Jamaica Gleaner

Is Gov­ern­ment seek­ing pal­lia­tive or cure?

- Claude Clarke Claude Clarke is a busi­ness­man and for­mer min­is­ter of in­dus­try. Email feed­back to col­umns@glean­erjm.com. Business · Finance · Latin America News · Politics · International Monetary Fund · Congress of the United States · United States of America · United States Congress · Barack Obama · Jamaica · Christine Lagarde · Congressional Black Caucus

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.

NEAR-ZERO GROWTH

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.

 ??  ?? The Let­ter to Barack Obama, sent by five con­gres­sional Democrats with the bless­ing of the Ja­maican Gov­ern­ment, urg­ing his in­ter­ven­tion in the is­land’s pro­gramme with the IMF, in­di­cates the Simp­son Miller ad­min­is­tra­tion’s ac­cep­tance that the terms of...
The Let­ter to Barack Obama, sent by five con­gres­sional Democrats with the bless­ing of the Ja­maican Gov­ern­ment, urg­ing his in­ter­ven­tion in the is­land’s pro­gramme with the IMF, in­di­cates the Simp­son Miller ad­min­is­tra­tion’s ac­cep­tance that the terms of...
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