Jamaica Against the World!

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Cheering their Olympic Champions in Kingston

The Budget Debate: Austerity or Stimulus?

The world economy fell apart in Fall 2008 and five years after the crunching collapse of financial markets, the world economy is still struggling to gather new momentum.  The European Union opted for austerity and found itself in a double- dip recession.  Greece had to be bailed out by the European Central Bank.  There are signs of recovery in Ireland but Italy and Spain, inundated with sovereign debt, are struggling to find a growth path to prosperity. The debate all over Europe is whether the austerity measures have exacerbated the economic crisis or would stimulus economics be a more appropriate path to economic recovery.

David Cameron, Prime Minister of Britain and leader of the Conservative Party, opted for austerity and as a consequence Britain stumbled into a double-dip recession.  Cameron is too wedded to austerity to shift gears despite the dismal results of this policy.  His poll numbers have plummeted and it will take a miracle for the Conservative Party to remain in office when the British electorate votes to determine who should govern and who should occupy the opposition benches.

Germany has the most powerful economy in Europe and German economic policy has had to factor in the impact on the German electorate as well as its obligation to rescue the floundering and weaker economies of Europe.  Chancellor Merkel faces re-election in the Fall and her re-election will be pivotal to the nature of the economic recovery program that will be pursued in Europe.

The major cause of the collapse of the world financial markets stemmed from the irresponsible speculation and greed in the US that became the culture of Wall Street.  In a de-regulated environment, Wall Street investment companies abandoned sound investment practices, over-leveraged, and once the housing bubble in the United States was punctured, the financial house of cards came crushing down, taking the world economy in its wake.  It is worth noting that a plethora of serious crimes were committed in this financial fiasco, for which no one has gone to jail.

Yet the American economy has fared much better than its counterpart in Europe.  The stock market has returned to the levels of 2008 and the housing sector, stimulated by low interest rates, has recovered.  Nonetheless, the recovery has been far from robust and unemployment remains disturbingly high.  The debate in the United States has been similar to the debate taking place in Europe.  The Republican Party has been clamoring for austerity as personified by the recently adopted sequestration budgetary reduction.

The Democratic Party and President Obama prefer a more delicate balance, raising taxes to reduce the deficit and the debt but investing in research, development and human capital to ensure future growth. The American governmental system is more complicated than anything that exists in Western Europe and the divisions in the legislature have led to policy paralysis.

The drivers of the world economy for the most part are the BRIC countries, Brazil, Russia, India and China.  China has been for the last couple of decades the world’s fastest growing economy.  The growth rate of the Chinese economy has hovered around 10 percent.  In the last quarter, the Chinese economy has slowed to approximately 7 percent of GDP as China seeks to expand domestic consumption and to become less reliant on export markets.

In the world of track and field, Jamaica towers above the rest of the world.  As in the last Olympic Games and the recently concluded Penn Relays, Jamaica is a gargantuan force but in the world of international economics, Jamaica is readily trampled by the elephants.  The debate involving austerity vs stimulus is very much germane to Jamaica’s budgetary process.

 

The Fastest Relay Team in the World!
Led by Ussain Bolt: The Fastest Man in the World
 
Dr. Peter Phillips

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Jamaican Minister of Finance

That budgetary process got underway in April when the Minister of Finance, Dr. Peter Phillips, presented his Budget 2013-2014 before the Jamaican Parliament.  For decades, Jamaica has not been able to get its economic act together.  GDP growth has been a rarity, rather than the norm.  Irrespective of the political party, the country’s finances have been out of whack.  At this juncture, the debt burden amounts to 140 percent of the country’s gross domestic product.  The design of the Minister of Finance is to reduce that debt burden by 2020 to 95 percent of GDP.

Jamaica finds itself in a terrible bind. The level of inequality is so pronounced that the social order is exceedingly brittle.  Property and violent crimes are too high and labor productivity has been inexplicably low.  During the years of the Jamaica Labour Party, 2007-2001, an economic agreement was signed with the International Monetary Fund. The Golding administration failed to achieve the benchmark measures set by the IMF and simply walked away from the agreement. A new agreement has been signed by the PNP government, and they will have to adhere to the strict measures of austerity in fiscal matters demanded by the agreement.

This is a historic moment for Dr. Peter Phillips.  His previous counterparts, Dr. Omar Davies for the PNP and Mr. Audley Shaw for the JLP failed to extricate the Jamaican economy from the debt trap and to expand production in the economy.  Dr. Phillips has held a series of previous portfolios but this is the most critical undertaking.  Jamaica cannot continue indefinitely to be a basket case in the world’s economy.

Portia Miller
The Jamaican Prime Minister

A series of reforms have been undertaken. Success can be measured on a yearly basis.  Paradoxically, Dr. Peter Phillips, who failed in his challenge to Prime Minister Portia Simpson Miller for the leadership of the PNP, will now determine the success or failure of the Portia Simpson Miller administration.

The Prime Minister and her Minister of Finance
 
Once Rivals…they will sink or Swim together

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Dr. Basil Wilson

New York City

May 2, 2013

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