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“The Fiji Times Parliament: the need to challenge Narube and Sanday” (FT 13/6/2020)

13/06/2020

The Fiji Times Parliament: the need to challenge Sanday and Narube” (FT 13/6/2020)

Almost two years ago, I wrote in the Fiji Times (6 October 2018) “The Heroes of Team Fiji Times: take a bow”) extolling the great social virtues of its Editor Fred Wesley (who had received the award of “News Media Executive of the Year at the 2018 PANPA Awards at the Hilton, Sydney), the publisher then (Hank Arts), the owners Motibhai Patel, and last but not least,  the brave journalists who sought out the truth and published it, often at great risk to themselves.

Today, with the main Opposition Party barred from Parliament by a law which the current government itself unilaterally created in 2013, the Fiji Times is effectively the only Parliament in the country, holding the government to account, through its hundreds of Letters to the Editor and columns written every month.

It is therefore essential that readers should not just comment on public views by experts and others alike, but also challenge them when they may pose harm to the public.

In today’s article I will discuss critically recent pronouncements by public commentators, Reg Sanday (a former economist for a regional organization) and Savenaca Narube (former Governor of the Reserve Bank of Fiji).

While many readers may feel unqualified to comment on the views of economists, or Governors of Reserve Banks or retired Professors of Economics, may I plead with the many academics in our three universities to fulfill their wider social obligation to critically discuss (and challenge if necessary) complex views and recommendations in ways that the ordinary public reader can understand.

Narube’s Billion Dollar cash injection proposal

During national crises such as the coronavirus pandemic, many solutions are offered which can be terribly attractive to the ordinary citizen and politicians, especially when it involves spending even more of taxpayers’ money through increased government borrowings.

One such proposal was by former Governor of the Reserve Bank (Savenaca Narube) that Government should quickly hand out one billion dollars in cash to small and micro enterprises, low income earners and those who have lost jobs and be guided by data from Fiji Revenue and Customs Authority and FNPF.

Of course, that billion dollars would have to come from government borrowings which would increase Public Debt correspondingly.

Government balked at implementing that proposal, given that under its management, Fiji’s Public Debt has already more than doubled over the last six years, with little to show for it in terms of sustainable economic growth and further increasing public debt will life even harder in the future.

Some observers might have also breathed a sigh of relief, remembering all the Auditor General Reports of hundreds of millions of dollars of Government expenditure  unaccounted for since the 2006 coup or the many “cash grants” fiascos just before the last elections when the government handed out thousand dollar cheques to all and sundry supposedly to help small and medium enterprises.

Observers might note that the public has not seen a single report verifying what happened to all that money which was less than twentieth of the billion dollars Narube has been proposing as the cash injection needed for the coronavirus. Can Fiji TImes readers reveal what they know?

It is to be hoped that the public will be given detailed plans on the suggested disbursement of the massive sum of billion dollars of taxpayers’ money, if it ever comes about.

Sanday and the sacred power over public debt

Then came this astonishing article by my old USP colleague Reg Sanday (“Great responsibility: the power over the public purse” FT 8 June 2020) who is described as a former economist for a regional organization.

While there were a few accurate statements and some amusing anecdotal homilies, unfortunately there was also some horribly dangerous claims and advice that make old economists like me cringe with fear in case the public took them seriously.

In his article, Sanday gives all the superficial textbook stuff about how governments borrow through selling bonds etc., create deficits, increase public debt, and then pay for it over time-  most of which one can agree with.

But Sanday also advises that “That is all what public debt is: simple double entry accounting. Public debt does not hold future generations to ransom”.  WOW.

He also alleges “Governments who issue their own currency can do what they like with it- they cannot run out of it”. WOW.

What a contradiction of the advice that former Governor of Reserve Bank, the late Savenaca Siwatibau used to frequently give: “Money does not grow on trees”.

How utterly incorrect and dangerous to view increases in public debt as a mere passage of an Appropriations Bill and double entry accounting.

If governments increase Public Debt, for whatever reason, the charges for interest and principal repayments MUST come out of future government revenues.

I do agree with Sanday’s title that the power over the public purse is a “great responsibility”. But I went much further in my 2016 Fiji Times article (FT “Fiji’s Sleeping Public Debt Nightmares” 3 Dec. 2016) when I pointed out:

Normal elected governments have the almost supernatural “authority” to borrow and increase “Public Debt” on behalf of tax payers, not just of today, but of future generations who have no say in the matter at all, yet must pay the debt when it comes due.  Imagine, if you borrowed money from a bank and declared, without their permission, that your wife, children and grandchildren, and all others, will repay the debt when you are gone (either dead or emigrated).

      It is accepted that all governments raise taxes from residents of a country, and spend the revenues on the public service and on  productive capital expenditure, such as roads, electricity, sewerage, ports, schools, hospitals. When their planned expenditure is more than their planned revenues, they borrow either domestically, such as from Fiji National Provident Fund, or abroad from international lenders (such as by selling bonds), thereby increasing the “Public Debt”.

      The increase in public debt is justified if these expenditures lead to increased economic growth and national incomes, which hopefully will pay for the loans, eventually.

But it can be a terrible nightmare for future generations as well if

“… unwise increases in public debt, originating in hasty, unwise and excessive  government  investments OR investment blunders OR guarantees of bankrupt inefficient public enterprises badly managed by government-appointed boards, will silently but surely erode the welfare of future generations, just as cancers silently destroy the fabric of a human body over time”.Readers today will identify with much of what I pointed out then.  I also explained them how it will it be a burden on future generations:

Future generations MUST pay

I pointed out then also who exactly in the future generations MUST pay for increases in public debt:

* those who pay taxes, which is increasingly Value Added Tax falling on the poor and middle classes. 

* workers whose wages are restricted by government to please employers;.

* people who do not receive expenditure benefits which go to the rich;

* future generations whose public assets are sold off by governments today in order to reduce net deficits;

* All those with their FNPF savings whose returns were forcibly reduced by the Bainimarama Government from 15% to 9%, thereby giving Government even more access to our savings, at low interest rates.

To allege, as Reg Sanday does, that the Public Debt is NOT holding the future generations to ransom, is not just false, but a terrible recipe for disaster, if today’s governments freely and excessively spend without paying heed to how they will raise the required revenues.

Overseas and domestic loans

Sanday is correct to make a distinction between overseas loans which must be paid for in overseas currency and domestic loans which governments can pay in domestic currency.  Sanday correctly advises that developing countries like Fiji should try to minimize overseas loans.

BUT it is also the case that if loans are for investment projects that require foreign exchange AND if a country s struggling to earn foreign exchange (as Fiji currently is), then there can be no alternative to borrowing abroad.

In my previous articles I had criticised the Bainimarama Government for borrowing $500 million abroad in through bonds in the open market at over 6% interest rate when the IMF was willing to lend at much lower interest rates (around 2%). At that time also, there was no particular shortage of foreign reserves

Sanday does not seem to appreciate at all that if a government borrows domestically by printing money (whether from FNPF or elsewhere) and there is no commensurate increase in real GDP to pay for the increased debt, then all that will happen is increased inflation, which will erode the real value of all hard earned savings in the country.

Sanday notes “It is also healthy practice to involve local institutions such as the Fiji National Provident Fund and the Fiji Development Bank in loans guaranteed by government”.

At the beginning of his article Sanday even noted that Parliament issued a “sovereign guarantee” for $455 million of loans taken out by Fiji Airways (some of which was also from FNPF if we remember).

Sanday seems to approve of domestic loans from FNPF or ADB without appreciating the massive dangers (or sovereign risks) that both Fiji’s taxpayers and FNPF owners are being subject to.

Sanday does not appreciate that both FNPF and FDB are guaranteed by government itself, and both FNPF and FDB are totally in the control of government.

Can you imagine the nightmare if a private bank like Westpac was forced to lend money to the Fiji Government which also insisted on controlling the board of Westpac? i.e. a borrower totally controlling the lender?

Since the 2006 coup, Fiji has become so used to the harsh reality that the real owners of FNPF (who technically and legally own all the superannuation savings in FNPF) have not a single representative on the Board of FNPF.

It is not healthy at all that FNPF is now such a large holder of Fiji’s Public Debt.

Sanday’s other dangerous lines

Economics teachers and students and especially those interested in monetary issues can have field day scratching their heads over many other lines in Sanday’s article.

Is it true to say as Sanday does “You and I cannot deficit spend as we are able to spend only what we earn”.  Oh really?

Is Sanday correct in suggesting that all countries should heed the advice given by US President Grant to Japanese Emperor Meiji that “There is nothing a nation should avoid as much as borrowing money abroad”.

Economics historians understand that for two centuries, economies like US,  Canada, Australia and NZ could only grow on the back of huge inflows (foreign borrowings) of capital from abroad, even the European countries devastated by WWII needed massive inflows of US capital through the Marshall Plan.

Is Sanday correct in claiming that “Japan, the US, UK, Australia, Canada and New Zealand are the top of the monetary pecking order” and are “fully monetary sovereign in that they have a free floating currency and they issue debts denominated in their own currency”?

Sanday does not seem to be aware of another country beginning with “C” (China) which not only holds a massive proportion of Government Bonds and Treasury Bills issued by the same countries which Sanday sees as at the top of the “monetary pecking order”, but also holds a massive amount of foreign reserves, and singlehandedly kep the west out of depression during the Great Financial Crisis of 2008-9.

Is it important to challenge Narube and Sanday?

Some readers may wonder if it is at all important to rebut doubtful claims and writings of  Fiji Times columnists like Reg Sanday, Savenaca Narube or Professor Biman Prasad or Professor Wadan Narsey.

But may I suggest that especially when most of the Opposition MPs have been barred from parliament (for whatever reason) readers of Fiji’s foremost and responsible national newspaper (Fiji Times) must not accept at face value far reaching public statements by current or former Governors of RBF (like Savenaca Narube or Ariff Ali) or economists like Reg Sanday or Professor Biman Prasad or Professor Wadan Narsey.

All their writings and recommendations should be subject to full scrutiny by the public and assessed on the merit of their arguments, just as they would be if the Fiji Times was an actual parliament, which it effectively is today.

When the subject matter are grave economic issues, such as public debt, the onus is especially on the academics of our three universities to write in the newspapers in simple English, so that the ordinary public can understand.

Failure to do so means that false consciousness sets in about the impact of public policies (as in public debt) which allows shady politicians to be elected by gullible voters who believe the politicians, thereby also undermining their future welfare and that of their children.

[It particularly pains me that USP economists have retreated into safe public silence].

 

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