Outlook on Jamaica's development
The following is an edited version, the first of three parts, of a presentation on Jamaica's Development Outlook by Dr. Gladstone Bonnick, a former deputy governor of the Bank of Jamaica, former executive chairman of FINSAC and former consultant economist at the World Bank. THE JAMAICAN economy has stalled. The trend in GDP growth has been downward since 1992, and growth has been negative since 1995. Per capita real income has been falling since 1994. Among sectors only mining and tourism have continued to grow, largely due to the continued buoyancy of the markets rather than improved competitiveness of the Jamaican product. Agriculture continues to be plagued by inadequate and uncertain water supply. Manufacturing, especially for export, has not been doing well and is losing ground to countries that have cheaper labour, better managers and more advanced technology, or have devalued in response to their recent financial crisis. Indications are that there has been a slowing down of investment since 1996; large capital imports reflect the purchases of airplanes and road transport vehicles. Construction has been in decline since 1995. Public sector investment has been in decline, due to the difficulty of raising additional revenues from a non-growing economy, and the difficulty of borrowing abroad in the face of the unattractiveness of emerging economies as borrowers since the financial problems in the Asian economies and Brazil. Export earnings, particularly from manufactured goods especially textiles, have been falling since 1995. Exports to CARICOM declined by about 20 per cent between 1995 and 1997, while exports from the region increased at an even faster rate. Jamaica's overall trade gap has been widening and, with net services not growing fast enough, the balance on goods and services has become increasingly unfavourable. Net transfers, although positive and growing, have not been enough to prevent an increasing current account imbalance. Unique Viewed against a background of high growth in world output (around four per cent since 1994) and in the volume of world trade (over seven per cent) the Jamaica experience stands out as unique. The indications are that the Jamaican economy is in a crisis, which does not appear to be part of a wider regional or international problem. Regional economies are doing much better than Jamaica and countries in the international economy and particularly Jamaica's major trading partners and sources of capital and transfers (with the exception of Japan) generally have been performing well. We must take a hard and dispassionate look at Jamaica to see to what extent factors peculiar to Jamaica have been responsible for the dismal performance over most of the 1990s and especially the last few years. There appear to be no discernible dramatic sources of the present malaise in the economy. Unlike in the earlier 1970s the explanation does not seem to lie in sharp increases in the prices of imported fuel and food, or in low international demand due to recession in major trading partners. Indeed, Jamaica has benefitted from cheaper international prices for grain and some other imported foods in the last two years, although some exports like coffee and alumina faced slightly lower prices in 1997. Like in the 1970s access to international capital has been difficult for the last two years, but the impact of this is likely to be felt in the future and would not explain the slowdown beginning earlier in the decade of the 1990s.
It seems that the present situation is due in the main to three sets of factors -
fundamental resource constraints;
Resource constraints The fundamental constraint facing Jamaica is limited amount of high quality arable land for agriculture. Much of the land in farms is steep and subject to erosion since the vegetation cover has been disturbed. The flat lands are mostly in the rain shadow region south of the mountainous spine of the island. Water in the right location thus becomes a critical resource. Jamaica is not located near the estuary of any great river and therefore is not blessed with rich marine resources to support a large fishing industry. Mineral resources are limited in variety and value; and no oil has been found. Jamaica has some beautiful beaches. Yet, by contrast with other countries, which have had an enviable development record, Jamaica's resource limitations seem unimportant. We should look at the development strategies of the last three decades to see how Jamaica has dealt with these constraints. One would have expected that development strategy would have been sensitive to the fundamental constraints; and that this would be reflected in provisions for optimal use and conservation of limited land and water resources. Let us consider the treatment of land in Jamaica's development. It is plain to see that over time we have consigned more and more of our best agricultural land to urban development, notably the Liguanea plain and increasingly the St. Catherine plain. Barnett sugar estate lands are being lost to Montego Bay's urban expansion; and other agricultural land on the north coast is under threat from creeping sub-division for residential purposes. No rational land use plan seems to be guiding the decisions to transfer land from agricultural uses to urban development. So the question must be asked - after we have put the flat agricultural land under concrete where will we farm? Irrigation Irrigation water originally put in to serve the St. Catherine plains has been increasingly diverted to meet the urban demand. After we have diverted water to urban uses how can we grow crops in face of unreliable rainfall. Significantly, the Mona Reservoir built during the 1940s is the last major investment in water storage capacity in Jamaica. Jamaica gets enough rain to meet its water requirements, but the rain is seasonal and falls mostly in the northeast of the island while the major demand both for household use and for agriculture is on the southern side of the island. Obviously, the solution to the seasonal variations is adequate storage capacity; and the solution to the location of sources versus demand is infrastructure to transport water. It is high time to consider the construction in another major reservoir to serve the expanding greater Kingston Metropolitan area; and we must revisit the 1960s proposal to build a tunnel through the Blue Mountains to bring water from Portland to the south side of the island. While much time has been lost, it is not too late to consider requiring central sewage disposal in new subdivisions to permit the recycling of treated water to agricultural uses in contiguous areas. Agriculture on steep slopes causes erosion. Inadequate attention as been paid to soil conservation. It is still the case that with each shower of rain tons of topsoil are carried out to sea by most rivers. In the 1960s, there was a Ministry of Rural Land Development responsible for watershed protection. Fourteen critical watersheds were identified across the island, and regional offices set up to manage their protection. In many areas terra-cing and contouring of hillsides was started and trees and other vegetation planted to prevent erosion. Within a short time some areas previously scoured by erosion became productive as topsoil loss was checked. Not all watershed projects were started and those started were not equally successful. With the change in Government in 1972 the Ministry was abolished and the programmes reduced in priority and for all practical purposes discontinued. During the 1980s and 1990s there has been an expansion of coffee growing on steep Blue Mountain slopes. How much attention has been given to the potential erosion of hillsides that have been cleared of their normal ground cover? Has the merit of terracing been investigated? Watershed protection preserves both arable land and water resources. Land erosion One of the most farsighted and beneficial projects in control of land erosion was undertaken by the "Gully Government" headed by Sir William Alexander Bustamante in the late 1940s and early 1950s. Today a substantial part of Kingston's residential areas are on lands protected by these gullies. It is unfortunate that some of this infrastructure has been so poorly maintained that the waterways are choked with islands of sediment thereby compromising their flood protection potential. Another bold project involving urban land, the Kingston waterfront redevelopment, proved unrealistic in its assumptions regarding the growth in demand for office space, hotel accommodation, and shopping centres. The result is that much of the land remains undeveloped, seed developments in a hotel, office building and shopping mall have failed to generate income sufficient to service the debt incurred by the project. Indeed, but for occupancy by government itself the facilities would be largely unused. The failure of the project was due not only to unrealistic assumptions about future demand but to the fact that developments elsewhere in Kingston were not taken into account. Specifically, the simultaneous development of New Kingston providing similar facilities and with locational advantage - easier access to a population that was residing more and more uptown, should have been taken into consideration. At the same time bold urban development projects in Ocho Rios, Montego Bay, and Negril did not suffer a similar fate; first because demand was more realistically identified and second, because there were no competing developments in these areas. The main lesson - that piecemeal approach to land use planning will lead to error should not be forgotten. I draw attention to these resource constraints, land use and conservation issues not only because they are important but because the standard benefit/cost analysis which guides public investment decisions tends to discount too severely the long term benefits to future generations and to favour projects with short term benefits. High interest rates due to inadequate domestic saving further undermines the welfare of future generations by accentuating the bias to short term projects in the public sector investment programme. Adding the political bias toward selecting projects with benefit streams concentrated before the next election, it is easy to see how important long-term investments receive low priority. It is thus easy to understand why today agriculture remains precariously at the mercy of seasonal rainfall. Given recent observations that the world's weather is changing, Jamaica cannot risk being totally dependent on seasonal rainfall for the viability of agriculture fifty years hence. Water While successive Governments seemed cognizant of the critical role of water in development and have implemented a plethora of minor domestic water supply schemes over the years, there have been no bold initiatives reflective of serious forward thinking for the longer term; and water for irrigation has received scant attention. Over the years environmental protection has emphasized regulation of private development rather than positive intervention through targeted projects. Recently, a national environmental plan has been prepared and major developments are promised. However, in the face of scarcity of financing for the capital budget it is doubtful that these will receive high priority. Future generations can wait; and future generations do not vote. THERE are many aspects of development strategy over the years which determine current performance of the economy. Many do not involve contentious issues. For example it would be agreed by most that, in general, the society, especially Governments, should have invested more in creating human and physical capital; that there should have been a higher level of saving and investment; and so on. I have chosen to look at the more contentious issues. Jamaica's development strategy since Independence has been based on an open, free enterprise economy. This was so even during the 1970s when the predominant rhetoric might have suggested that a fundamental change from this strategy was either ongoing or was imminent. I believe that given Jamaica's geographical location and the international pressures to which it is subject, its history, and its culture, this approach was essentially appropriate. The approach had, and still has, the potential for significant national economic development, provided Jamaica had/has clear national objectives and priorities, provided the authors of economic development strategy understand the international environment, and provided certain prerequisites in the domestic business environment were/are met. Openness On the issue of openness, Jamaica, in contrast to many other countries, has always been an open economy with a high ratio of exports and imports to GDP. In the immediate post-Independence decade tariffs at modest levels and selective import licensing, with quotas and other restrictions were used to protect infant industries. Food imports attracted low tariffs and afforded little or no protection to domestic agriculture; although some import restrictions were used to afford a modicum of seasonal protection to domestic agriculture. However, the priority was to ensure the availability of cheap food imports. The predominant belief was that cheap food would mitigate pressures for high wages and would lead to more competitive production of manufactured goods. The relative lack of protection of agriculture discouraged investment in the sector, slowed the growth of rural income and retarded the expansion of the domestic market for the output of the manufacturing sector. Initially, there were no international pressures for greater openness and removal of protective measures as they were in common use throughout the world. But in the last two decades there have been strong international pressures toward free trade. Jamaica has been pressured by international institutions into lowering tariffs and dismantling its non-tariff protective barriers. Their argument for lower tariffs rests on the view that international specialisation based on comparative advantage rather than relative protection will result in more efficient production worldwide, under specific assumptions regarding how trade is determined. Indeed, international comparisons suggest that more open economies with lower trade barriers adjusted more easily to shocks and tended to grow faster. However, this analysis did not pay enough attention to special circumstances of individual cases. While logically sound in its conclusion, the theory does not guarantee that every country will benefit and be better off with the liberalisation of trade. There are reasons for this. Reasons First, the assumption that trade between nations is based on comparative advantage is not realistic. Indeed, among free enterprise economies trade is really between private businessmen who respond to absolute rather than comparative advantage. Importers buy from lowest priced sources and exporters sell to those who pay highest prices. A country like Jamaica may have no absolute advantage in producing certain goods both for export and domestic consumption even though it may have a comparative advantage in some goods. It will not be able to develop an export trade in them or retain access to the domestic market without some form of subsidy. Secondly, even staunch supporters of trade liberalisation use various measures, e.g. phytosanitary and health, to protect industries of interest to them. The USA has not yet fully dismantled protection of beet sugar; and uses health regulations to keep out imports of chicken parts. Third, there has been no liberalisation in the movement of resources such as labour (due to immigration restrictions), and a country without absolute advantage in enough areas of activity to generate adequate employment cannot benefit from exporting its excess labour. The upshot is that for a country like Jamaica the elimination of all forms of protection may not be consistent with the goal of generating adequate employment for its labour force. Part of the problem may be that the level of wages may not be determined by market conditions but through bargaining between unions and employers and sometimes by the Government, with the result that costs of production do not reflect the real cost of resources. Part of the problem is that a poor nation is unlikely to afford the investment in human resources and technology to ensure that total resource productivity is high enough to make domestic production cost competitive with foreign production. The result for Jamaica is that expansion in manufacturing has not continued since the shift from the old import substitution approach toward trade liberalisation. For agriculture, the situation has become even more difficult. St. Elizabeth's onion and escallion farmers cannot compete with imports and have been losing their main source of income. Christiana Irish potato farmers are going out of business, while lettuce growing in Cave Valley has just about died. Traditional carbohydrates like yams and sweet potatoes cannot compete with imported rice, while domestic rice production has disappeared. Maintaining balance The issue that each nation in Jamaica's circumstances has to face is how to balance the creation of absolute advantage in enough lines of production to generate adequate employment/-income against the avoidance of the permanent subsidy of inefficiency. It ought to be clear to the political economist that the well-being of the nation is unlikely to be served by the headlong plunge into liberalisation in order that only efficient production survives. In the final analysis it is the efficiency with which the whole labour force is used and not just the efficiency of the employed that matters if total output of the society is to be maximised. Hence the creation of employment may be as important as raising the productivity of those that would be employed in any case.
What is a small nation to do to create absolute advantage in enough productive activities to meet employment goals? The possibilities are:
Find alternative ways of lowering the price of domestic relative to foreign goods. In Jamaica's case the first approach may no longer be feasible, while the second would run the risk of retaliation. The third approach involves lowering or restraining the cost of domestic production relative to imports through the use of incomes policy and/or the use of exchange rate policy. Exchange rate policy and domestic production Jamaica's development strategy over the years has been hobbled by an attitude to exchange rates consistent with the priority of cheap consumption over viable domestic production. Since the society does not earn enough from exports to pay for its consumption imports it winds up covering the deficit in part by borrowing overseas and by seeking and accepting foreign aid. With limited and possibly declining capacity to take on additional external debt the continuation of this approach is no longer feasible. The failure to use the exchange rate positively to create advantage for Jamaican production rather than as a delayed response to erosion/deterioration of absolute advantage is one of the principal and persistent defects of Jamaica's development strategy over the years. Invariably we wait until onion and potato farmers abandon their plots and garment factories close down before we reluctantly and apologetically allow the exchange rate to adjust. By then the negative impact of the delay is mistakenly attributed to the adjustment. The slow down in growth and the downturn in output in recent years is the cumulative effect of these policies that have impeded the creation of absolute advantage where it did not exist and eroded it where it did. There were only two periods during which exchange rate policy was intelligently and positively used to influence performance of the economy. The first was in 1978/79 when a crawling peg exchange rate system was an integral part of an extended programme of adjustment supported by the IMF. Under this system pre-announced adjustments were made to the exchange rate at regular intervals. Jamaica was successful in meeting targets and there was some improvement in economic performance during the next 18 months. Unfortunately, intemperate rhetoric undermined the expected improvements in investment climate; and disagreements within the Government led to the premature abandonment of the programme. The second was during 1984-87 when several discrete changes in exchange rate to compensate for controlled movement in wage levels created attractive conditions for garment manufacturers to locate in the free zone. GDP growth improved without excessive inflationary pressures. Unfortunately, in the lead up to the 1989 general elections the policy was abandoned as the Government intervened with bankers to prevent further devaluation and thereby dampen price increases while at the same time permitting massive wage adjustments. Profitability in manufacturing was undermined and many of the producers in the free zone relocated to other countries. Soon afterward, garments of foreign manufacture were crowding out domestic goods in the Jamaican market. Too much public in the private enterprise approach There are indispensable requirements for successful implementation of the free enterprise strategy of development. First, the policy environment within which private business decisions are made must be clear and transparent. It must be based on rules that are uniformly applied and not on discretionary and arbitrary decisions by bureaucrats and politicians. Second, integrity of the contract environment for business to business and for business to government transactions must be preserved. While our legal system has protected the business to business environment, governments have not always honoured contractual obligations to business. Sometimes political considerations are allowed to distort transactions between the public and private sectors. Third, secure property rights are a necessary prerequisite for free enterprise development. The attitude of governments to squatters and the capturing of land and buildings has been ambivalent. While there may be cogent political and social reasons for leaving squatters in place, there are no good reasons for delaying the payment of reasonable compensation of owners. Fourth, secure property rights require an efficient, transparent, legal process for the transfer of property, especially real estate. The performance of the legal profession in ensuring the integrity of such a process in Jamaica has been nothing short of scandalous, when compared with counterparts in many other countries. By and large lawyers hasten to commence but not to conclude, and the delays create confusion and unnecessary cost to clients. The operations of the titles office have been cited by lawyers as a causal factor in the delays. Suffice it to say that these constitute another obstacle in the nation's economic development, for the indispensable requirements for efficient land transactions have not been satisfactorily met over the years. Another feature of our development approach over the years is the dominating influence of the public sector in what was supposed to be a private enterprise economy. The fact is that the traditional penchant of the civil service is to regulate rather than to facilitate development activities, with all that this means for the proliferation of red tape. New agencies set up to promote development quickly lapse into a regulatory mode, and activities that were formerly free of controls made to require permits and approvals. Clearance by myriad agencies are required before a simple agricultural sub-division can be done, with the result that much time is lost and legal and interest costs skyrocket. Not only is the prospective investor faced with a maze of bureaucratic requirements, but has to contend with bureaucrats not trained to be helpful and not subject to an incentive system geared to positive results and expeditious resolution of problems. Let me make it clear that some control and regulation of the private sector is necessary in the public interest; but they should be designed to be minimal impediments to business. This demands that there should be prompt handling of applications and co-ordination in clearance where many agencies have to be involved. Better, there should be a single development office serving as intermediary through which investors can get all the clearances and approvals and licensed required for their project even though many different agencies would still have authority over different aspects. The dominance of the public sector in the development strategy is reflected both in the size of the sector and the extent to which it competes with the rest of the economy for resources. While there is always need to provide appropriate infrastructure and this has required large investment budgets, development budgets over the years have included a bewildering variety of programmes and plethora of projects mostly reflecting the flavour of the day of interest to the many international development agencies. To some extent these have crowded out and delayed essential maintenance and upgrading of infrastructure. The overall impression one gets is that public sector investment programmes have tried to cover too much, have lacked focus, and have not reflected the application of predetermined priorities among goals. Given the manpower required for successful implementation and monitoring and the personnel and skill limitations, there must be concern whether such investments are making any lasting impact on development. The role of the public sector must be redesigned in the light of resource constraints and to avoid crowding out private sector initiative. Government must focus on few important projects and do them well. THERE are indispensable requirements for successful implementation of the free enterprise strategy of development. First, the policy environment within which private business decisions are made must be clear and transparent. It must be based on rules that are uniformly applied and not on discretionary and arbitrary decisions by bureaucrats and politicians. Second, integrity of the contract environment for business-to- business and for business-to-Government transactions must be preserved. While our legal system has protected the business-to-business environment, Governments have not always honoured contractual obligations to business. Sometimes political considerations are allowed to distort transactions between the public and private sectors. Third, secure property rights are a necessary prerequisite for free enterprise development. The attitude of Governments to squatters and the capturing of land and buildings has been ambivalent. While there may be cogent political and social reasons for leaving squatters in place, there are no good reasons for delaying the payment of reasonable compensation of owners. Fourth, secure property rights require an efficient, transparent, legal process for the transfer of property, especially real estate. The performance of the legal profession in ensuring the integrity of such a process in Jamaica has been nothing short of scandalous, when compared with counterparts in many other countries. Titles Office By and large lawyers hasten to commence but not to conclude, and the delays create confusion and unnecessary cost to clients. The operations of the titles office have been cited by lawyers as a causal factor in the delays. Suffice it to say that these constitute another obstacle in the nation's economic development, for the indispensable requirements for efficient land transactions have not been satisfactorily met over the years. Another feature of our development approach over the years is the dominating influence of the public sector in what was supposed to be a private enterprise economy. The fact is that the traditional penchant of the civil service is to regulate rather than to facilitate development activities, with all that this means for the proliferation of red tape. Bureaucratic maze New agencies set up to promote development quickly lapse into a regulatory mode, and activities that were formerly free of controls made to require permits and approvals. Clearance by myriad agencies are required before a simple agricultural sub-division can be done, with the result that much time is lost and legal and interest costs skyrocket. Not only is the prospective investor faced with a maze of bureaucratic requirements, but has to contend with bureaucrats not trained to be helpful and not subject to an incentive system geared to positive results and expeditious resolution of problems. Let me make it clear that some control and regulation of the private sector is necessary in the public interest; but they should be designed to be minimal impediments to business. This demands that there should be prompt handling of applications and co-ordination in clearance where many agencies have to be involved. Better, there should be a single development office serving as intermediary through which investors can get all the clearances and approvals and licensed required for their project even though many different agencies would still have authority over different aspects. The dominance of the public sector in the development strategy is reflected both in the size of the sector and the extent to which it competes with the rest of the economy for resources. While there is always need to provide appropriate infrastructure and this has required large investment budgets, development budgets over the years have included a bewildering variety of programmes and plethora of projects mostly reflecting the flavour of the day of interest to the many international development agencies. To some extent these have crowded out and delayed essential maintenance and upgrading of infrastructure. The overall impression one gets is that public sector investment programmes have tried to cover too much, have lacked focus, and have not reflected the application of predetermined priorities among goals. Given the manpower required for successful implementation and monitoring and the personnel and skill limitations, there must be concern whether such investments are making any lasting impact on development. The role of the public sector must be redesigned in the light of resource constraints and to avoid crowding out private sector initiative. Government must focus on few important projects and do them well. Macroeconomic management From what has been presented it should be obvious that I do think that fundamental constraints and the cumulative effect of development policy over the last three decades must share the blame for the declining trend in economic performance during the 1990s. Current macroeconomic policy stance must accept the blame for the continuation of this trend and for what seems the likely extended delay in reversing it. I have come to this conclusion for two sets of reasons. First, in a private enterprise market economy decision-makers need to understand the content and rationale for the policies being applied at any point in time, if the policies are to be effective. Thus the Chairman of the Federal Reserve System in announcing monetary policy usually makes a presentation on the behaviour of economic indicators, assumptions regarding international developments, and the goals and targets. Against this background he presents analysis to show how the policies can be expected to affect the economy, and why it is appropriate to apply them at that point in time. I am unaware of any similar presentation by the Government explaining its present macroeconomic model. There is a model, but nobody seems to know what it is. There has been no dialogue among technocrats on it; nor does it seem to have been ex-plained to the wider community. Second, cursory examination of what appears to be the model suggests certain inconsistencies which will prevent it realising both stabilisation and development objectives simultaneously. The authors of the model seem to except that by using deflationary demand management measures inflation can be brought down to, and kept at, the level of our major trading partners, and that this will lead to a resurgence of growth in the Jamaican economy. There is no indication how this will come about or how long this result will take. There are two sources of concern. Since inflationary pressure comes both from excessive demand and from wage increases unwarranted by productivity increases leading to rising costs of production, it is unlikely that competitiveness of the economy can be restored and retained through demand management alone. Inflation rate So far, incomes policy has not been an effective component of the package. Another concern is that, with the inflation rate now below the average rate of increase in money wages, real wages are continuing to increase while real national income is declining. This means a simultaneous erosion of profits and non-wage incomes, which discourages investment. Similarly, with inflation falling more rapidly than nominal interest rates, real interest rates have been rising with adverse effect on incentives to invest except in government paper. One must ask where is the growth to come from if there is declining incentive to invest? The fact is that while on stability grounds it is desirable to have less inflation, on growth grounds it is desirable to avoid rising real costs of labour and rising real interest rates. Both objectives - stability and growth - can only be achieved at the same time if the target for inflation reduction takes into account the likely rate of wage increases and the likely reduction in nominal interest rates. If wage pressures depended only on expectations regarding inflation and if expectations were adjusted immediately to actual experience, then ambitious inflation targets would not imply erosion of profits; but in the Jamaican situation of competitive, political trade unionism other influences on the wage level must be considered. Besides, it is unlikely that workers will immediately accept lower adjustments because prices have been slowed. Herein lies my disagreement with the model. Workers think there is a back-log of adjustments to be done. Indeed, governments have typically tried to win lower immediate increases by promising increases down the line. Recent wage settlements ex-ceed the rate to which inflation has fallen, and this trend can be expected to continue in the foreseeable future. It is naive to expect rapid change in the fundamental dynamics and politics of trade unionism in Jamaica. In any case there is nothing in the demand management model to bring about such a result; and I do not see the leaders of this Government devoting other efforts to this end. The model can only deliver growth if the Government first succeeds in getting Jamaicans to accept that they cannot be better off in real terms by paying themselves more money but only by producing more output. An effective incomes policy must be in place and accepted by the society. Incomes policy is a veritable political football; and neither side of the political divide will risk supporting it wholeheartedly. In its absence, the country has to take back unwarranted money income increases through inflation if adverse impacts on growth are to be avoided. In short, too rapid a reduction in inflation is inimical to growth. The unfavourable impact on investment can only be avoided by setting inflation targets which would not lead to rising real wages and interest rates. A society is better off in real terms by having more real product even with higher prices. In an export oriented economy, exports will only be profitable if the prices in the domestic currency compensate for the rising domestic cost of labour. Since exporters have no control over the prices they receive abroad, it means that the viability of exports will depend not only on cost of production but on the rate of exchange. Growth expectations A model cannot achieve stability and growth objectives by setting inflation targets, wage adjustments, interest rates and exchange rates independently of each other for internal consistency is a necessary prerequisite. In few words - the Government has reduced inflation too quickly. Modest inflation can be a helpful tool in balancing wage and growth expectations. For a start, we must not rigidly stick to a model that is obviously not working; and can be shown to be based on questionable assumptions which makes it unlikely to work. The required change is to aim at less ambitious inflation targets in order to grant real wage increases when real domestic income is falling. We must be realistic. If we the nation are not producing it we should not be paying it. Where do we go from here? Jamaica faces two dilemmas in its way forward. One derives from the fact that the resources available to support development are becoming increasingly scarce, partly because of our contracted debt service capability and partly because of increasing international competing for scarce savings. Another derives from the need to make bold changes at the risk of endangering an already fragile social stability. Cosmetic changes and nibbling around the edges of our problems cannot be the way forward. We must confront our development challenge uncompromisingly and realistically. We must set priorities and meaningful targets. We cannot do everything at once so we must be selective. We must choose a limited number of important projects and do them well. We have to reconsider our traditional development approach. It must become more long-term. This generation must be willing to make greater sacrifices for future generations, which will be the future of our nation. We cannot continue to enjoy the cheap "sweat shop" labour of Asian countries while our own labour force sits idle, and hope to pay for these consumption imports with borrowed money. We must plan to leave to our children a legacy of enhanced physical and human assets rather than a legacy of debt. Unless we are prepared to make this commitment now, Jamaica's future as a prosperous, stable, secure, independent nation will be much in doubt and the outlook will be one of increasing poverty, continued dependency and possible re-colonialisation. Jamaica can ill afford to eschew the use of the inflation tool in order to make the sacrifices necessary to create a more viable economy for tomorrow's generation. Needed dialogue on long-term development approach starts now - bi-partisan - popular involvement. Raise national concern for future generations and commitment to sacrifice national consensus on strategy community structures for effective participation. Let us think about it.
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