Levelling the playing field

Our Olympians have gone to Beijing and have done us extremely proud, and I would certainly like to add my own congratulations. These athletes both displayed an individual and team effort that proves to the world that Jamaica has the potential to be a world force. It also shows us the huge potential that all Jamaicans have and what we can all become.

Probably the proudest moment for me though, was not when Bolt crossed the finish line, or when the women came in 1, 2, and 2. It was every time these athletes stood on the podium and the Jamaican flag was raised to the strains of the national anthem. And even in that proud moment there were mixed emotions as I wondered if a small country of 2.7 million people can dominate the world in track and field, why can't we cope successfully with our economic and social situation at home? After all over the years it has been the individual, and team efforts of our athletes and musicians mainly, that have brought Jamaica its proudest moments. And it is these proud moments that have always allowed us temporary reprieve from the "sufferation" that politicians have created since independence.

Wagonist express
It is McKenley, Cameron, Quarrie, Ottey, Marley, Cliff, Shabba Ranks, Beenie Man, and more recently Veronica Campbell, Bolt, and other Olympians, who have made us feel good internationally. If we were to rely on our leaders, then we would feel like the pariah of the world. It is these people who have come from very humble backgrounds that have risen to the highest levels, on mainly individual efforts, that have brought fame to this little rock. And make no mistake about it, they have done it on their own, and with individual help. It has been without the support of government or much corporate support. In fact, the distinguishing company that has supported sports consistently in Jamaica is really an Irish company, Digicel. Not that there are no other companies, Digicel stands the tallest amongst all others.

Don't be fooled though, those that have never supported sports, or any individual athletes, will sooner than later now hop onto the "Wagonist Express" and will make the most noise. I remember as a teenager listening to Bob Marley and Shabba Ranks, when many still thought that this was not acceptable music. It wasn't until late in the life of Bob Marley and after Shabba received international fame that many started to listen. We always seem to be the last to recognize what is the best of Jamaica because of our "Foreign Mind" mentality. We should be Americans as we believe if the person comes from America, or the product is made there, then that is superior to a Jamaican person or product.

Sure we have celebrated the achievements of our athletes and musicians over the years. But that is only after they have made a mark internationally, and been recognized by the world. As a country we never seemed to have the ability to recognise greatness before it hits the international stage, and rely on the endorsement of foreigners as if we suffer from a deep-seated inferiority complex.

If we are to move this country forward though, we cannot only be calling for the levelling of the playing field re drug use in athletics, but must also seek to level it for all Jamaicans in Jamaica. The most important capital we have is our people. In the information age, which started in the 1970s, it is well understood that knowledge is the greatest capital for any country's development. In Jamaica, however, we believe that every other country's knowledge is more important than our own. So over the years we abuse the rights of Jamaicans, and expect them to be silent. We use foreign expertise instead of building our local expertise, even though we can safely say that over the decades of doing so our country has gone from bad to worse.

Jamaica first
It is as if we do not have much regard for our most important capital component, Jamaicans. It is not the foreign investments that will really move this country forward, but the investments made by Jamaicans. Local investments are more committed to Jamaica's development, and more importantly profits, move back into the country rather than go out. This was a point made by Michael Lee Chin, that he is committed to invest NCB's profits in Jamaica, and not ship them out. The logic is simple: if one does not reinvest profits in the country, then the only thing that will happen is that the investments will be equal to the cost. If the investment is equal to the cost then there is no new development, and growth is stymied.

I will give some recent examples of how we treat Jamaicans:
. A few weeks ago at the airport, I was going on an early morning flight. Now most people will know that the airport is very busy at that time. On approaching the security checkpoint going to Immigration, I noticed a very long line waiting to go through security. I noticed that only one of the three security checkpoints was open. I thought how inefficient is it that the management did not ensure that enough people were at work at that time? To my surprise I saw some of the people who were standing there in blue uniforms, open another checkpoint and say they were only going to open it temporarily. I could not believe that they had the audacity to do so and watched as Jamaicans lined up like cattle. Surely it would not happen at Montego Bay where the tourists arrive;
. The explanation by JPS as to why people were overcharged on their bills and that it will be sorted out in the following month. Billing someone more than they are liable for, and expecting them to pay because they do not have a choice, is wrong. Maybe we could apply their own ad and say "If forcing someone to pay more than they owe is stealing, how come it is done. How come?"; and
. Recently Dr Gomes was on radio saying that while in her office policemen entered and took away a young man, while concealing their badges, and without showing any warrant, although requested.

And then when Jamaicans are aggressive we ask the question, why are Jamaicans like that? The answer is simple; this is because for years we have trained Jamaicans to be like that. If people have to wait in long lines, cannot get justice with the police or court system, or have to drive on bad roads, which they pay taxes for, then don't we expect a certain level of frustration from them? If people drive on the roads and see that it is those who break the road code that get to where they are going easier, then don't we expect that many will follow? Remember the laws of physics, for each action there is an equal and opposite reaction. If we treat people with no respect then we can expect the same results. But if we treat people with respect, just as other countries treat their citizens, then we can expect good to come from them. If we want Jamaica and Jamaicans to develop, then we must give them opportunities and preference over imported people or goods. By all means if they fail then they must be held accountable, but accountability must be based on objective and not subjective factors.

If we are serious about the development of this country, then we must understand that it cannot be done without the development of the people. It is said that capitalism is the most successful economic system of all time but it is not just because of the competitive market but also because it goes hand in hand with democracy. If we look at the most successful capitalist systems they all have in common the development and respect of their citizens as priority number one.

Wrong call on sugar estate

I really hadn't planned to write anything on the sugar deal, as I am not very familiar with the agreement and divestment process. But after being encouraged to do so by some members of the public, I felt compelled to set the facts straight on the financial analysis surrounding the company, Infinity Bio-Energy (IB), not because I hold any brief for them, but because I think the message being sent from the analysis is incorrect. And I believe that it is necessary for proper information to be communicated to the public.

I don't believe that there was any wilful attempt to mislead the public but rather, there might have been some amount of misguided "exuberance" to follow what was written in Businessweek. I myself haven't read the article, and don't think I need to, as I find that in many instances our own Jamaicans analyse situations in a far superior manner to anything done overseas. We only have to look at the record of organisations like the IMF and also the fact that the US, with all its glorified analysis, had significant economic fallout caused by their inability to properly assess the effects of irresponsibly created securities.

As an accountant, I am also fully aware that our own accounting standards are superior to US GAAP. And I think I am qualified to say that, having completed the Master's in Accounting at UWI and the CPA in the US.

Incorrect analysis
The article that seemed to unnecessarily cause quite a stir in the media about the "sourness of the sugar deal" was, in my view as an accountant, a misleading, superficial analysis. It was suggested that IB has solvency problems, based on two points, namely (1) that they reported losses on their income statement; and (2) that the current ratio at March 31, 2008 stood at 0.8.

While this analysis may be prudent for someone comparing investment options for getting the best returns, or doing a review of management's performance, it is ill-conceived in my view to apply the same analysis to determine whether a company is capable of long-term success or not. And especially when the current operators of the sugar company (government) was doing nothing more than pumping taxpayers money in for political rather than economic reasons. I think everyone will agree that it is in the best interest of Jamaica to diversify these loss-making assets, as the poor taxpayers just cannot afford to continue in this vein.

Nor do I think that we can use the excuse of the past botched divestment transactions as a reason against the current efforts. Those divestments, I would agree, failed because the responsible persons at the time failed to prudently complete the divestment process, and as Jamaicans would say, "Don't use your fat to fry somebody else."

When one is trying to divest an asset, it is naïve to look only at the profitability of the company. And in fact, accountants today have long recognised that value in a company is better discerned from the balance sheet, as the income statement (which records profit/loss) is just a measurement of activities over the past year. In fact, whether a company makes a profit or loss does not determine the company's solvency. If we want a good indication of a company's solvency, then we must look towards the balance sheet and cash flow statement.

It is apparent to me that the Businessweek article was done by a non-accountant. I say this because no mention is made of the most important statement of any audited accounts, which is the Audit Report. This is the first statement that must be read, as it speaks to accuracy and any concerns, such as insolvency, of the institution being audited. If there was a solvency issue then the Audit Report would have pointed this out, as it has been doing in the Air Jamaica's financial statements for years. But of course one must go further to determine if insolvency is a possibility.

Balance sheet analysis
The statement that the current ratio is 0.8, when at least 1 is desired, is also irrelevant in this case. One could also look at the trend of the current ratio, which was 1.12 at March 31, 2007; 0.66 at September 30, 2007; and currently stands at 0.82. If one looks further into the current assets, though, one will see that the cash and cash equivalents actually moved from US$19.9 million in 2007 to US$34.6 million in 2008. In addition, the reason why the current ratio has decreased is because the interest on loans and borrowings has increased from US$18.5 million to US$90.2 million year over year. This, of course, is an indication that money came into the company through loans, and sure enough, if one looks under non-current liabilities you will see that loans increased from US$3.5 million to US$179.4 million. This is an indication that significantly more money has come into the company.

The company also has a healthy Equity Attributable to Shareholders of some US$419.5 million, up from US$278 million. Of this amount, over 75 per cent is represented by share premium, which increased by 50 per cent. This in itself is an indication that significant new resources came into the company over the period. The cash flow statement also shows that cash generated from operations moved from negative US$27 million in 2007 to positive US$54 million in 2008. This is a strong indication that the company's ability to generate cash is improving significantly. And as far as I know, companies never go bust because they make losses but rather because they have negative cash flows. Overall, the company managed to increase cash and cash equivalents by some US$14 million.

These numbers show that (1) the company is in no way insolvent; and (2) it obviously has the ability to generate cash. In addition, when one assesses an agricultural company it is important to look at the long-term prospects because of the nature of the business. Naturally an agricultural company invests up front more in long-term assets such as biological assets, goodwill and plant and equipment. It is always a healthy sign when a company can access long-term financing, and also invests in long-term assets, as one can almost be guaranteed of not only future earnings but also that lenders have faith in the long-term viability of the company.

It is always expected that companies in the agricultural sector will face losses in their first few years or so of operation as sugar cane, like other crops, do not grow overnight. Any expectation of immediate profitability must be because over the last 15 years or so we have developed an economy with a trading mentality and so expect immediate profits. The investment by IB is obviously a move to invest in the long-term productivity of the country, which will add to the quality of growth rather than growth based on construction and trading, to which we have become accustomed.

There is, of course, a lot more analysis that can be done on these financials, but space does not permit a full-scale analysis. In addition to the fact that it would take more time, which I don't think needs to be dedicated further.

If we are really concerned about the viability of the sugar deal, where we should be looking is at the expertise IB carries and the terms of the contract. The attempt to use financial analysis to say that the divestment to IB is faulty, can only be seen as a misinterpretation by persons not fully cognisant of financial statement analysis, and should not be taken seriously. If one is sick, then it is important to seek the assistance of a qualified doctor. Similarly, financial statement analysis must naturally be left to qualified accountants.

What price for oil?

Since last year Jamaica has been suffering under the pressure of escalating oil prices. Only last September oil futures were selling for less than US$80 per barrel (bbl). Less than one year later (July 2008) oil was selling for a record US$148/bbl, which is an increase of 85% in 11 months, rivaling any Cash plus returns. This week oil fell to below US$120/bbl and the world is breathing a sigh of relief. That’s amazing given that only last year it seemed ludicrous that oil would be trading over US$100/bbl.

The steep and rapid increase in oil prices has caused much economic hardship across the globe, as countries try desperately to cope with this essential ingredient of production and everyday life. Even rich countries such as the US have seen declines in real income levels, as consumers find it difficult to adjust to both rising energy and food prices.

Was there an oil bubble?
The recent fall off in oil prices have caused many to say that the rise in oil prices was a bubble waiting to burst, and sooner or later oil will fall to below US$80/bbl again. There are of course an equivalent amount of persons who believe that the recent fall off in prices is just a temporary reprieve in the inevitable climb of oil to even newer highs in the future. Even if oil falls off though, it is clear that we may never get back to US$30/bbl oil, and this means that countries like Jamaica must find more efficient means of energy.

These alternatives will of course include finding cheaper energy sources, and more importantly changing our consumption patterns, as it relates to energy. This however will necessitate infrastructural and cultural changes if we are to move forward. To compete internationally we will have to find cheaper energy inputs for production also.

The important question for the short term, however, is where will the price of oil end up? Is it that the run up in the price of oil was just a bubble that inevitably would have popped, or is this just a temporary ease, as consumers change their consumption patterns? The real issue still remains one of demand and supply in my view. Will there be an adequate supply of oil in the future to match the expected increased demand.

Before I look at where the price of oil will end up, I would like to briefly examine what are some of the underlying reasons for the recent fall off in the price. It is important to understand this if we are to determine what the future holds for oil prices. In March 2008, when oil was at US$105/bbl, I wrote that by April/May I expected oil to go above US$120/bbl. After that was achieved, on a radio interview I said that oil would spike to US$150/bbl and then drop off. The extent to which it fell off would depend on how quickly the price went to US$150/bbl, as if it gradually climbed there around November/December 2008 it would have continued rising. The fact that it went to US$148/bbl in July 2008 was good, as it meant that the fall off in price was going to be more violent.

The fact is the rapid rise in price to US$148/bbl in such a short period was unsustainable. What happened in more efficient markets, such as the US, is because prices moved up so quickly, income levels were unable to cope with the quick rise and so the reaction was to move to mass transit and cut down on discretionary driving. In addition the Olympics also helped, as in trying to clean up the air pollution China mandated that half of the cars usually on the roads, would have to be parked each day leading up to the Olympics. Also during August many traders usually go on vacation. The fact therefore is that the fall off in oil price was as a result of reduced demand globally.

Technical analysis
From a technical point of view, the chart shows the long term movement of the price of oil. It clearly shows that the long term trend of oil is still bullish; meaning over the long term it still seems set to rise. In addition the bottom chart shows that the declining price is losing momentum.

What this means is that the threat of rising oil prices is still very much present. Oil could very well hit the trend line support between US$110/bbl to US$120/bbl and bounce back up to the highs or beyond. This would signify a sharper increase than if it hits the longer term trend line support between US$100/bbl to US$110/bbl, which would mean a more gradual price increase. If oil fails to take out the high on any bounce this would be a good sign.

In order for oil to settle at US$80/bbl or below it needs to close below US$90/bbl. Only then would there be any hope for the threat of rising oil prices receding. Even the shorter term chart is showing that at the current price (approximately US$120/bbl) it is showing that oil is oversold and it could easily bounce back if some buyers started to enter the market.

In my view then, even though oil prices have fallen off significantly there is still no fundamental change in longer term factors that will definitely keep the prices down. The following factors may still continue to place wind behind the wings of oil prices:
-The US economy still shows uncertainty that can continue to cause US$ weakness. I expect this uncertainty will continue until at least the end of the third quarter;
-After August traders will come from vacation and could add to the market demand for oil futures (or could increase the down momentum);
-After the Olympics the full complement of cars may get back on the roads in China. And if the US economy starts to show some strength, going into the 4th quarter, then people could start driving more and taking vacations again. Additionally, the longer term demand could drive speculation that demand will outstrip supply;
-Iran does not seem serious about disbanding their nuclear program, and this could lead to increased geo-political concerns about supply; and
-The technical analysis shows that oil price could be well supported between US$100/bbl to US$120/bbl.

The irony is that world economic weakness is actually a help to reduced oil prices, as demand for oil will be lessened. What is clear though is that for the foreseeable future oil will still remain relatively high, when compared to former years, and will still be a significant burden for countries like Jamaica. If we do not act in the short to medium term to address our energy costs then we will become less competitive in a declining world economy, which is double grief.

The danger of paper profits

The unregulated financial organizations (UFOs) have one after the other stopped paying out monthly amounts to participants, starting with Cash Plus last year. What is even more evident is that many of the over 20 UFOs, identified by the FSC, seems to be “genetically” linked, leading to the collapse of many at one time. This no doubt has led to significant fall off in the income levels of many Jamaicans, and will no doubt affect industries such as the motor vehicle and real estate sectors.

I have been speaking with some people who have been severely affected by the fallout, as many have not only placed the great majority of their savings in these schemes, but also borrowed money to secure assets based on the income flow they expected to continue in perpetuity. The decision to rely on “risky” investments to maintain a lifestyle of course is one grounded in stupidity, as even if a risky investment is legitimate the fact that it is such a high risk means that one cannot prudently expect it to continue forever.

Foreign currency trading
I have always indicated that foreign currency trading is a well established trading activity, and people do make significant returns from trading currency. Within the global context, foreign exchange trading accounts for over US$2 Trillion traded daily, and is much larger than any single traditional investment type. On the other hand I have always been at pains to point out that there is a high degree of risk associated with this type of activity, and just as one wins big, one can lose big also. So even if high risk investments are regulated in many instances they will make huge losses and go out of business, causing much pain to those who have invested. In fact one legitimate hedge fund in the US last week reported that it was going out of business as it had lost some US$3.2 billion on oil longs when the price of oil futures significantly fell off.

There are of course methods that can be used to minimize losses but on average a hedge fund may last for around five years and then usually suffers significant losses because of its risky nature. The lesson though is that anyone who significantly upped their lifestyle based on risky returns should not only see a psychiatrist but also a neuro surgeon to see what part of their brain was not functioning when they made that decision.

The bigger picture for Jamaica though is that these returns were nothing more than paper profits. And the problem with paper profits is that there is no productive asset to back it up, so what it creates is a fall sense of wealth for the country with no productive base. As a country this is not a strange phenomenon for us, as in the 1990s because of a high interest rate policy we did create a “paper profit” economy also, which effectively killed the productive sector, and on its way helped to create that monstrosity we call FINSAC.

What paper profits do is that it creates a notional return that cannot be backed by the creation of any goods for consumption. So wealth is created by means of money on paper, and is unsupported by an increase in assets, which eventually leads to inflationary pressures. When these inflationary pressures are created it has the effect of either pushing up prices or in order to keep prices stable we will have to either (i) push up interest rates; (ii) borrow money to be able to buy more goods for consumption; or a combination of both. So when paper profits were being created by high rates of interest on government paper in the 1990s in order to prevent the inflationary pressures from pushing prices up we borrowed money to create an illusion that there was real stability when all the time we were only setting up ourselves for the pain that comes with debt repayment. This was not the result of any unregulated scheme, but was the design of legitimate government policy, which had the same effect as the collapse of the UFOs. The only difference was that in the 1990s taxpayers bailed out those that would have lost their investments and today those that invested directly will lose out.

Pyramid economy
So in the 1990s we created a regulated “pyramid economy”, which we are still suffering from today. The following simple example shows the effect that paper profits have on the economy.

1) Assume that the value of goods in the economy is at $100 and income levels are at $100, then there is a 1:1 relationship between goods and income.
2) We can also assume that the savings rate is 20%, so that $20 out of the total income of $100 is in savings accounts and $80 is used for consumption. So that the relationship between goods and income is $80 divided by $100, resulting in each unit of good being valued at $0.80.
3) If one invested in a piece of paper (government instrument or UFO) paying 10% per month, by using the savings of $20, then you would theoretically generate an additional $2 per month, and in a year one would generate an additional $24 of income ($2 times 12 months using simple interest for ease of calculation).
4) If this additional $24 goes into consumption then consumption income increases to $104.
the effect of this is:
a) The price of goods goes up, as no new goods are produced, as the returns are just based on paper profits. So price per unit moves from $0.80 to $1.04 ($104 / $100). In contrast if $24 worth of goods were created price would only go to $0.83 each.
b) There is no new investment in the economy as the savings, which in economics equals investments, is gone into paper.
c) Because the investment is in paper then what is being used to pay the investors are the savings of $20 and in addition $4 must be borrowed by the government or the pyramid to pay the investor. This will mean getting new monies in from new entrants, who are outside of the economy as the entire income of the country will have been used in consumption.

It is this effect that helped to create the financial crisis in the economy in the 1990s and that contributes to inflation, low productivity, and low economic growth. The positive from the fallout of the UFOs is that inflationary pressures will be eased, as the price of items such as motor vehicles and real estate will fall, as the total income falls and more goods are now available for consumption as the secondary market for goods grow. What it also means though is that growth will be negatively affected (the quantum to be determined) as there is less savings for investment purposes.

This dilemma is at the heart of Jamaica’s problem. It is the inability to grow productivity that has caused the lack of economic growth. In fact what we have seen is that productivity has been declining. Unless we can turn around this problem then there will be no meaningful growth and creation of real wealth. In the immediate future, with current global conditions, and our own local situation, the best bet for us is to reduce consumption activities especially in relation to energy. This of course means that fiscal measures will have to be a key ingredient of our near term economic strategy.

The high cost of crime

For years now, we have known as a country that crime is the most significant factor contributing to the lack of economic growth in Jamaica. And this is not only crime as it relates to murders, robberies, and rape, but includes white-collar crimes such as corrupt activities by public officials. The fact is that crime contributes significantly to the cost of doing business in Jamaica and hence decreases productivity, which is at the heart of our economic challenges.

This effect is even more pronounced now, as the world is caught in a serious downturn in economic activity. Because of this, the region as a whole is expected to experience negative impacts to tourism and remittances, the mainstay of Caribbean economies. The IMF has reported that world economic growth is expected to decrease from five per cent in 2007 to 4.1 per cent in 2008 and 3.9per cent in 2009. The Latin America and Caribbean (LAC) region has not been spared, and growth is expected to slow from 5.6 per cent in 2007 to 4.4 per cent in 2008 and 3.6 per cent in 2007.

Poor regional performance
So, the numbers show that the LAC region is expected to decline at a faster rate than total global growth. My view is that this is explained by the fact that Caribbean economies' main foreign exchange earners (tourism and remittances) are discretionary income types, and so the expected slowdown in consumer demand, and reduction in discretionary disposable incomes, will have a greater effect on the Caribbean. The exception, of course, being Trinidad that produces oil.

A March 2007 report by the UN/World Bank entitled "Crime, Violence, and Development: Trends, Costs, and Policy Options in the Caribbean", reveals that crime robs the region of a significant amount of growth. Murders per 100,000 population annually at 30, is the highest in the world when compared to other regions. It also states specifically that if Dominica, Guyana, Haiti, and Jamaica were to reduce their annual homicide rates to Costa Rica's level they could add 1.8 per cent, 1.7, 5.4, and 5.4 per cent respectively to their annual growth rates. In the case of Jamaica, this comes against the background of a 2003 study which found that crime costs the country 3.7 per cent of annual economic growth.

So, because we have failed to act for so long, the cost of crime has continued to increase. This is evident in the last business confidence survey, which shows that less business persons are inclined to put new investments in Jamaica. No doubt, all the evidence points to crime as the number one problem in Jamaica today.

The question then is, how can we deal with this problem? All we have been doing over the years is just talking and putting in place the same old policies over and over again. Whenever we have an upsurge in crime, we tend to put in place 'tough' measures to fight the monster. This always elicits the same response from human rights groups and the police go out and crack a few skulls while their actions contribute even more to the increasing levels of crime, because what they do creates enemies instead of deterring crime. In fact, the same UN/World Bank report states: "An important finding. is that in Jamaica a lower percentage of crimes are reported to the police in areas with higher crime rates. The reporting rate can plausibly be interpreted as a measure of confidence in the police, as people will be more likely to report when they trust the police and believe they will respond. Lack of trust and confidence in the police is then lower in areas with higher local crime rates."

Chasing the wrong issues
This, in my view, is at the heart of the crime problem we face. And so, when the media continues to focus on the measures announced by the prime minister, this is another example of how way off track we always are in what we need to focus on. The prime minister has announced extended detention measures (when properly approved) and mandatory prison sentences for certain crimes, amongst other measures. As far as I am concerned, extended detention has always been practised unlawfully by the police and some have always imposed their own sentences on citizens without a trial. The announcements by the prime minister will not, in my view ,further erode the rights of Jamaicans as they have always been subject to the whims and fancies of the police. In fact, if the appropriate controls can be put in place, the measures announced by the prime minister may even improve the conditions.

The important thing to focus on is not the measures announced by the Prime Minister. If these measures can be properly controlled, then the best way to avoid being subject to them is to not commit the crime. This reminds me of when, under the previous government, motor vehicle fines were significantly increased and there were demonstrations against the fines by some taxi drivers. As far as I am concerned, the way to avoid the fines is to stick within the rules.

If we are to seriously deal with the crime problem then it is not enough to give greater powers to the security forces, which are needed in the short term to address the crime crisis. Giving the police additional tools is like giving the carpenter a saw and hammer to make a table. If the carpenter is not competent, then despite all the high tech tools he may be provided with, the table will still not be made properly. And so we need to go beyond the measures announced by the prime minister and address penalties for police corruption; how we intend to build trust in the police force; and what immediate improvements are to be made to the justice system.
The fact is that no new powers for the security forces can work without people trusting the police, and feeling comfortable giving them information. If people feel that the police are their enemies then they will never come forward with information. We also must remember that justice delayed is justice denied, and prolonged court cases while the legal fraternity argues about who are hustlers and who are not is just not cutting it. And very importantly, we must double the penalty for public officials involved in corrupt practices. It is only after we address these issues that any measures we implement will work.

The fact is that, as a country we cannot afford to continue the high levels of crime that have haunted us for far too long. The effect has been compounded by world economic events, as rising energy and food prices mean that businesses are less competitive and real disposable income levels have decreased. But as we seek to solve the crime monster, let us not lose focus of what the real issues are.

A perfect economic storm

The next six to nine months will be one of, if not the most challenging, in the economic history of independent Jamaica. And I say independent Jamaica merely because I am not aware of what the economic circumstances were before. In fact what is brewing I would call a Perfect Economic Storm.

I say this not just because bad management of the economy over the years is finally coming home to roost, but also because the vicious global environment will play havoc on vulnerable economies such as ours. The reason for our vulnerability is because we have allowed ourselves to be destroyed by the virtues of consumerism, corruption, crime, and political rather than economic decisions. In fact the infrastructure that would make our economy able to weather the current global shocks does not exist because we have failed to educate our people and insist on productivity.

The makings of a storm
So what we have is an economy where productivity is declining each year, or is flat at best; the people are uneducated compared to our trading partners; capital infrastructure is low compared to our trading partners; economic growth is highly dependent on imports; and the cost of business is artificially inflated because of crimes such as extortion. Combine all of this lack of proper infrastructure with the lack of proper leadership in both the private and public sectors and what you have is an economy that is not able to protect itself from any unfavourable external shocks.

But what are some of the shocks we face that will make for this perfect economic storm, against this background of a vulnerable economy. They are:
- The rising oil prices have caused us to shell out more than an additional US$1 billion per year, when exports are not growing near fast enough to close the increasing trade gap. And because we have destroyed the mass transit infrastructure then people have no choice but to drive their personal cars, and so we cannot adapt to rising oil prices as quickly as developed countries such as the US. With all of this even if oil pulls back in the short term, the long term prospects is indicating it will continue to rise;
- Rising food prices is causing havoc on consumer spending and may start to impact general nutritional levels. If this happens we could then see a negative impact on health costs in the near future. Food prices should continue to rise in the foreseeable future. Add to this the fact that our agriculture is plagued by unproductivity, praedial larceny, and a high import content and it makes the situation seem grim;
- The government does not have the fiscal space this year to divert resources into much needed social programmes. It is going to be very important this year that the fiscal target is met, not just because we have been missing it for years, but also as a result of the changed international financial environment which means that we will be punished if we miss it;
- Crime, and lawlessness, continues to plague the country. Because of the social degradation and the lack of proper enforcement of discipline in the society over the years corruption and lawlessness have become ingrained. This single factor has been the main reason for the underperformance we have seen in tourism and domestic investment when compared to the rest of the region;
- Probably one of the most important turn of events over the last 2 months has been the significant downturn in business confidence. What this means is that we can expect to see stagnated economic activity in the near future, if conditions remain the same;
-The worsening economic situations in the US, Canada, UK, and Europe (our main trading partners internationally) will impact negatively on tourism, remittances, and other export earnings. We may see some growth in some of these areas but the growth will not be enough to counter the inflationary effects of our imports. Europe and the US also seems to already be in a recession; and
- The failure of the “alternative investment schemes” will have a negative impact on consumer spending and personal loan portfolios of the banks, thus affecting their profitability, as they have spent the last three years pushing consumer credit. The impact on the financial system overall will be minimal if any though. This could in turn negatively impact the motor vehicle and housing industries and is the result of not having dealt with these schemes three years ago when at the time I was emphasizing the importance of regulating them and I was being told that I was marketing for them. The fact is that pushing for them to be regulated would have shaken out the illegitimate ones very early and prevented the potential impact it will have now. Instead we chose to get public opinion against us with the big stick approach.

All these factors had the seeds planted years ago, even the global events. What is happening now is that all these seeds have developed into trees ready to bear fruit. The fact that when global economic conditions were excellent we failed to take advantage of it adds to our woes today. When all these events come together in the very near future, as they will, you will have the making of a perfect economic storm. And if we were to even have flooding this hurricane season it will compound the effect.

Competence needed
But like all storms the ship can be guided through, even in one as furious as this one. What it is going to require is competent and fair leadership. Most importantly it is going to require superb leadership by the Prime Minister, as he is the captain and the ship is fully in his control. But it does not stop there; it is going to be very important to have in place competent, and not just name brand, persons strategically placed to lead important areas. If this is compromised then the ship can easily sink. I would even go as far as to recommend that an economic council of some sorts be established to help guide us through what is on the horizon, made up of “competent” persons from the opposition, private sector, public sector, and government. These persons should be paid, and so held responsible, but more importantly should be competent.

What I am saying is that there is hope, as the inefficiencies in (i) oil consumption patterns; (ii) agricultural production methods; (iii) consumerism; and (iv) bureaucracy, all leave us with significant space for improvement, and is therefore an opportunity. But it is important that we act decisively on improving these areas, in addition to enforcing discipline, if we are to sail through these troubled economic waters.

As an example, when oil was at near US$80/bbl last year I remember blowing the trumpet with Ralston Hyman about the necessity of dealing with the short term demand as a matter of urgency. When such a situation occurs it is necessary that the slow wheels of government bureaucracy do not stand in the way, as our inability to be proactive is part of the reason for where we are today. In the US for example, as large as their bureaucracy is they are able to make quick decisions when it comes to the economy.

In conclusion although the future looks tough, we do have the ability to go through it with minimal damage. This, however, is going to require strong leadership to do what is necessary to carry us through. I have said in the past, and will say again, that I am of the firm view that the Prime Minister is capable of doing that, and it is important that whatever space we occupy that we support him in doing so.

Failed leadership

I have always said the main problem I have with previous administrations is not the way they have managed the economy, but the breakdown of law, order, and discipline. Jamaica's problems with violent crimes did not start today. The fact that people were allowed to get away with small infractions has led to the major crimes we face today.
The indiscipline on the roads, the corruption by public officials (described as runnings), the blaring music at nights, and the general "Jamaica no problem" attitude. These have all resulted in Jamaica being one of the most murderous countries in the world. It is the inaction of our leaders who have been honoured with so many accolades, that has caused us to be where we are today. Leadership both in the public and private sector. This is what has caused the assassination of someone I have known for over 20 years, Douglas Chambers.

A sad day for Jamaica
It is a very sad day for our country when someone with all the intentions to make this country better is slain. For it is saying to us that if you try to do anything to improve Jamaica, and help to improve the lives of Jamaicans, then you will not make it. It is very symbolic of the way our leaders have approached this country, that is, Jamaica is a place to be plundered, not developed. In other words the tradition of Henry Morgan, the pirate, must be continued. When there is nothing else to plunder, and Jamaicans have killed off each other, then the same persons that have led us to this sorry state of affairs will move on to another country and retire in comfort.

Douglas' death was not orchestrated this year. If we are honest with ourselves it all started in the 1960s, after independence, when political violence started to rear its ugly head. At the time there were no high-powered weapons, which cause the gruesome slayings today. But we have always sought to use the best technology available to create bodily harm. This technology improved to what it is today, not because the poor man hired to commit the crime could afford to bring in the guns. He was too busy trying to find food for himself and his many children. Rather it was the "Honourable" politician, isolated behind security, that used the poor Jamaican like a rag cloth to wipe out what he considered dirt.

So, irrespective of what anyone might think about Douglas' style, his intention was always to clean up the corruption that is the legacy left to my generation, and the ones following, by those who have fought their way to power with the blood of the poor, plundered our coffers, and retired to a life of plenty. The Jamaica today is the legacy that has been left for us by some of the leaders we have bestowed with the title Honourable and many other awards. As I see what this legacy has done to Douglas, I ask, what is honourable about the Jamaica that has been created?

The legacy left by the generations before us is aptly described by Douglas' circumstances. He was given $1 a year and bullets. In other words, the legacy left by previous generations for us is poverty and crime. That is what is meant by $1 per year and bullets. Should we be thanking those who have gone before us for the legacy created, or should we be saying to them, "You have failed in the leadership of this country. It is time that you stop giving solutions to something you could not do when you were asked to by the people and allow us to do it". There is nothing I hate more than to hear those responsible for where we are now speak about what the solutions are to the problems we have today.

Jamaica as an experiment
It is as if Jamaica was nothing more than a lab rat to be tortured and poked in an experiment to prove a theory of the resilience of Jamaicans to "sufferation". Because no real attempt has ever been made to truly improve the lives of Jamaicans. So I find it very difficult to reconcile the fact that we have $1 Trillion in debt burdening the poor people of this country, while the old lady I saw walking on the sidewalk a few weeks ago (in bright sunshine) had to step off into the road to avoid a puddle of water. I find it very difficult to reconcile how we have supported public sector companies losing billions per year when the children line the streets hustling with no hope of a proper education or any health care. I find it very difficult to reconcile how we spend billions on hosting a cricket tournament for a few weeks when at the same time the police, teachers, and nurses are crying out for more resources.

And then when these questions are raised, some have the audacity to try and defend it. It is not only corruption that has helped to destroy this country, but the wanton way in which we have approached public expenditure in this country. We have spent money not to ensure the development of Jamaica, and Jamaicans, but to ensure that political parties hold on to power. And we may say that it is the people who decide who is put into government. But what we have been doing is keeping the people hungry and ignorant so that if we give them a plate of curry goat and a beer, then they will give away their lives. If our leaders had any respect for Jamaicans they would never entertain that sort of politicking.

The trigger of the gun that killed Douglas may have been pulled by a poor Jamaican man. But it was the mismanagement and inaction of our leaders that developed the criminal and gave him the gun. The trigger was not pulled last Friday. It was pulled as far back as 1962 when we gained independence and failed to develop this country to become one where discipline, structure, and development were given top priority. Danville Walker has realised this in his recent address where he said that those evading customs duty are the well-to-do. It is not the poor man who pulls the trigger who evades customs duty. It is not the poor man that is abused by the police who evades income tax.

So when I hear people criticising the government for not giving a long enough time for the tax amnesty I think about how bare-faced criminality is. For those who evade taxation are as criminal as the man who fires the gun. So how can we criticise the "dons" in August Town for calling a peace truce when the white-collar criminals who evade taxes are also calling for an extension on a tax truce? In fact it is the deprivation of the revenue that has resulted in many respects to crime in this country because education, health, and social services cannot be funded. But then again, maybe if that revenue was coming in we would have wasted it on the scandals that have dogged Jamaica for many years.

It is not one or two wayward men who killed Douglas. It is a well-oiled system of corruption, indiscipline, and lawlessness that has been created by years of neglect and dismal leadership. But we must all understand that when violent crimes take place in Jamaica it is a cry for help by poor Jamaicans who have been abused for decades. And we who have the ability to do so must double our resolve to improve this beautiful and blessed country by fighting the corruption and indiscipline that engulf us.

Douglas was one of thousands of Jamaicans who lost their lives in the fight for "scarce benefits and spoils". But he was at the forefront of trying to change a system that stinks of corruption. He was at the forefront of trying to put in place a better life for Jamaicans, who suffer the indignity of travelling the public transportation system while those responsible for its demise drive in air- conditioned gas guzzlers. So even though he may have had his conflicts with the people, he was truly a champion of the people.

So I say to the young people of Jamaica: Even though the legacy left for us is one of "$1 a year and bullets," we must have the resolve to help Jamaica to rise like the Phoenix from the ashes. And when we have our conflicts, as we always will, do the same thing Douglas would do and say "Come, let's go drink a beer and talk bout it". Big up Dougie.

Taming the inflation monster

Inflation is probably the greatest threat facing the consumer daily. This is because the global impact of food and energy will continue to have a devastating effect on the incomes of Jamaicans. Those at the lower income levels will feel it even more, and our policies over the years have created many such persons.

It is because economies move in cycles (good times followed by bad) that I have for years lamented the fact that as a country we have failed to take advantage of the record growth levels the world has seen in recent years. When times are good it is essential that we put aside resources to help us through the bad times. So when the world was growing at rates of six per cent to eight per cent as a country we failed to take advantage of it. In fact, we seemed to have been satisfied with growth rates of two per cent, as whenever we made that mark it would appear we were in a celebratory mode. This is even as neighbouring countries were growing at rates between 8 per cent and 10 per cent per annum.

Adapting to inflation
So here we are today, like everyone else negatively affected by global inflation. Every country in the world today is trying to cope with escalating energy and food prices, of which the greater threat to the world is food inflation. The truth is that food inflation will continue for longer than high oil prices, as while we can curb energy consumption it is very difficult to do so with food. So the main failing that we have as a country is not really that we cannot satisfactorily control the global impact but that (1) we have failed to take advantage of the high growth rates; and (2) the lack of infrastructural investment over the years means that our capacity to deal with the global impact is just not there.

In other countries, such as the United States (US), while they are faced with high energy prices they are able to curb consumption by increasing their use of the mass transit system. In the US since last year they have increased the use of mass transit by over five per cent. So they are able to reduce energy consumption by not only fewer people driving but obviously it means less traffic, and also the consumers are able to reallocate the funds saved on energy consumption from transportation to food. In Jamaica's case, however, because of the lack of any proper mass transit infrastructure (road, rail, and water) the Jamaican consumer is not able to move to mass transit, and therefore continues to face high energy and food costs without being able to reallocate expenditures.

So while countries with choices can minimise the impact of inflation, countries like Jamaica get the full brunt of it. This is primarily because of our failing over the years to invest in the capital and social infrastructure of the country, even while we have racked up debt of J$1 trillion. The debt has not gone into development but rather consumption.

So while on the one hand we have a very significant debt level, there is nothing to show for it because the significant part of our debt has gone into consumption. And this is why places like the IMF, and local commentators like myself, have been saying for years that the continued expenditure on places such as Air Jamaica, Sugar Company, and JUTC without any strategic benefit was giving away our nest egg. In addition to these expenditures we have seen the money that has been wasted on scandals such as the Intec fund, Sandals Whitehouse, NSWMA, Operation Pride, and others.

We could do well today with the billions of dollars wasted on these for social programmes support, as the US is doing with the rebate cheques they have sent out. Instead, during the good times our approach has been to waste our resources, and "suck salt through a wooden spoon" when times are bad. This is not a new phenomenon for us, as after the boom of the 1960s we again wasted our resources by our policies in the 1970s, when we had an accumulated negative growth of close to 20 per cent.

What is the solution?
But how do we now address this? What we have to do is first understand what is causing the problem. The inflation problem is caused primarily by the global impact of rising oil and food prices. Even local food is affected because of our dependence on imported fertilizer, and exacerbated by the low agricultural productivity, which results from small farm plots, inadequate irrigation, and the lack of technology. What we also have to realise is that inflation in Jamaica is mainly caused by food, which accounts for approximately 41 per cent of total inflation. Energy consumption makes up less than 10 per cent. It would seem logical then that any attack on inflation must first be directed at food and energy, as these account for almost 50 per cent of inflation.

In addition, because our import dependence is so high, it means that inflation not only causes increased price pressures directly but it also causes a greater demand for foreign exchange, which places pressure on the exchange and inflation rates. So we must develop strategies that have the effect of (1) minimising our need for foreign exchange; and (2) increasing our agricultural productivity. Some of these solutions will take some time but others can have an immediate impact.

The low-hanging fruit, for example, is in the area of energy consumption. One such solution is in place already and this is the $500,000 loan offered by the NHT (10 years) for solar energy equipment. The NHT of course needs to ensure that anyone who accesses this loan is tax-compliant. But a typical three-bedroom home may cost about J$300,000 to J$400,000 to place the lights, television, computer, and other small appliances on. This could run these for the entire night and could reduce your energy bill by at least half. So if your light bill is $10,000 per month, the payback period on the investment is 6 to 8 years, and the life on solar equipment is approximately 40 years. This is a conservative example, as the bill and percentage saved is usually higher.

In addition, the introduction of fiscal policies to curb consumption could have an immediate payback. For example, charging private cars to access areas such as New Kingston during work hours, and having significant parking charges in these areas will encourage people to move to mass transit. At the same time though an immediate investment in buses to accommodate park-and-ride services will make our public transportation system more palatable. In the UK and US one pays to go into London and Manhattan during work hours. In the UK there is a charge for vehicles such as SUVs that drive into certain designated zones. The effect on the retail consumption of electricity and transportation could see reduction in the energy bill of between US$700,000 and US$1 Billion, if properly implemented.

The longer-term strategy being adopted by Chris Tufton should have a beneficial effect on food inflation. What we must do is not only start to grow more of what we consume, but we must also (1) develop local organic fertiliser on a mass scale; (2) grow staple crops, such as rice, cassava, yams etc on a large scale and not the small farming plots we do now; (3) put money in fixing the long- neglected arterial roads for greater access to farming lands; (4) use technology, such as is done in Israel, to ensure the greatest yield possible, standardise our agricultural products, and ensure year-round production of certain items. If we approach this properly we can have enough for export also but certainly will be able to replace the imports in the hotel sector.

Just as Jamaica lacked the capacity to grow at rates in excess of three per cent in good times, we also do not have the capacity to adapt to changing economic circumstances because of the lack of proper infrastructural investment, and wastage of our resources. There are some short-term fiscal policies that can address inflation concerns, but the timing and proper implementation is critical.

Breaking the vicious cycle

At the end of the last fiscal year, we officially got to the $1 Trillion national debt mark. This is something that was well within out reach from early last year, and with the off the book debts we had well surpassed long ago.

Now that we have achieved the $1 Trillion figure though what does that mean to us. As many people would be aware, I am not one who is concerned just about the level of debt. Whether it is $1 Trillion, $200 million, or $200 Trillion is not important all by itself. One could say that the debt/GDP ratio is an important mark, and it is from a comparative view, but again is not in itself the sole indicator of whether or not things are getting better or worse.

The debt/GDP ratio is a good trend indicator of whether as a country we are doing better or worse, but still has its weaknesses. In our case the debt/GDP ratio started to decline around 1996/97 with the financial crisis of the 1990s and the introduction of FINSAC. From that point on the situation got progressively worse until around 2006/07 when we started to see the gap begin to narrow but not by much. With the debt figure getting to over $1 trillion at the end of 2007/08 the debt/GDP ratio still went down from 132% at the end of 2006/07 to 126%, as a result of a greater rate of GDP growth relative to the debt level.

Pyramid economy
This, however, is not the full story as the growth in GDP includes inflationary growth, which we know last year was relatively higher but also because the GDP component is also very important. In the last quarter, January to March 2008, GDP growth was 0.2%, which is one of the worst numbers we have seen in a while. My own view is that the global impact has had a lot to do with this, but even more importantly the constant decline in productivity over the years is beginning to catch up with us.

Since 1962 Jamaica has recorded growth of approximately 97%, of which some 69% occurred between 1962 and 1971. So over 35 years we have seen accumulated growth of around 28%, and this is at the heart of our problems. For the last 35 years we have had an average annual growth rate of approximately 0.8%. We did see some reversal of this worrying trend in the 1980s, when between 1982 and 1991 the accumulated growth was approximately 15%, but since then growth has averaged just about 1%. This is while other countries were growing consistently at rates over 5%, so obviously Jamaica is going to become relatively poorer.

The significant reversal in our fortunes started, as I indicated, around the mid 1990s when the financial crisis occurred and money stopped moving into productive ventures and went into chasing paper, producing no productive assets. So the economy was operating like one big pyramid scheme where high returns were being promised on paper without the productivity to back it. The only way to keep the paper chasing going was obviously to borrow money to pay those that invested in our high yielding paper. This as far as I am concerned is similar to a pyramid scheme where new monies have to be taken in all the time to pay out those who are already holding paper instruments, which is a promise to pay.

Over the past few years though we have seen some growth in the economy, and also have boasted about the amount of foreign direct investment that has come into the economy. We have also seen record inflows in terms of remittances and each year we have broken the mark of the number of tourists that arrive on our shore. Based on these and other numbers we have been propagating that poverty is down, the economy is growing, and Jamaicans are better off. We have even gone as far to say that Jamaicans are better off because they have more cell phones, more cars, and yes “man have more gal”.

Changing productive and consumption relationships
But even while “man have more gal”, cell phones, and cars we still see where Jamaica’s debt has been climbing, inflation is going up, and the economy seems to be stagnating as growth rates of 3% and above seem like a fairy tale. And the truth is that unless we break the vicious pyramid like cycle, where we continue to borrow money to pay those who were in before, we will always face the same challenges. The only way to break free of that cycle is to fundamentally change our consumption and productive relationships.

Even though we are seeing growth, and some erosion of the debt/GDP ratio, this reliance on this indicator is also misleading. My own view is that the only way for us to really address the problem of the debt/GDP, and how much of each dollar we pay out in debt, is not to focus primarily on the debt but rather to focus on the denominator, GDP. And it is not just a matter of growth in GDP that is important but what sectors have grown. In the 1960s, when we saw significant growth rates, this came primarily from manufacturing and at that time the Jamaican dollar was valued more than the US dollar. At that time we also took advantage of the areas we had an economic comparative advantage in also.

Since the 1990s the growth that we have had is primarily in the services (financial, real estate, distributive trade) and construction. The real sectors such as mining & quarrying, tourism, and agriculture have not performed as well. So our growth in recent years is sort of like a two edged sword. While on the one hand it makes our numbers looks good, these are in sectors where we do not have a natural comparative advantage and where a significant part of the inputs are imported. So while our growth numbers look good the balance of payments suffer, and we end up spending more than we earn. This in itself leads to greater demand for foreign currency and the only way to keep the exchange rate stable and keep inflation low is to borrow money. It is because of this cycle why we are being affected so significantly by the global crisis. The fact is that as credit tightens globally interest rates on debt is going to be negatively affected and as prices globally go up we are going to import inflation. This is the corner we have painted ourselves into with the economic policies we have pursued.

The only way for us to break out of this is to fundamentally change our approach to economic growth. The focus for growth must be in the areas of agriculture, and not just the growth of primary products but also agro-processing where we retain greater value in the economy, and also in tourism and mining. These are the areas where we have a comparative advantage and economics 101 teaches that in the areas where there is a comparative advantage there is also the potential to retain greater value.

The other area that we can have a significant impact is to change our consumption patterns in energy. The energy bill at current oil price levels will move by over US$1 billion. My own view is that an investment of some J$5 billion in this area could see us saving up to US$1 billion (J$71 billion). This seems like good value for money.

The point though is that since the 1990s Jamaica has been caught in a vicious cycle of debt chasing debt (borrowing more to pay older debt), resulting in a pyramid type economic effect. Unless we fundamentally change our production and consumption arrangements then we will forever be like the stupid dog that continuously chases its own tail.

Déjà vu

In recent weeks Jamaica has been seeing significantly increased number of murders. And it seems as if those responsible are getting more brazen. I mean assassinating two policemen in a group carrying high powered rifles in brought daylight, is an indication that the gunmen are fearless. Shooting children and senior citizens also show heartlessness. Assassinating a young lady in the middle of the day in York Plaza, a busy intersection, illustrates their confidence that they will not be caught by the police.

The reaction on the airwaves the day after the murder of the policemen was predictable. The talk show hosts discussed what they thought were the underlying factors, and pointed out to the police that their past actions were partially to blame for what we experience today. And the policemen rejected any blame and vowed to get the cop killers, calling on the community for support.

Leadership inaction
This round of events seems like déjà vu. I am sure that I have heard these sentiments being aired before, and the same reaction from the police. But after a few days we always continue to do the same thing that we have always been doing, so no doubt we will always get the same results, and in the case of crime get worse results as the societal impact gets worse. The question is, in the decades that we have been talking about the rising crime levels, and more so within the last 10 to 15 years, have we done anything different.

The popular response, from the eighties, has been to create special police squads that always seem to have escalated the abuse on our citizens. This no doubt has alienated the citizenry and ended up with them feeling they have no alternative but to protect the gunmen from the police, as they are the sole protectors of their communities. Over the years when we have always complained about rising crime we have seen the corruption in the police force and by public officials increase. We have seen numerous political scandals involved billions of dollars with no solution. We have seen a financial crisis that has cost this country dearly and at the end of it no one has been held accountable. We have seen where children have been left to grow up on the streets without any state intervention to hold parents accountable.

So it is this inaction by our leaders that has resulted in the vicious crimes we see today that not only cost us at least 4% per annum in GDP growth but is the main reason for the deterioration in the quality of life of Jamaicans. Even children have to be careful traveling on the roads, as we never know when they will be killed for a cellular phone or no reason at all. And the commissioner (Lewin) is correct; this monster of crime is not going to go away over night. We have spent years of neglect and poor governance encouraging the sowing of the crime seeds, and now it is beginning to bear fruit. In fact Jamaica has become known as world leaders in the production of crime, as we have killed the manufacture of goods and services.

The high incidences of crime today was predictable and only leads me to conclude that our leaders lack the ability to see the consequences of their actions or just plain do not care about Jamaica. I have always held the view that Jamaica is seen as a place to be plundered, and that this view has been carried on in the tradition of Henry Morgan and his pirates. Today the pirates do not travel in ships but comfortably in expensive cars. I believe that this is the view of our leaders as I do not believe that even the most ignorant of us could be stupid enough not to see the societal effects of ineffective leadership.

Three generations lost
So the actions of our leaders and lack of development as a consequence has resulted in the neglect of around three generation of youngsters that have been educated in various methods of committing crime. This is at the heart of the problem. For years we have been speaking about the marginalization of our young men. We have seen where females form around 70% of the university enrollment. Doesn’t that raise questions about what was happening to our young men and wasn’t it enough to spur our leaders into action. It seems not. Instead the focus of our politicians has been on winning elections at all costs.

I really do feel it for the poor Jamaicans of this country that have suffered under the inadequate leadership offered by power hungry politicians. Jamaicans have always been known world wide as a warm and friendly people and poor leadership has turned the image of Jamaicans into a vicious bunch of murderers. It is time for us to really start to put people and Jamaica first. It is time for us to start acting responsibly in our governance, and when appointing people to positions or taking decisions, to do so in the best interest of Jamaica, not because someone is a political supporter. But even if we want a political supporter make it one that is capable of doing the job. We must ensure that everyone is treated the same and that no one is above the law while the rest of us mortals have to abide by it. It is time for a new dawn in Jamaica, and this is a passion I have. I long to see the day when Jamaica takes its rightful place in the world, as we have so many talents and competitive advantage.

And this is the reason why I said last week that I am relying on the characteristics displayed by Bruce Golding. I am encouraged by some of his actions and comments about equality for all. I am encouraged by his resoluteness for a better Jamaica and I hope that he continues on this path as I really do believe that this is one of the last chances we have as a country. Past leadership has failed us and some should never see it fit to offer themselves for public office again and act as if now that they are no longer in governance (and I speak not only of the last administration) that they now have the answer to what over decades they have not been able to resolve. I can never understand why Jamaicans believe these utterances.

Some people have written to say that I should pronounce that I am an advisor to the government, to put my comments in perspective. This view is nothing but a continuation of the tribal way in which we view things, as because someone may wear a certain colour, at a point in time, we shoot the messenger rather than look at the message objectively. Then again many do not have that ability, but I do understand the request in the context of the environment we live in. Irrespective of our views I think we can all agree that if nothing is done about this crime monster it is going to consume everything positive about Jamaica, and no practical economic projections or development can take place in this environment. But the change to dealing with this must start with leadership.

Passport office
On another note, I visited the passport office recently to renew my passport and was pleasantly surprised. The system of service was very efficient and the people there were very helpful. It was not like many other government offices where you could be falling down and no one comes to your rescue. These people were very attentive to their “customers” and always had a smile. The process was seamless and painless. In fact when the automated system called my number (322) a lady came up at the same time and said she had 317 and that her number came before mine. I withdrew to the side as the cashier said to her that “in here 322 comes before 317”, which reinforced in my mind that they were committed to following the system that was in place. This is indeed refreshing in a country where there is no respect for rules. Respect to the passport office, whose administrators should help some other places that are excellent at PR but very poor in service.

Understanding inflation concerns

Last year, when oil was close to US$90 per barrel, I indicated that it would go to US$100. In an article I wrote in March, when oil was US$105 per barrel, I indicated that by April/May 2008 oil would hit between US$110 to US$120 per barrel. There were persons who publicly, and privately, said that I did not know what I was saying and that oil would soon go back down to US$85 per barrel. I even remember someone saying to me that I was talking up the price of oil, even though I am a mere accountant in a country that is responsible for a very insignificant amount of global consumption. But such is the emotion called illogic that so many of us seem to possess.

When one looks at the daily oil chart it still shows a very bullish trend, and on that basis some had said that they expect oil to still continue rising unabated. At the same time we are facing rapid increases in global food prices, as evidenced by a very basic staple, rice, which already this year has increased by 117 per cent. There are reports also that Costco and SAM's club, in the US, have been restricting the sale of rice. There are reports that in over 33 countries across the globe there have been food riots this year already.

Again, I believe that emotion is taking over, and people are not correctly analysing the situation and now the talk is that this trend will continue indefinitely. So people have transformed from telling me that I don't know what I am saying about oil prices going to US$120 per barrel, to the point now where they are saying that these rises are going to continue indefinitely and predicting indefinite doom and gloom. Now anyone who understands how markets work will realise how irrational these arguments are, and will also appreciate that what is driving these comments is nothing more than emotions.

Food inflation
I do admit that food inflation will be the greatest concern for Jamaica, and the world, in 2008. As a matter of fact it is a greater crisis today than the price of oil, which was a greater crisis last year. So today it is more important to deal with the threat of food inflation than the price of oil, whereas last year oil prices were more of a threat to the economy. This is the dynamic nature of the markets, and even more so in this electronic age, where policies must be nimble enough to deal with the crisis of the day as they will continue to keep changing, especially in times of great uncertainty and market instability.

Both food and oil will on average be higher than last year, but the fact is that the rate of inflation will slow down. So when the critics say that inflation will continue to be high, at around the same rates as last fiscal year (20%) then it really speaks to a lack of understanding of the concept of inflation. Let us take an example; oil rose from US$70 per barrel last year to US$120 per barrel this week, which is a US$50 absolute increase or 71.4% over last year. The same US$50 increase over US$120, however, is only a 41.7% increase, which is 30% less than the prior percentage.

This is the concept of inflation. It is not that prices may not increase but that the rate (% change) of increase is going to slow down. The slow down will result because of two reasons. The first is that the base on which the inflation rate is computed will be larger, thus the rate of increase will be lower, and the second, in my view, is that towards the third to fourth quarter of this year, oil and commodity prices will start to back off.

The greatest threat to higher local inflation is in fact something that no one has been speaking of, that is the threat to our local food supply from a natural disaster such as a hurricane.

US dollar recovery
The slow down in prices will result also from a stronger US dollar as well as equilibrium being achieved between demand and supply for food. The fact is that there is a speculative relationship between US dollar weakness and the higher prices in oil and other commodities, which accounts for approximately US$20 to US$30 on current oil prices. This results because traders, and investors, seek to protect the real value of their holdings by bidding up the price of commodities to compensate for the weakness in the US dollar. The US dollar, however, will strengthen in the third and fourth quarter for the following reasons:

. The economic data out of the US is showing signs of stability. While there are still some negative signs in the housing market, there are signs of a slight recovery in jobs and company profits over the expectation of economists.

In fact, even though the most recent jobs data shows a slight decline, the sector of small businesses showed a strong 55,000 addition. This is a sign that the economy has started to reach a bottom and could start to recover soon;

. The Fed is expected to cut rates by just 25 basis points at its next meeting and then be finished with rate cuts. The present threat of inflation means also that as the economy shows signs of stability the pressure to decrease interest rates will subside and in fact if prices continue to rise then rates may even go back up slightly;

. Other economies have already started to show signs of weakness, and in fact countries like the UK have already started to reduce interest rates. As the expectation of rate decreases falls in the US and increases in other countries then the interest differential between the US dollar and other currencies will decrease thus causing strength in the US dollar; and

. As the US shows signs of recovery then the equity market will start to recover. This will lead to investors putting risk on the table again and selling the Japanese yen against the US dollar thus causing strength in the dollar.

As food prices increase you will find more food planted globally. This will in turn increase supply and as countries, such as Jamaica, seek to increase local food production and also move to greater self- sufficiency, then demand will also be tempered.

These two factors will combine to reduce food prices towards the end of the year. This will result in a lower rate of inflation over last year, as when you are close to the plateau of prices it is difficult to have the same rates of increase. This is logical.As I have always said though, I think ethanol is over-rated as a fuel source, and in fact it has been one of the reasons for the higher food prices. The US, through Congress, has mandated that 25 per cent of corn production should go to biofuel production. What this has done is reduced the supply of corn for food consumption, placing pressure on the price. Now all my logical senses tell me that faced with food shortages or higher energy prices this mandate will be lifted, as eating is always going to be more important than driving. With the expected fall in oil prices also we will see less emphasis on using our food sources for energy. In any event I have always believed that coal is a better option.

Although we have seen that the prices of rice and corn commodities have increased, we have also seen that the prices of live cattle and milk, for example, have decreased this year. So the picture is in fact mixed.

The fact though is that markets always behave in this manner when trying to find equilibrium. So it will spike up and go down until it finds the equilibrium price, and this is influenced by market forces such as changes in supply and demand. So will prices be higher than last year on average? Certainly. But the rate of increase will be lower than last year, which is what inflation is.

Change is hard but necessary

“Everyone wants to go to heaven but no one wants to die”. These are well known words and were even belted out by Peter Tosh in one of his hit songs. How does one go to heaven if death is not involved, as death is a necessary ingredient of making it to heaven? And this is the dilemma we face as a country.

From when Omar Davies was Finance Minister he used to point out that the only way we can achieve significantly lower Debt/GDP ratio, and make more money available for social spending, is to first balance the budget. This was recently repeated by Don Wehby at a recent Mayberry Investor Forum. Any sensible argument from analysts will also confirm that this is in fact so. The question then is if we all know that the only way to reduce the strain on the fiscal accounts, and make more money available for social programmes, is to balance the budget then why have we not been able to achieve it for so many years.

Wanting fiscal results
In fact of the 45 years between 1962 and 2007, we have managed to balance the budget approximately 6 times. And this is at the heart of our high Debt/GDP ratio and lack of money available for spending on Jamaica, as we have to continuously borrow money to fund the budget. The fact is that we have just been living above our means for too long. If one continues to spend more than is earned then eventually your assets will be seized, and you will end up with nothing.

This appetite for spending more than we earn is driven by first of all the Jamaican culture, but more importantly is supported by political rather than economic expedience. As the saying goes “Good politics does not make for good economics” because in many instances politicians have to promise short term fiscal irresponsibility and sacrifice long term gains. This tendency is even more pronounced in countries such as Jamaica where we suffer from such a relatively high illiteracy rate where 70% of our high school student population leaves without one subject. An unbelievable statistic in a country that is based on 70% services, which requires human input to create competitive services.

Based on the literacy levels we would be better suited to a manufacturing economy. But of course as usual we fail to properly plan our development based on the resources available and go with where the political wind blows. The political directorate of course does not behave like visionary leaders but rather a businessman who seeks to maximize gains by promising high short term gains knowing fully well that the long term stability is compromised. But the fact that politicians are able to do this successfully over the years is more an indictment of our own ignorance as a people rather than the actions of politicians. I mean politicians do the same wrongs to us every year and who continues to vote for them. So who is more stupid, the fool or the one who continues to follow the fool?

If we really want change in this country then we must understand that it requires a fundamental difference in the way we do things. So that when the Prime minister makes decisions, that are unpopular, but is made with the prospect of making conditions better in Jamaica, we should analyze it on its merit for improving the country rather than who we think may be offended. And in some cases no one feels offended but the politics is always more important than the economics for many archaic minded politicians. When decisions are made to properly restructure loss making companies, or dispense with them, we have to understand that the short term sacrifices that may be necessary is good for the long term gains. Instead of thinking long term, however, we tend to oppose the good decisions because over the short term they are not politically correct, as Jamaicans at every level of society, are more concerned about curry goat politics rather than good economics.

Selfish motives
The selfishness of Jamaicans leads us to want change for everyone else except ourselves. So everyone, except me, must make the sacrifice for a better Jamaica, which I will of course partake of. That is the thinking that has helped to destroy this country. So when a politician is faced with a choice of political fallout or making a decision in the best interest of the country, history has shown us that most of our politicians have made the choice ensuring that there is no political fallout. As far as they are concerned the ignorant poor people of this country are not educated enough to understand that their long term future is at risk so they won’t notice that we are sending them like lamb to the slaughter. It is for this reason that I believe that there are many who should never think about offering themselves for office in this country again. But that is if they have a conscience.

In Barbados the economy was falling apart, and a Prime Minister came to office called Erskine Sandiford in 1987. He made the ultimate political sacrifice to ensure that the economy was put back on the right track by making the decisions that was certain political suicide but in the best interest of the country. It is to the detriment of the Barbados people that they voted him out, and I believe that they are still benefiting from his policies but recently has shown some signs of vulnerability.

In our case, however, we have had Prime Ministers that have always made decisions in the interest of the political party and to hell with Jamaica, as the party and party members are always more important than the ordinary Jamaicans. So while slavery ended in 1834 feudalism continues unabated with the advent of the political party.

If we really desire change, and want to see this country develop, then we must change our behaviour. If we want to balance the budget then we must accept that tax reform is necessary, and should not mislead the people that the additional $2.9 Billion in taxes is any real burden, when $2.9 Billion of new taxes is coming from cigarette smoking. Are we trying to encourage cigarette smoking by criticizing that tax? If we really want change we have to understand that when a decision is made to change personnel in a political administration we must look at the benefit to be gained, or the loss from such a move, rather then focus on how large the cabinet is. Are we saying that we are okay with the high levels of crime and fuel bill? If we really desire change we cannot continue to say that public transportation is only for the less fortunate amongst us rather than see how we can make it acceptable to all, as it is ludicrous to continue current consumption levels of oil when the only gas we produce is from the mouths of some of our politicians and bodily functions. If we really desire change then we must accept that it is unacceptable to continue government support of our loss making public sector bodies that add little economic support, while we debate whether we can afford $2 Billion for health care and another $2 Billion for education.

My own view is that Bruce Golding is of the ilk of Erskine Sandiford, as he is proactive in the decisions he has made in support of making for a better Jamaica. No doubt the perception that he has ruffled the feathers of some of his supporters may have some merit. But isn’t the development of the country more important. We have to be very careful that we don’t throw the baby out with the bath water, as I really believe that this is the last stand before we plummet into a Haiti like situation.

As I said at the start if we want to go to heaven there is a precondition to that. Let’s make sure that we end up not going to heaven but still die.

A tale of two approaches

Over the past two weeks we have all been engrossed in the budget debates and the developments in the Cash Plus saga. As usual the presentation by Audley Shaw took place and the response came later from Omar Davies, and there were criticisms for and against both presentations. While both presentations had their fair share of politics, and also highlighted some very salient points, I believe that the overall response from the public and media has been lacking in quality.

As usual we tend to keep judging the quality of the presentations based on (1) how well it was delivered, and (2) how much more expenditure was allocated to critical ministries and how large, or small, the tax package was. My question is, isn’t this the same way we have been assessing every budget? Hasn’t every budget each year sought to give more money to the police and education? And what has been the result of this traditional approach to budgets? It certainly has not resulted in any rates of growth to speak of, as we continue to feel special when we eke out a 2% growth rate. The increased expenditure on security over the years has not served to reduce crime.

Wrong approach
This to me implies that there is something seriously wrong with the way we have approached the creation of budgets over the years. It seems to me that the problem we have had with the crafting of budgets had more to do with the philosophical approach rather than the amount of money we allocated to one project or another. The last time we have seen any respectable growth level was in 1990, when growth was at 5.5%. Since then we have been lucky to see growth in excess of 2%, even while we have budgeted (and spent) significant increases on security and education, and imposed significant tax packages on the Jamaican people. The result of all of this has been more hardships, higher crime rates, and no growth.

It seems to me therefore that there was something philosophically wrong with our budget approach. The fact is that our budgets were focused on controlling expenditure and paying off the debt. For a very long time budgets have not been focused on creating a platform for growth, which is the only way that we will get out of this now $1 Trillion debt level that Jamaica is burdened with. Increasing expenditure on security, education, and health by itself will not provide us with the platform needed for growth.

In any event this criticism of whether the budget is realistic or not is more an attack on the technocrats, who were the main architects of the budget rather than the politicians who really just set the framework for what the budget should look like. This is the difference between operations and policy. The latter is responsible for setting direction, and the former for making recommendations about that direction.

This I think is at the heart of the difference between the two approaches to the budget. The opposition spokesman on finance has chided the finance minister for an unrealistic budget. This is an attack on the same technocrats he worked with in preparing past budgets rather than on the finance minister. The fact is that the finance minister would be the one who would set the course but the technocrats would sail the ship.

Therefore any criticism of the finance minister should have been on the philosophical direction of the budget rather than (1) the amount of money allocated to ministries, which would have been submitted by the various departments; and (2) the level of inflation and growth, which would have been provided by the technocrats responsible for projections. I am therefore yet to see any constructive criticism of the real essence of the finance minister’s responsibility which is the philosophical approach of the budget.

A foundation for growth
The fact is that this year’s budget is fundamentally different in its approach in that it seeks to lay a foundation for growing an economy rather than just seeing how much more we can tax Jamaicans to pay debt or how much more expenditures can be increased, e.g. road infrastructure where the massive amounts spent in the past seems to have been spent incorrectly as the quality of the roads fixed only a few years ago leave little to be desired.

The budget this year addresses some fundamental issues that were not much of a concern in the past, which centre on preparing the Jamaican economy for growth, which is the essential ingredient that we have lacked over the years. This can be seen from a few initiatives such as:

1) Tax amnesty programme that seeks to formalize the informal players. It seems as if the only thing we have done in the past about the informal sector is to brag about how large it is;

2) A symbolic gesture to the taxpayers of this country that more money will be placed in their hands for expenditure – reduction in transfer taxes/stamp duty and an increase of the threshold. Although small this is a move in the right direction;

3) A desire to spend within our means and bring efficiency to the use of funds – so that budgets are not just increased for the sake of spending more money this year over last but a targeted approach is taken to spending and reducing the burden of loss making entities on Jamaicans such as Air Jamaica;

4) An emphasis on encouraging lower oil consumption – the increased taxes on motor vehicles should be seen as an encouragement for people to curb spending on a severely escalating energy bill. What we need to ensure now is that through the JUTC a very efficient public transportation system is provided; and

5) Addressing the cost of tobacco on our health system by taxing this nuisance more so that more money will be available for persons who fall ill as a result of this scourge.

This I think is the difference in the approach to the budget, and what should be highlighted. It is not just about how much more money is spent this year over last. But rather how will I more properly spend the money that the Jamaican tax payer has worked so hard to pay. It is not about how will I increase tax revenues this year above inflation levels, but rather what uncollected taxes are out there to be paid and what do I have to do to collect it and level the playing field. It is not just about raising taxes to raise money to pay debt but rather how to use taxes as a means to drive behaviour and encourage growth. It is not just a matter of borrowing money to finance the budget but rather putting debt to work productively.

I do agree with Omar Davies that the greatest challenge this year will be that of food security and is a matter that must be addressed going forward. The government has shown its commitment to addressing this by allocating $1 Billion for subsidy support his year, following on the $500 million last year, which I will admit came too late. We could successfully argue that it is not enough but a time must come when we start to live within our means. The way we approach this will be critical for Jamaicans and the contribution of the Agriculture Minister will be very important in solving this looming crisis.

Even this situation will demonstrate that it is not how much money that is thrown at it that is important but the approach to solving the problems of the country. To continue on the path of just cutting expenditure or throwing money at problems would have had us continue on a road to certain destruction.

The loss of thought

While growing up, I have always heard people say that the younger generation does not solve problems as well as the older generation had. This is something I have found myself saying, as it seems that our ability to solve problems just keep getting worse with each passing year. On the other hand economies such as the US seem to be getting better at resolving issues, and a prime example of this is the way they have dealt with the current subprime crisis compared to the way in which Jamaica handled the 1990s financial crisis. I will not delve into this comparison, however, as I have exhausted this comparison at a lecture I did last week and have some amount of fatigue from that. But I use this as a real example to show the distinction between how we deal with problems versus the rest of the world.

Growth deficiency
And this is the reason why in 45 years (1962 to 2007) we were able to grow at only an accumulated 97.7% or an average of only 2.17% for each of those years. What is even more frightening is that 1962 to 1972 accounted for some 69% of that, so that over the last 35 years we have managed to grow an accumulated 28.7%, or an average of 0.82% each of those 35 years. When broken down into decades we see the following comparisons:

- 1962 to 1971 - 69.0%
- 1972 to 1981 - ( 9.0%)
- 1982 to 1991 - 18.5%
- 1992 to 2001 - 9.5%
- 2002 to 2007 - 9.7%

This if course is the underlying economic problem that Jamaica has, and there is a fundamental reason for this problem. But the reason is not to be found in numbers but rather in behaviour and more importantly the type of leadership that we have had at the helm of this country.

When one examines our leadership, and the statement that each generation thinks less, one would see that the statement is not entirely true. It is true that younger persons do read less and generally do not reason as well as their older counterparts but this has more to do I think with the leadership that has destroyed the learning institutions in this country. Just as we export goods the same way today as we did 30 years ago, it is the same way that we seek to teach children to learn the in the same way they did 30 years ago. And all of this in a world that has changed in a very revolutionary way.

If one examines the leadership in this country over the years then you will see that there was a fundamental change in the leadership structure coming out of the 1960s but since the 1970s until now we have fundamentally maintained the same leadership structure. Now we are seeing another round of fundamental change in our leadership structure over the past two years or so, and those that have been part of the structure that has caused our dismal growth record over the past 35 years need to stay away and allow the new leadership to take charge and delver to us what they could not.

This leadership problem of course has resulted significantly from the fact that over the years we have appointed persons to leadership positions based on their political allegiance rather than their ability to think and solve problems. And this is not only at the political level but also the administrative level. This attitude has resulted in a cadre of leadership that is unable to think past the length of their noses when taking decisions, so the long term effect of decisions are not carefully thought out. So while the decision may resolve the current situation, in the long term it creates havoc. Such was the effect of the decision surrounding the 1990s financial crisis.

Monopolistic threat
But more recently I see where the Broadcasting Commission seems to be falling into that category also. There are two decisions they have made that really seems very short sighted and leaves me no option but to question how well they think about what they are doing, as both seems to me to be a question of solving short term problems and to heck with the longer term effects.

The first has to do with the cavalier way with which they dismissed the question of a possible monopoly developing in the cable market. This has nothing to do with the acquisition of their latest kill, Entertainment Systems, but the very real possibility of a monopoly developing in that market. I myself am a customer of FLOW but would love the option to switch to any other competitor in the market place if I feel the need, especially as I believe that their customer service has been consistently deteriorating. The Broadcasting Commission seems to be forgetting the “not too far in the past” monopoly position of Cable and Wireless, that has constantly proven itself to be a very inflexible monolithic structure.

By the looks of the persons on the commission they do not seem young enough not to remember the days of the single land line and cellular service from Cable and Wireless where they held us Jamaicans to ransom by “phone point” and extracted every dollar they could from us. Thank God for Digicel that rode in and saved us from the Cable and Wireless monstrosity, even though their own customer service has deteriorated, demonstrating the need for constantly having new entrants.

Similarly if the commission does not carefully monitor the FLOW situation then we could end up with a situation where the smaller players are forced out of the market and we could end up in a JPS type relationship. But being the forward thinkers they are they seemed to have dismissed this matter where as in the US it would have been a matter of public debate led by the regulators, as the consumer is always given precedence to the preferences of the corporation.

Instead they have sought to focus on some comments made by a radio personality, which nothing is wrong with, but have recommended the drastic action of suspending the radio station’s licence. I can only conclude that they must be mixing up the two cases and really meant to take drastic action in the FLOW case and not the latter one, as it would seem to me that they have confused the long term effect of both. In the case of the radio station they are sending a clear signal to the market that they can suspend freedom of the press at any time they so desire.

When, for example, Imus made his racial comments on US television was their a call for the lock down of the television station or disciplinary matters against Imus. The commission needs to be careful about the solutions they recommend else they could end up losing more credibility than they already have.

On the other hand they must be wary of the monopolization of the cable industry. Already I do not believe that we have enough competition in the market, and we have seen the benefits of competition in the cellular market. This is a prime example of the lack of clear thinking that has affected our development and growth over the years and especially in the last 35, which has resulted from a leadership deficiency.