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We still need IMF discipline

By Dashan Hendricks

 

With roughly eight months to go in the four-year Extended Fund Facility (EFF) which Jamaica signed with the International Monetary Fund (IMF) in 2013, it is right that the talks have turned to whether or not the country should continue to have a relationship with the multilateral financier.

Already, though the current government, while in opposition, bashed the perceived lack of focus on growth in the programme (especially the early stages), it recognises and is willing to go ahead with some programme with the Fund, because it works.

For the first time in many years, Jamaica has managed to contain its current account deficit. That is, even though the way to stability has been painful, for the most part we can say we survived some of the harshest economic adjustments in recent history. For example, a deliberate strategy to weaken the currency sapped purchasing power from Jamaicans, but it helped to reduce imports. A current account deficit, which in the three months, July to September 2013, was US$409 million, shrunk to US$73 million by the three months, October to December 2015.

A more stark picture is to imagine that the current account deficit was more than 13% of GDP in 2012, and now is below 5%, which is within manageable range. Some of the reduction in the deficit was helped by the fact that oil prices were low, so less money had to be found to pay for it. The greatest achievement is that, the action to reduce the current account deficit, the devaluation of the dollar, did not result in inflationary pressures! That is to say, Jamaica which depends on imports for close to 80 per cent of its consumption and production, managed to make those imports more expensive by devaluing the dollar, without causing inflation! In fact, during the period after devaluation, when the full impact of a sliding dollar was expected to take effect, the country recorded the lowest inflation in more than 40 years. Previous sentiments to the effect of a "weak dollar means 'everything gone up'" quickly disappeared.

Weaker currency

The weaker currency also affected wages. The dollar slid faster than wages were able to rise, sending Jamaican dollar wages in U.S. dollar terms down. The conventional wisdom is that the cost of operating businesses in Jamaica declined, which should attract more foreign investments. Attempts to go after more investments in the Information and Communications Technology/Business Process Outsourcing (ICT/BPO) sectors are proof that the government has used that as a selling point.

All this happened without a revolution; another amazing achievement which many people have not paid much attention to. It is almost as if Jamaicans were sold on bearing pain for long term gain. Every pain the country had to bear was blamed on the IMF and that made it more palatable? So wage freeze, spending cuts, more taxes all were said to be because of the IMF, and Jamaicans bought into it. Preserving the gains achieved for the sacrifices made must now be the priority. Jamaica cannot afford to walk that road again.

It is against that background that the talks have shifted to what type of programme Jamaica should have, after the current one expires on March 31, 2017. The truth is; most of what was done in the current programme may not have to be done again. Bringing the debt to within 100% of Gross Domestic Product (GDP) by 2020, must remain a priority. It is now 125% of GDP. At the start of the programme it was closer to 150%. But just taking more taxes to pay down debt from the same size pie will not work.

Growth

The country needs growth, and it needs fast growth, not the 1%-2% growth we have largely seen for most of the last 30 years. The Prime Minister has seen that need and has made growth the focus of his administration. It is for all Jamaicans to bind hands and heart to see this work.

The issue with Jamaica, when it comes to economic reform, the type of which took place over the last few years, is that the government is usually never a willing participant. But the gains of the last few years must not be reversed. It means the programme with the IMF, going forward, must not be one without sanctions. It was in the face of the threat of sanctions that Jamaica performed the way it has in the last three-plus years. Taking that away may see Jamaica reverting to the status quo; that of not meeting targets. Jamaica simply is not at the stage at this moment, where we can rely on the will of our governments to push through painstaking economic reforms. The election cycle is a threat to that ambition. Until the country can convince itself that it will do things in its best interest, it is better that we continue to be monitored by external forces as the IMF is.

It is an indictment on Independent Jamaica as we move into the Independence period, but if the IMF's oversight improves our economic independence in the long run, then it is a sacrifice we must all welcome.

 

Dashan Hendricks is RJR's Group Business Editor


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