Let’s not throw good money after bad

Editorial

Private Sector’s Game of Hide-and-Seek

We are informed that the Joint Economic Council of the Private Sector has been having a set of discussions with the Minister of Finance these days. The talks have concerned the activation of the National Resilience Fund that was created in the last government budget for supporting enterprises facing difficulties due to unexpected adverse external market developments.

It will be recalled that after the 2011 budget was passed, the private sector stated that the decision to impose a tax on dividends and another one on capital gains had acted to inhibit private sector investment in the economy. This is the argument that was brought up to explain the zero or even negative growth of private investment at the time. Xavier Duval withdrew these two taxes in his budget. One would thus reasonably assume that, these taxes having gone out of their way, there would have been a new thrust in private sector investment.

Instead of that, the on-going discussions between the Minister and the private sector representatives have brought to the fore new issues. It is being claimed that the tourism sector is facing a slowdown due to a lower number of arrivals of tourists in January this year as compared to January last year. In other words, based on the figures of this single month, the tourism sector would be in dire straits and in need of government support. This is where activation of the National Resilience Fund appears to be coming into the picture at this moment.

We understand that things are not so bad, looking at the order book for the year, on the side of textile manufacturing and exports. Raw material inputs have been flowing in normally whereas that would not have been the case if the sector were facing export constraints on its traditional markets. The only vindication made by this sector is for the rupee to be depreciated against the Euro, a classic sound bite that the Central Bank appears not to have rightly listened to as that would invite higher prices and inflation into the system. The textile sector has been shelved up for the time being, the economic debate being overwhelmed rather by prognostications of a lower than expected overall economic growth rate. Opinion survey of private sector employers would have confirmed private sector operators’ pessimism about our growth prospects this year.

In his letter to economic stakeholders, by contrast, the Governor of the Bank of Mauritius has appeared to be more optimistic about the economy and its resilience, looking at the situation in a historical perspective, despite the MCB having scaled down its growth outlook forecast for the economy. The MCB’s downgrade of economic prospects has received a wide coverage in part of the local media. Efforts appear to be on to neutralize undue positive perceptions of the country’s economic performance. This should neatly fall into place with support to be dished out to private enterprises eventually by the National Resilience Fund of the government.

Minister Duval has emphasized that it is only in those cases where domestic enterprises dealing with the Eurozone were financially viable in the first place and where it is demonstrated fully that later developments in the Eurozone are adversely impacting them directly, that disbursement of support will be considered. This is the right thing to do. Taxpayer money cannot be spilled out left and right. We need not repeat the experience of the post international crisis of 2008 when public funds were injected in certain private enterprises that saved neither the jobs of their employees nor themselves. Mismanagement does not deserve to be supported with taxpayers’ money or essentially failing companies need not be bailed out on the pretext that external events outside their control would have affected their viability.

It is unfortunate that there have been so many cases of false posturing by the private sector in the past that they need to be put under hard scrutiny before deciding whether they deserve to be supported. It would be fair to take a long-term view of the situation rather than act on stray incidents which paint a negative outlook from time to time. That said, the government needs to act responsibly; if it adopts a lenient attitude towards the private sector, it should not at the same time weigh down the social support equation. In both cases, it should avoid getting trapped into temporary factors made out to appear like structural problems. If there is one thing we cannot afford to do at this moment, it is not to throw good money after bad projects because money is likely to become scarcer if the world economy does not pick up soon enough. Let not the axe keep falling on certain categories of taxpayers.

* Published in print edition on 24 Feburary 2012