by Ray Auxillou
( For Belizean University Students homework!)
Growth economics based on loan borrowing, or selling off capital assets is false!
That is the debating proposition! Real Growth Economics is building SAVINGS and investing in growth from that savings. In the case of the government of Belize, real GROWTH can only come from building up a foreign reserves account to around $700 million USA. When you then wish to invest in some new industry, or expenditures, you spend the money you have saved. You slowly but surely build your assets and services from your SAVINGS, or your own Foreign Reserves.
Growth from LOANS is nothing but an artificial bubble. The capacity for Belize to earn foreign exchange income is based on the number of industries you can invite into the country and diversification of the types of industries, to even out the ups and downs of these industries caused by outside world markets and influences.
Shrimp is rewarding right now, but Sugar is way down below production costs. You keep coming back to an average, or oscillating around the $280 million annual government income you have to work with.
A loan philosphy of GROWTH is nothing more than an artificial bubble of prosperity, that in a two party system is nothing more than five year cycles of political party competition. One party borrows and creates an artificial bubble of prosperity and the next political party is forced to go through a five year cycle of austerity programs, downsizing and lower economic growth to pay for the borrowing excesses of the other party. One party looks good because they bring artificial prosperity, while the next party looks bad because they are forced into a situation of paying off those loans and bringing on a condition of fiscal responsibility. We would be better off with a district geographic run National Government, to spread the political party influences into a more consensus mode of debating economic policy. The five year winner take all, political party wars are killing Belize and stunting growth! Especially with only one man entitled under this political structure directing the making economic fiscal policy. If the man should be crazy, you end up with a lost five years at the minimum. Nationwide six district consensus on economic policy by parliamentry procedure voting would be more steady and even out kooky ideas.
The average income from Belize is around $280 million Bz per year. This can fluctuate between $240 million to $340 million Bz per year, depending on whether you are pumping loans into the economy, or are a party forced to pay off those loans in another five year cycle through an austerity program showing fiscal responsibility.
In the loan borrowing philosphy, you actually lose ground, because the INTEREST PAYMENTS are lost revenue. This can be in excess of 50% of your annual revenues. Which portion should be going into building the Foreign Reserves, to be available for future REAL GROWTH as SAVINGS, is being wasted in a non-productive payment to pay INTEREST. This loss costs the country something very valuable, that does not have a monetary value, but it has something more valuable. It is called TIME! ( Time represented by lost years. )The loss of TIME for slow steady sure responsible GROWTH equals mediocricity and in the long run, and no growth at all. It is just a puppy chasing it's tail in a circle.
Building SAVINGS in FOREIGN RESERVES, gives you cash capability to build GROWTH and while it is slower from an immediate gratification aspect, it is surer, because what you have is yours, as you build those assets and improve your base. You do not lose more than the 50% of annual income from RESERVES to INTEREST PAYMENTS, this money then goes to SAVINGS, or Foreign Reserves and is there for true GROWTH. LOAN PAYMENTS are another LOSS, but in TIME, or YEARS that could be spent more productively. " Pay as you go!" You actually speed up GROWTH by building SAVINGS or FOREIGN RESERVES. Like the house percentage in a Casino gambling slot machine, those interest payments are what kill you.
LOAN GROWTH ECONOMICS without SAVINGS through FOREIGN RESERVES is simply a short term political expedient and WAR on the other party of the TWO PARTY system, by forcing the other party into austerity programs.
Austerity packages to pay for LOAN GROWTH policies, include cutting salaries like in Argentina by 12 to 15%. Widespread government cutbacks on the number of employees and jobs. Frozen hiring! This in order to pay the HIGH INTEREST RATES caused by LOAN BORROWING bubble economics of GROWTH.
The cycles of LOAN BUBBLE PROSPERITY have to be followed by cycles of AUSTERITY and hardship. ECONOMIC DOWNSIZING, lower growth rates and anemic outlooks with higher unemployment. There is no gain this way. It is all political party cycles pre-ordained.
The government of Argentina is going through this crisis right now. What the people want is work, but the demands of loan payments and interest payments and the loss of what should have been SAVINGS in Foreign Reserves caused by INTEREST payments means job cutbacks. Higher unemployment is the result. During the first part of this DOLLAR STANDARD pay as you go, dollarization in Argentina, the government there was forced to make a $1.4 billion cut across the board. Now they are fine tuning what they can really afford, according to a system of measuring the amount of currency in circulation that is no more than what they have in SAVINGS, or are able to SAVE in FOREIGN RESERVES to back the currency. This to fight devaluation, inflation and those other evils of monetary problems. An additional $938 million in cuts are designed to cut another 2% off the government budgets to bring the actual financial capabilities of the government in line, with the actual money they are producing as a country, in order to keep local currency even with a REAL VALUE. Public strikes, hardship and unhappiness are the result.
A policy of GROWTH ECONOMICS based on REAL VALUE backed by SAVINGS in Foreign RESERVES would eliminate any future cycles of economic austerity in Belize.
Actually Belize has a very long way to go. The currency right now is only worth $1 Bz to .06 cents USA, not the official value of .50 cents USA it is theoretically supposed to have.
The GROWTH RATE automatically drops, or goes in a direction inverse to the loans and INTEREST PAYMENTS you have to pay off from an artificial bubble of LOAN based Growth Economics. We can expect a future five year cycle of severe austerity, dropping GROWTH rate and government cut backs, eliminating government jobs and investments. Economic hardship down the line, is pre-ordained by Fonseca's current fiscal policies!
When Fonseca talks about a manageable loan program of 34% of GDP, what exactly is he saying? Have you thought it out? He is saying, that we are going to stay in debt as a country and not be masters of our own destiny, forever! He is building a constant loss into the system from INTEREST PAYMENTS AND LOST YEARS (TIME) with the money going to the loans instead of investment. Does this debt really create any new wealth for the country? Of course not! You still at the end of the year, only have an average $280 million Bz to pay off this LOANS 34% of GDP. You don't create anything, expect a bubble of prosperity and employment, that must sooner or later burst in a new cycle of downward spiraling growth and higher unemployment and hardship, accompanied by government cutbacks and layoffs from jobs. It is just political party war in five year cycles.
Real GROWTH and higher prosperity come from creating the conditions to encourage new investments and different types of industries into the country. The more new industries and the more different types, the stronger becomes the average annual income base and the less fluctuations of annual government income around the average. The wild swings of government annual income become more stable.