UNEMPLOYMENT reached a record high in December, the rate climbing to 9.3 per cent which was one of the highest increases, over a year, in the EU. This gave rise to a collective lament by our politicians, all of whom called for development projects that would create jobs and kick-start the stalled economy.
‘Development’ has now become the main slogan and the answer to all our problems, a bit like the demand for a ‘fair, just and lasting settlement to the Cyprus problem’. But as with all nice-sounding slogans they serve to the public the politicians offer no practical ideas as to how the objective would be realised. Who would initiate the desired development?
The government has no money, because all the money it has borrowed will go towards paying the public servants. Private businesses which might undertake new projects cannot find funding because the banks, apart from pursuing tight credit policies, are charging extortionate interest rates. And as for investment from abroad, the competition from countries with lower labour costs, lower cost of living and fewer bureaucratic delays is very acute.
So how would the development the politicians are convinced would lower unemployment happen? Should we rely on divine intervention because we have not heard of the practical steps that would be taken to ensure there is growth? The truth is that politicians are not in the business of providing practical solutions for anything. They just come up with nice-sounding slogans (the Cyprus problem is the best example of this approach) and when nothing happens they blame the government for supposedly failing follow their suggestions.
Not that the government has shown great imagination or resourcefulness in stimulating growth. It announced some low-cost plans on Wednesday, while on Friday evening the CyBC reported details of the comprehensive plan for development prepared by the finance ministry. These included loan guarantees for small and medium businesses, opening of casinos, speeding up of the issuing of planning permits and incentives for opening new businesses. These could work if we were not so deep in recession, worsened by a credit squeeze.
But we should not be surprised, given the unfailing ineptitude the government has displayed in the handling of the economy, an ineptitude which continues today, despite record unemployment and sinking businesses. Commendable as its development plans might be, they are small-scale, because there is no money available.
The problem goes back to the public sector pay-roll and the government’s failure to deal with it in a conclusive and effective way. Fearing PASYDY’s reaction it made the smallest possible cuts (some temporary) to wages and grudgingly imposed a two-year freeze on wages. While this was just about enough to meet fiscal targets for 2012, it completely ignored the small matter of development spending, which everyone is now clamouring for.
A government which put the interests of the economy above the president’s popularity with PASYDY would have managed its finances more rationally. It would have imposed bigger cuts on public sector pay, so that it could have spare funds to spend on development projects; a redistribution of resources that would help the private sector create jobs. As things are, and with next to no hope of recovery this year, the government might not even collect the tax revenue that would help it meet its fiscal targets – a floundering business sector does not generate tax revenue.
Before the end of the year, the government may have to cut public sector wages again in order to meet the fiscal targets set by the EU, because its tax revenue is more than likely to fall short. But again the saving will go towards restricting the deficit rather than development. This is what happens when there is a government incapable of looking at the broader picture of the economy and takes piece-meal measures only when it forced to do so.
The lack of funds for development projects combined with tight credit, we fear, would continue to push up the unemployment rate and, at the same time, put downward pressure on private sector wages. Unions and employers may have reached an agreement on a wage freeze a few days ago, but market conditions will continue to push wages down. While nobody likes wages falling it might be the only way to battle unemployment, given the lack of funds for development project that would stimulate growth.
