Sanctions should be imposed for breaches of fiscal responsibility
Jamaica’s Minister of Finance, Planning and the Public Service, Hon. Peter Phillips, has calmed fears that the new administration might implement policies which will generate high interest rates. He advised banks to assist in taking active steps to contain their costs, increase their efficiencies and contain the growth in their spreads.
The first aspect of the way forward “relates to macro-economic stability,” the Minister said. This, he said, must be maintained and will include low inflation and low interest rates.
“There is no policy of high interest rates and there will be no policy of high interest rates,” he emphasized.
Restating the Government’s commitment to provide the macro-economic framework that supports low and competitive interest rates, the Minister expressed the administration’s desire to “get the rates even lower, if conditions allow.”
He argued that macro-economic stability was not an end in itself.
“There is stability now, partly because there is low demand for credit and foreign exchange due to the weakness in the economy. Banks are competing vigorously to lend and, in doing so, are lowering interest rates,” he observed.
However, Dr. Phillips noted that, while this was happening, borrowers were not getting the full benefit. “As rates are lowered, the banks need to assist in taking active steps to contain their costs, increase their efficiencies and so contain the growth in their spreads,” he said.
Dr. Phillips also called for sanctions against deliberate breaches of fiscal responsibility resulting from ministerial action.
Addressing investors at the Mayberry Investment Forum in Kingston on 18th January 2012, the Minister said that, despite the existence of a Fiscal Responsibility Framework “entrenched in law” to safeguard fiscal prudence, significant fiscal breaches have occurred.
Pointing to expenditure controls, Dr. Phillips stated that there has been a lack of fiscal prudence as evident in: the mismanagement of contract negotiations with public sector workers; massive off-budget expenditures; and the failure to effect the timely implementation of public sector, tax and pension reforms.
He cautioned that the country now risks squandering the relief provided by the Jamaica Debt Exchange (JDX).
“Without wishing to get into a futile blame game, we must acknowledge that there has been a failure to adequately manage the fiscal situation and to contain expenditure in the face of declining revenues. We must draw the line and say no to this type of behaviour,” he declared.
With respect to the Jamaica Development Infrastructure Project (JDIP), he said that the amount earmarked to be spent in the 2011/12 budget “was deliberately ignored and was over-shot by US$80 million or close to J$7 billion.”
The Minister also observed that more debts were accumulated by the former Government, through the ordering of some 96 million Euros worth of buses that were not budgeted for, but which will have to be paid for.
“This financial profligacy took place despite the existence of a Fiscal Responsibility Framework entrenched in law that prohibits such actions,” Dr. Phillips observed.
“This fact speaks to the need for sanctions for such deliberate breaches flowing from Ministerial action. It was these breaches that contributed to the breakdown of trust between Jamaica and our international partners over the last year,” he stated.
By Allan Brooks,
JIS Senior Reporter