The wider world “out there” is so fraught with economic uncertainty that even experts cannot agree on what they see when they gaze into their darkened crystal balls. That’s all the more reason for Cayman Islands leaders to focus their attention on our own solitary vessel, in order to steward our country through the unknown – and indeed, unknowable – waters of the future.
The latest issue of The Cayman Islands Journal (published in print yesterday and available online at www.caymancompass.com/the-journal) features dueling perspectives on the global economy, from New York-based economic forecaster David Levy and Royal Bank of Canada chief economist Craig Wright.
Of the two, Mr. Levy is comparatively more pessimistic than is Mr. Wright – though they share significant reservations about future economic trends.
Looking at China, Mr. Levy says, “China has far greater problems of debt and overcapacity than other emerging markets … The situation threatens – almost promises – to cause the politically unsettling Chinese recession and financial debacle that Beijing desperately wants to avoid.”
Mr. Wright, on the other hand, is bullish: “The concern is policymakers may not be able to juggle all of these balls. We think they have been successful at that.”
On the topic of the Eurozone, Mr. Wright says, “the crisis story is over.”
Mr. Levy sees things differently, predicting, “As for the sovereign debt problems, expect the crisis to come roaring back.”
Both men are optimistic about the United States. In regard to the global economy as a whole, Mr. Levy describes it as “deflationary,” while Mr. Wright settles on “a new normal” where there will be “a slower speed limit for growth in the major economies around the globe.”
While informative, the above observations are not the most exhilarating. Although Cayman plays an outsize role in the international financial system, our country is of course far too small to influence the arc of human progress. In other words, when it comes to global trends, our population is squarely on the “effect” side of the equation, as opposed to the “cause.”
The wisest strategy for Cayman to pursue is quite basic: Be aware of what we have no control over; take care of what we do; and be able to discern the difference.
Fortunately for us, but unfortunately for others, examples abound in our neighborhood of how not to cultivate a fruitful island economy. Look at the U.S. territory of Puerto Rico, which has a dwindling/escaping population of 3.5 million and a debt of US$72 billion. It is currently urging U.S. federal lawmakers to allow its government effectively to declare bankruptcy, following the example of the city of Detroit and other U.S. political entities.
We do not intend to be hyperbolic, but Puerto Rico is the closest thing the Caribbean has to Greece.
All of these financially failed jurisdictions, small and large, share certain characteristics – in particular, borrowing immense sums of money over extended periods of time, in order to pay for wildly expensive populist projects, with no plan to repay those debts. (For instance, Puerto Rico’s public power authority racked up US$9 billion in debt while providing free electricity to all of the territory’s 78 municipalities, many government-owned businesses and some for-profit companies – for decades, according to The New York Times.)
But back to Cayman, and to public finance fundamentals. The best thing our elected officials and top civil servants can do for our country is to run a tight ship, in the form of a professional, accessible and fiscally prudent government. (Here, we’ll give Finance Minister Marco Archer a pat on the back for his quiet diligence over the past several years, in making sure that our budget numbers add up properly, while meeting debt obligations and the restrictions of the U.K.’s Framework for Fiscal Responsibility.)
As a country, our focus should remain on running budget surpluses, returning as much wealth as possible into the pockets of the people (through tax cuts), investing – responsibly – in much-needed public projects and services, and laying the groundwork for future generations via a functional and adequately funded education system.