the level of revenues from the fees.
21. Important that we cease propaganda and stick to the facts.
D: GOLDING SPECIFIC ISSUES
1. Contracts: Leader of the Opposition argues that at present the procedures for tendering, consideration and award of contracts do not have the force of law. Furthermore, there are presently no sanctions for breaches of the Act, nor for bypassing the National Contracts Commission.
2. He is correct and we give the commitment that these issues will be addressed as these deficiencies limit the effectiveness of the Act.
3. Constitutional limits on debt and deficits: This proposal has been around for some time. Was linked to the three Bills proposed by former Prime Minister/Leader of the Opposition to fix exchange rate and to solve all problems.
4. No one can quarrel with the objective of placing a limit on debt as well as on the size of the deficit. However, to believe that legislation placed in the constitution is the answer defies not only logic but recent experiences.
5. Argentina is a case in point. In addition, reference can be made to France and Germany which, when faced with severe problems in terms of social security system, simply violated iron-clad rules to which they had been committed, in terms of their budget deficits.
6. Have no doubt that the immediate reaction is that the Minister of Finance wishes to be free to incur as much debt as is possible and to operate with significant budget deficits.
7. The fact is that such an approach is antiquated. Of far greater significance is the punishment of the market, both domestic and external. That punishment will come through inability to raise loans or through the high rates of interest which will have to be paid, in order to raise money.
8. As regards the size of the deficit, if there were these constitutional limits in the 80s would have led to the impeachment and removal of both the Prime Minister and the Minister of Finance – one and the same. (GO TO THE DATA)
9. Garrison Politics: I listened carefully to the speech of the LO on transforming garrison politics. He, like me, represents a constituency which has been so characterized and he argues for practical steps to “cut the umbilical cord between the politics and criminality.
10. Listened carefully as I recall vividly the LO in a previous dispensation (when he was new and different), standing with me in Rema together with former Governor General. He looked to the South East and commended me for actions I had taken to break the history of violence and political tribalism which had separated Rema and Arnett Gardens. He further argued that if the representative of the constituency to the South East had the will which I had demonstrated, the same could be achieved even in those communities.
11. He has now succeeded that former MP and hence has the opportunity to live out his own advice. I stand ready to work with him to de-garrisonize the whole region. But this takes courage, resilience and commitment. It takes the will to allow the security forces to carry out their tasks in a professional manner, regardless of the political affiliation of the criminals.
12. Not for one moment supporting abuse of human rights but even as we “talk the talk” we must be prepared to “walk the walk” even if we have to take a stance against some who support us.
13. Economic Performance: The LO in damning the performance of the economy over the last fiscal year points out that a host of critical targets were not met.
14. He lists revenue inflows, borrowing, debt stock, the debt to GDP ratio, the fiscal deficit, amongst others, as targets missed.
15. Given the challenge to raise the bar in this debate, there is a sleight of hand being carried out here. The LO knows that when he identifies missed targets for (i) borrowing, (ii) debt stock, (iii) debt to GDP ratio and the fiscal deficit, they are all the same. If the fiscal deficit is missed, then we must borrow to make up the difference which will simultaneously increase the amount borrowed as well as the debt stock.
16. But here he is a bit too clever and he points out that the fiscal deficit was $21 billion above target but we borrowed $37 billion more than planned. How could that be?
17. Simple answer is that, as he knows, or should know, $16 billion of that borrowing was related to the 30-year bond (US$250 million) the proceeds of which were not used in FY 05/06.
18. As such, this also accounted for approximately 2.5% of the debt to GDP ratio.
19. Development Strategies: LO raises points related to the inability of the economy to date to convert the high levels of FDI to growth. This clearly is a problem but also an opportunity for domestic entrepreneurs to capitalize on the needs of the large projects financed through foreign direct investments. Need for continued national dialogue on how local entrepreneurs can become more competitive to maximize access to such markets.
1. In this section of my speech I will focus on four (4) issues which I have termed the “BIG TICKET” items.
2. The first of these is debt. The country’s debt stock is at an undesirably high level. This is not controversial. I was the one who placed this matter on the table in the House for discussion years ago and for each year have tabled a Debt Management Ministry Paper indicating the approach to be taken during the next fiscal year.
3. But this discussion must take place within the context of internationally accepted rules. Whilst the size of the national debt in nominal terms is clearly of importance to each country, it would obviously be impossible for international comparisons to be based on nominal figures. Rather, for good common-sense reasons, these discussions are always couched in terms of ratios – debt to GDP, debt to XGS. As such, it is possible to make meaningful comparisons over time and between countries.
4. In countries, particularly ones which face BOP problems, of greatest importance is the external debt and its relationship to GDP and the country’s foreign exchange inflows.
5. And now to some facts. Fact 1 – The country’s worst period of indebtedness was during the period 1981 to 1988. Both in terms of the ratios of overall debt as well as the external debt compared to any of the critical variables.
6. It is a fact that over the period 1983 to 1985 Jamaica’s debt to GDP ratio averaged over 200% reaching an astronomical figure of 212% in 1984. The Opposition Spokesman on Finance in trying to confuse the public, points out that when the JLP demitted office in 1989, the public debt amounted to $31.3 billion and then seeks to create hysteria by comparing that figure to the present debt in current dollar figures. (Actually 1988)
7. To be complete, let us put that 1988 debt figure into context. The debt of $31.3 billion amounted to 146.8% of GDP. But what is of greater interest, to demonstrate the crisis of the economy at that stage, was that the external debt to GDP ratio was then 102.9%. In other words the external debt was larger than the GDP. This had been true since 1983 due to the level of foreign borrowings conducted by the JLP Administration.
8. Comparison of interest rates – go to data.
9. It is one of the achievements of this Administration that having inherited a country which had a crisis in terms of its external indebtedness – 102.9% of the GDP – systematically reduced it to approximately 56% of GDP in 2005.
10. As regards the overall debt, the fact is that the PNP Administration had by 1998 reduced total public debt to 100% of GDP or under for a 7 year period – 1994 to 2000.
11. It was the assumption of the debt related to the intervention in the financial sector which ballooned the overall debt but particularly domestic debt from a figure of 107% of GDP in 2000 to the high of 143% in 2003 and 2004.
12. Let me now turn to the proposals advanced by Opposition Spokesman in terms of addressing our debt problems. These he termed “new debt solutions”.
13. PetroCaribe – Opposition Spokesman proposal that the PetroCaribe Agreement provided Jamaica with an opportunity to retire expensive debt with longer term low cost debt. Excellent idea, but nothing original. Let me quote from Submission which I took to Cabinet on January 12, 2006 entitled (read the title). It states among areas which could qualify for funding are as follow:
Reducing the Government’s overall cost of borrowing through the use of the funds to refinance existing expenses to GOJ domestic debt. (my emphasis)
14. I have deliberately noted domestic as the agreement limits its use of this facility in this manner. Therefore, we have no disagreement on this use of the facility but there are other areas which will be eligible, including investment in energy projects aimed at reducing Jamaica’s reliance on oil, upgrading the physical infrastructure – in particular roads and bridges.
15. I turn to the second proposal advanced by the Opposition Spokesman, which is the borrowing against GOJ inflows denominated or linked to foreign currency. He argues that such bonds would receive interest rates significantly below Jamaica Eurobonds.
16. Again, whilst this sounds like a new proposal, there are two factors limiting use of this. The first is that the only major inflows over which the Government has control are those from bauxite/alumina. These have already been used to securitize loans to facilitate Government’s involvement in the industry.
17. Obviously, there are significant inflows from tourism or from remittances. But these inflows do not belong to the GOJ and cannot be used to secure bonds. Obviously, there are benefits to the country in so far as such inflows provide assurance to creditors that foreign exchange loans can and will be repaid.
18. The third area suggested by the Opposition Spokesman, is to borrow a “block of funds” from a consortium of multilateral institutions (the IDB, World Bank and the CDB). He even gives the notional figure of US$1 billion. These low cost funds will be used to replace existing expensive instruments.
19. He even suggested that this proposal has arisen from discussions with representatives of the multilaterals.
20. Let’s get real. No such funds of that magnitude are available. We have previously received loans from these three institutions to assist with healing the financial sector. However, this amounted to (US)$325 million over a two year period (150 million each from the World Bank and the IDB and 25 million from the CDB).
21. This is a far cry from the billion dollar suggestion and in any event, there is no crisis such as that occasioned by financial sector problems to justify any similar “block of funds” being made available.
22. Mr. Speaker, I wish to assure the Honourable House that there could be no good reason why this Administration would seek to avoid entering into an agreement which would reduce debt servicing but these “notions” by the Opposition Spokesman cannot face the reality test.
23. Finally, to the issue of the debt, Mr. Speaker, I was most puzzled; in fact anyone with even a passing knowledge of the international capital market would be deeply puzzled by the criticism of the 30 year bond of 8.5%.
24. It is the objective of every government to seek to extend the tenure of loans for as long as possible, if the interest rate is attractive.
25. It is indeed strange when all market players, at home and abroad were congratulating Jamaica on this achievement that the Opposition Spokesman feels that the 7 year bond at 10.785% was a superior deal. I would welcome the explanation of this.
26. Finally, Opposition Spokesman suggested that given the debt stock presented, $847 billion and the estimated borrowing of $136 billion during the fiscal year, total debt would be close to $1,000 billion, the trillion dollar mark by the end of the fiscal year.
27. The $136 billion listed for new borrowings for fiscal year represents the gross figure. Of that, close unto $114 billion will be used to pay off existing debt. In other words the stock of debt is projected to just have a net increase of $21.5 billion or an increase to 2.5% above the present stock.
1. Just over 2