Thursday, December 27, 2007

2008 economic expectations

As usual in welcoming 2008 it is a time to look at the year past and project expectations for 2008. For the past two years I have been saying that crime and education are the main concerns, and indeed they continue to be. Crime because there is so much economic loss and education because productivity remains a big concern for Jamaica.

In my view 2007 has not been a very good year for Jamaica, as the year has seen the effects of a continually high debt; high crime rate; inadequate education results; and a slow down in the global economy manifest themselves. Growth has also been much less than originally projected, firstly because the projection was unrealistic, as I had indicated at the start of the year, and secondly the long election campaign resulted in a slow down of economic activity, with more time spent managing the election campaign than the economy.

A new government was elected, of which much was expected on the first day, although we didn’t seem to expect much in the past 45 years. When the government came in they had to begin to grapple with understanding the state of government and was immediately faced with global events affecting Jamaica, not least of which the high oil and commodity prices, resulting in inflation were being revised upward. This was not a phenomenon of Jamaica only, as some developed markets became concerned about stagflation (slowing economy and rising inflation), caused primarily rising oil prices and the sub prime crisis.

Higher oil prices
For the first time oil prices threatened to push past US$100 per barrel, and the threat is still very real. In light of this the government has had to grapple with high food and commodity prices while at the same time having to deal with a higher than originally projected fiscal deficit. These events, coupled with a weakening US$, saw the exchange rate climb to near 71.50 but we managed to survive through November and today the exchange rate is back below 71.

So the last three months has been very challenging for Jamaica, with a new government in power after 18 years, and having to deal with global events and a rising crime rate, I believe that they have handled the crisis creditably and as things settle down we can see gains come next year. This will of course depend on how the country’s affairs are managed, particularly on the fiscal side but even beyond that within the public bodies.

The close electoral margin gained by the ruling JLP can be good or bad for the country, but this depends on how we manage it. Very disappointing for me over the past three months has been the continued tribalistic nature of our politics, which can gridlock the country. The only shining light for me has been the way the Prime Minister has continued the path of giving the opposition greater power even in light of the political events as he had committed to, which shows a certain degree of maturity. How can we expect the people of the country to live peacefully with each other if in Parliament we continue to display the partisan approach to management that after 45 years has left us nothing but poverty and debt?

In 2008 the Prime Minister will have to continue to remain above the politics and provide the direction needed for this country. For too long we have been without proper leadership. He has said that he is public servant number one and I believe he is sincere about it. I believe that there is someone on the opposition side of a similar vein, but I will reserve my opinion on which person that is.

We should also expect the global situation to remain bad over the next three months or so, as oil prices remain relatively high over the winter, eventually tapering off to the 70’s on average for the year, and the sub prime crisis is resolved. We may also see a slow down in European markets, and global growth continue to be propped up by the emerging economies such as China, Russia, India, and some South American economies. These markets would be the ideal ones to market tourism and exports, as discretionary spending should remain strong.

2008 developments
I expect that the fiscal situation will settle down, and with the strong tourist winter season expected we should see the exchange rate also stabilize. Inflation for next year should be lower than 2007 and all these factors added to reducing interest rates in the US should see better interest rates for Jamaica. I also like the approach of the Education Minister, and expect that we will start to see better things happening in that sector.

The bug bear for me remains crime, and it is heartening to see Hardley Lewin as the new Commissioner, whom I have every confidence in, as someone I have known for a while and know his capabilities. If we can manage to tame the crime beast then we will see an upswing in economic activity, as crime ridden parts of the country can be returned to economic areas. I hope that after so many years of sowing the seeds of crime we can begin to reverse it by focusing on giving the youth an alternative. The current approach of searching everyone at dances is ridiculous though, as (1) it tramples on the rights of persons and economics; and (2) if the person with a gun or drugs sees that the search is taking place what are they going to do keep the contraband on them. While we continue to perform these sting operations persons are still doing what they want on the roads and music still continues to blare at 7AM in the mornings.

Going into 2008 also the developments within the unregulated investments community should start to unfold, as we have seen two recent events which should form this catalyst, (1) the unaudited statements published by Cash Plus; and (2) the ruling against OLINT and LEWFAM in the courts. Persons invested in these institutions have also reported that they have been receiving tax assessments from the authorities. The start of 2008 should therefore be a very interesting year in this area.

When one speaks of the first 100 days of a government though I always wonder what the significance of this is, as this is not the time that you would necessarily expect results but rather expect that the foundation be laid for governance. Much of this preparation is behind the scenes and may not manifest itself in results over the first 100 days. So the real question to ask government is what have you done to prepare for governance in that time. The first 100 days should therefore be a time for laying the groundwork.

Of relevance though is for us to understand that the most important thing to be done over the 100 days is the appointment of boards. This is not something that has been carefully analyzed. We must understand though that it is not politicians that run countries, and to a lesser extent civil servants. Countries are run by the boards that are put in place by politicians, as poorly performing public bodies can make a responsible Minister look bad. If we want an efficiently run country it is to these boards that we must look.

2008 I expect to be a better year than 2007, as we are over the malaise of elections, and the government will be better positioned. The economic climate will change from what has traditionally driven it and I believe that we will start to see more small businesses come to the fore as crime is dealt with. It is of course going to depend though on strong leadership from the Prime Minister on who much rests.

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