One of the mistakes I believe the Government of St Lucia made, was not to fully articulate a road map to the population as to how we are to climb ourselves out of this miry fiscal clay. While the 5% pay cut has dominated the discussions, by the government’s own admission, this measure will create a saving of less than 20% of the budget deficit for this year. It does not solve the problem.
The Government of Barbados has to be applauded in that they chose to present such a road map to the country and have created a nineteen (19) month Fiscal Adjustment Programme and a Medium Term Growth and Development Strategy. The Fiscal Adjustment Programme has fifty eight (58) budgetary policies and the Medium Term Growth and Development Strategy has four hundred and fifty nine (459) strategic initiatives. St. Lucia must do the same.
We cannot be running around as headless chickens splattering blood all over the place in clashes over meaningless and mundane issues. The metaphor is to suggest that we have to be eagles that soar above and view our problems in an effort to find solutions.
The economists within the Ministry of Finance must be tasked with coming up with a similar road map that is then presented to Parliament for consensus and then fully ventilated within civil society. I recently read a speech given by Jose Fajenbaum in June 2004 in his capacity as Deputy Director – Western Hemisphere Department of the International Monetary Fund (IMF).
Mr. Fajenbaum worked in the Caribbean during two distinct periods and was making comparison of his experiences in both eras. I believe his observations provide an insight as to how the East Caribbean countries got into this fiscal crisis. The following is the quote:
‘’It has been fascinating listening to the discussions yesterday and today. Soon after I started my career at the IMF, I worked on Jamaica and my first mission chief assignment was Trinidad and Tobago, where I was involved in the successful IMF-supported programs. I am struck to hear that many of the concerns and aspirations of the Caribbean region remain the same. The perennial theme was and is—the Caribbean region’s development strategy. But what has surprised me since I returned to the Western Hemisphere Department of the IMF is that the traditional fiscal discipline that had characterized many Caribbean countries, and which had created the basis for the previous period of strong growth has been weakened considerably in a number of countries.
Perhaps this weakening has been a consequence of a number of vulnerabilities that governments attempted to address through higher spending and investment projects. But the problem is that higher public spending does not necessarily mean that vulnerabilities are addressed, and they were not. Consequently, we are now facing the large fiscal imbalances and high debt—extremely high, I should add, in some countries. It would seem that greater access to international capital markets and its beneficial effects in supporting growth has become an Achilles heel. Indeed, as the deficits and debt rose, real GDP growth declined—and in some countries turned negative.’’
The IMF Official has traced the lack of fiscal discipline facilitated by greater access to international capital markets and suggested that this has now become the Achilles heel of Caribbean Governments. The Regional Securities Market Bonds and the various loans from commercial banks are part of this greater access that St. Lucia gravitated towards in the last 18 years. These were all purpose –unconstrained commercial credit.
When a country borrows from the World Bank or the Caribbean Development Bank, the use of the loan is agreed and determined beforehand. There is a process of a feasibility study, a determination of the cost and an agreement to spend those loan funds in a particular manner.
When a country goes to the Bond Market, the use of funds obtained is not constrained by any purpose. The Government can decide to buy fighter jets to protect us from invasion by the lion fish. The ‘freedom’’ thus creates a scenario where governments proceed to implement projects of questionable economic growth impact. When was the last time you heard of a bank in St. Lucia giving a loan to a man to do a pedicure or a manicure or to place some tattoos on his chest.
The symbolism is to convey in a very lucid way, what has caused the problem. We have borrowed to place tattoos on our chest. This cannot continue, and thus the focus has to be on investments that create economic growth. I do not subscribe to the view that Government must be a ‘facilitator only’ within an economy. This facilitator concept has failed in small island states, where the majority of your business sector is in distribution and there is little thirst for activities that create foreign exchange. Government must also see itself as a minority share investor in high yield activities in the private sector. This way there is a dividend income coming to the State and there is the creation of jobs.
Let us develop a Road Map for the Short Term Fiscal Adjustment that is required and the Medium Term Strategy for Growth and Development to create a sustainable future.