Is Government seeking palliative or cure?
IT TURNS out that the Jamaican Government, while publicly proclaiming the success of its extended fund facility programme with the IMF, has been secretly seeking the help of its friends in the US Congress to pressure the IMF to change it.
It now seems that even while its backers were denouncing anyone who dared question the sanctity and infallibility of the programme, the Government had itself come to realise that the programme has inhibited the country’s growth and unnecessarily inflicted crippling pain on the Jamaican people. The letter to President Obama signed by five leaders of the Congressional Black Caucus, doubtless at the behest of the Jamaican Government, says it all.
In my very first comment on the IMF agreement two years ago, I stated the very thing that the Government is now admitting: The programme needed to be changed to promote the type of economic activity that will generate growth and ameliorate its austerity.
In an article published February 17, 2013, following the national broadcast by the prime minister and the minister of finance and even before the agreement was signed, I wrote: “I am surprised the Government could have presented a package of measures to fix the economy that will only sap its vitality and not give it renewed life through increased production and exports. The treatment the Government has prescribed to heal the economy might very well become the medicine that kills it.
“Reducing the debt-to-GDP ratio from 140 per cent to 95 per cent over seven years, without economic growth, could mean that $78 billion, or 6.4 per cent of our total economic output, will be extracted from the commercial life of the country each year. Does the Government or the IMF believe that that is a workable plan? Or are they prepared to take the economy over the cliff into deep depression in the expectation that in the end, we will rise from the ashes?”
Since then, I have repeatedly stated that without growth, the programme cannot be sustained. Extracting 7.5% of the country’s annual economic output without generating growth to replace it was, and is, unfeasible. I suggested that 2.5% of the 7.5% primary surplus be used to create incentives such as tax credits for investments in production and export services in order to offset the negative effect of the austerity programme.
The unfeasibility of the programme became obvious to all when the Government could not achieve even its own very modest growth projections for the economy. This led to its failure to reach the target of a public-sector wage bill of 9% of GDP. With no growth, Government had to return repeatedly to the taxpayer for more taxes to finance a shrinking Budget, even while the social and economic infrastructure was disintegrating.
Were the Government more open to constructive debate from the outset, it might have been able to avoid the social and economic damage it is now trying to ameliorate through diplomatic back channels. It might have been able to avoid the contraction of commercial activity, which is hurting the poor; production and economic growth might not have been stultified; and it would long ago have accepted the obvious – that without economic growth, the IMF programme will result in a weaker Jamaican economy.
Despite the great windfall resulting from the more than 50% collapse in oil prices and notwithstanding Government’s projections of growth being ‘right round the corner’, growth for the first quarter of 2015 remained at the same near zero level where it has been stuck for years. While non-oil imports for the first quarter of 2015 increased 5% over 2014, non-oil exports for the same period fell by 5%.
Jamaicans should be encouraged that the Government has, even if belatedly and secretly, acknowledged the problems the IMF programme has imposed on Jamaica’s economy and people. But it is not altogether clear that the Government’s efforts to have the IMF relax some of its conditions are intended to correct the programme’s weaknesses and put the economy on a path toward recovery.
So far, there is no workable plan to increase investments in production, engage more of the productive capacity of our people, and increase the productivity of all the factors of production. It is, therefore, difficult to discern whether the Government’s intention is to lift economic performance and grow the economy.
With an election around the corner, it is not unreasonable to fear that the SOS sent to Christine Lagarde, through the Congressional Five, might really be an effort to gain fiscal space to spend more, while gaining brownie points for appearing to stand up to the IMF.
A genuine effort to develop and grow the economy will be characterised by plans to reform the tax code to attract private domestic and foreign capital to productive activities in the country. It will contain realistic measures to engage more Jamaicans in the productive process. It will contain monetary, income and fiscal policies to make Jamaican productive output more competitive.
There will be trade policy reforms to improve market access for Jamaican products abroad as well as at home. Proposals from the Opposition like tax credits for productive investments and restoring the incentives under the Junior Stock Exchange would be adopted or at least given proper consideration. And Government would recognise its obligation to disclose these plans to the people of Jamaica and discuss them in Parliament before they are presented to the IMF.
It is essential that Government seek national concord on the changes required because should President Obama succeed in making the IMF receptive to Jamaica’s request for the programme to be changed, we will have just one opportunity to do so.
The changes we request of the IMF must be curative, not palliative. Merely easing the pain of austerity will do nothing but ensure a return to economic profligacy and ultimate failure. Rather than improve our position, this would quite likely increase demand for imports and effectively push back domestic production. This would eventually increase borrowing and compound the economy’s dysfunction.
The IMF programme has been highly successful in keeping the country’s creditors happy. Indeed, it has been treated as sanctified and infallible by the Government and its cheerleaders, but it has proven a hindrance to Jamaica’s economic growth and our people’s well-being.
The Government may now have an opportunity to make the programme more helpful to the country’s economic cause. I hope they will use it wisely. But I fear they will not.