JAMAICA @ 50

THE world is used to trailing behind Jamaican sprinters. The small
island has won a string of world records, and may claim more at the
2012 Olympics. Its economy, however, is not so speedy: on current
forecasts it will finish the year with the slowest average growth rate
since 2000 in the Americas—behind even earthquake-stricken Haiti.
On August 6th Jamaica will celebrate the 50th anniversary of its
independence. But the festivities will be muted by frustration with its
performance.
The Jamaican economy should by rights be booming. The island is just
a 90-minute flight away from the United States, the world’s biggest
market, with which it shares a language. It is on the shipping route to
the Panama Canal, and has a spacious natural harbour in Kingston. It
is politically stable, without the ethnic tensions that have riven other
Caribbean nations.
Jamaica has reasons for its plodding growth of late. Tourism, which
employs one in ten islanders, has dipped with the world economy. And
the market for bauxite and alumina, its main export goods, has been
rockier than for other commodities.
However, the country’s economy was stagnant long before the credit
crunch. In real terms Jamaicans are no richer today than they were in
the early 1970s. And most of the island’s enduring problems, like its
public finances, are home-made.
Jamaica has run fiscal deficits in 44 of its 50 years of independence.
Few people pay taxes: the middle class is small, the informal economy
big, and enforcement chilled-out. Only about 3,000 of the country’s
65,000 registered firms are thought to contribute. The government
has steadily dished out waivers to favoured industries: tourism pays
an effective tax rate of 5%.
Lacking sufficient revenue, Jamaica has financed public spending by
borrowing. Years of accumulated deficits, a bank bail-out in 1995, and
punishing interest rates have swollen the national debt to a Greekstyle
140% of GDP. Servicing the burden now accounts for over half
the budget.
The government has further hurt the economy by unwise intervention.
Its tax breaks for imports by hotels have cut local firms out of the
supply chain. That has limited job growth, forcing many of the young
into lowly tourism posts, such as hawking handicrafts (and hashish) on
the beach. “Money goes where money is, and the rest of us stay poor,”
says Dee Brown, who punts tourists around the north coast’s Blue
Lagoon on a bamboo raft.
The private sector has also been shackled by bureaucracy. Filing taxes
requires 72 separate steps and over 400 hours a year, twice as long as
in Trinidad and Tobago.Sherry Lue-Fung, who runs a fashionaccessories
shop, pays an accountant $400 to do it. Importing her
handbags and bracelets can take a whole day at the docks.
Manufacturers complain about electricity, which takes three months to
get connected and costs five times more than in Trinidad.
Jamaica is due a spurt of growth. One might come from credit. After
years of high interest rates, a modest public-debt swap in 2010 cut
short-term borrowing costs. That
should spur banks to lend and
firms to invest, rather than
parking cash in government
bonds. This year Jamaica
approved its first credit reference
agency, which should foster the
growth of consumer loans.
Portia Simpson-Miller, who
became prime minister in
January, is cautiously trying to
broaden taxation. Despite furious
complaints, she extended sales
tax last month to various foods
including the patty, a venerated island delicacy. The IMF may require
the government to end some tax waivers, which jointly reduce
revenues by a quarter.
There are tentative signs that security, a big cost to business, may be
improving. Many hotels spend over $100,000 a year on guards. The
island’s crime problem long seemed insurmountable. But in 2010
Christopher Coke, the leader of Jamaica’s biggest drug gang, was
arrested and extradited to the United States. The murder rate then
dropped by a third, though it is now creeping up again.
The island will need a political makeover to improve its policies. Both
main parties pander to interest groups whose votes are controlled by
unsavoury strongmen. Many tame constituencies plump almost
unanimously for one party, a voting pattern one foreign diplomat
compares to North Korea’s. That means policy proposals have little
effect on elections.
Damien King, the head of economics at the University of the West
Indies in Kingston, believes that Jamaica’s economy has the potential
to reach Chinese growth levels of 8% a year. But unless its politicians
start to streamline the bureaucracy, raise more revenues and invest
them wisely, that will remain as likely as a Chinese gold medal in the
100-metre sprint.