by David P Mullings
SOUTH FLORIDA – Twelve years ago I was fortunate enough to be invited by Douglas Orane to be one of his guests at the Latin Trade Symposium and 18th Bravo Business Awards in Miami, Florida where he was to be one of eight people from Latin America and the Caribbean to receive an award. He was recognized as Social Sustainability Leader of the year, an award all Jamaicans should be proud to see a Jamaican and a homegrown company receive.
The Symposium included a presentation by Felipe Larraín, Minister of Finance for Chile at the time. Chile is a country that I studied during one of my economics classes years ago at the University of Miami because it is famous for the pension reform it undertook starting in 1981 and more infamous for the influence of the “Chicago Boys” and their fundamentalist free market policies which created wealth but also grew unemployment tenfold.
Importance of Policymakers on the Future of a Country
The Minister used his time to speak to the importance of policymakers on the future of a country. He advised us that just the day before, Chile had placed US$750 million of 10-year bonds on the international market with an interest rate of 2.38%, the lowest ever rate paid by any emerging country in history. He also proudly declared that the 30-year bond at 3.71% was just 0.75% more than the US, another amazing feat.
Chile’s rates on bonds had been decreasing over the last few years and refinancing some debt at these new rates saved them over US$18 million. As a Jamaican, I looked at those rates and longed for a day when rates close to those would be feasible for Caribbean countries. It does not come from wishing but instead comes from the work of policymakers.
Minister Larraín made it clear that the biggest problem faced by developing nations is that too many politicians allow populist policies that cannot be funded to get in the way of the tough choices that must be made to put a country on sound footing. There were examples about the hundreds of thousands of students in Chile that protested over the prior 12 months, clamouring for dramatic education reform. The government had refused to address some of the issues such as free education because of the cost and the potential effect on the long-term competitiveness of the country.
He said that “You don’t do policy to appease people in the street. If you do, then you are in the wrong position.”. He went on to talk about the importance of taking the long-term view with any policy rather than the immediate short-term view which too often plagues politicians who are fixated on popularity or winning the next election.
Thinking Long Term
I do not judge whether Chile should have made the education reforms that students wanted. I admire any politician who thinks long-term. It is better than just making policies because a group demands them.
The Caribbean region often shows how short-term policies can lead to poor results. However, today, countries like The Bahamas, Barbados, Jamaica, and Guyana are paying down their debt. The interest rates on government bonds are also decreasing.
Back then, Minister Larraín also pointed out to us that about 50 countries in the 1960s were on the road to developed status, based on GDP per capita growth. Today only about 10 of them actually succeeded. What happened in the years between then and now? His answer was that “increased social pressures come with the road to development. People start to think that they deserve to live like developed countries. Government must resist.”
Few governments have resisted their people when they want things they cannot afford. Instead, they often borrow money. They keep borrowing to try to meet these expectations, even if they are unaffordable.
Jamaica and IMF
Jamaica was one of the 50 on that path to development and clearly is one that deviated. The country seems to be back on track thanks to Dr. Peter Phillips of the PNP making hard choices after the failure of an IMF deal after the Bruce Golding-led JLP reneged on the agreement to freeze public sector wages and the the Andrew Holness-led JLP continuing the stipulations of the IMF which saw Jamaica pay off the loans and become a case study of how to design and execute a successful IMF programme.
Will policymakers in the Caribbean region focus on long-term growth? Or will they keep choosing short-term policies for popularity and winning elections?
David P.A. Mullings is the Chairman and CEO of Blue Mahoe Holdings, Inc. This private company helps retail investors access investments in the Caribbean. He also served as the first Future Leaders Representative for the USA on the Jamaica Diaspora Advisory Board.
