THE decision by the Jamaican Government to go back to the International Monetary Fund (IMF) underscores the fact that the economic and financial management of the country for the last two decades has by and large been unsuccessful.

Over the last decade alone domestic debt has increased by 500 per cent with external debt ballooning by 100 per cent. The last eight quarters have registered negative growth, fiscal targets have been way off the mark and have never been met, expenditure continues to outpace revenue and there have been three tax packages within the last year. By going to the IMF the Government has thrown up its hands declaring the fiscal management of the country is beyond its capabilities and that it has to now turn to an extraneous body with the resources to help it.

To placate the citizenry, the constant refrain has been that the IMF is not as draconian as in former years and that conditionalities will not be unduly harsh. But let’s not forget it is the Jamaican government that has gone to the IMF with its begging bowl. He who pays the piper calls the tune. The government will for the foreseeable future not dictate or determine fiscal management — the IMF will.

The IMF will now call the tune

Indications of this were seen last month when the Government announced an odious tax package which it was forced to recant, to some degree, putting the burden on the middle and professional classes instead. It might have found the excercise unpalatable but it has had to comply with the IMF’s diktats. The day before the announcement of the new tax package in Parliament, Prime Minister Bruce Golding found himself in Trinidad in a desperate attempt to get that country’s carrier, Caribbean Airlines, to acquire the beleaguered Air Jamaica, which has proven to be a drain on the national coffers for the last five years.These moves were made in an effort to comply with the IMF’s terms and in effect denudes the Government of its free will.

The Government has missed four deadlines to get the IMF to disburse the much-needed US$1.3 billion which will mainly go into balance of payments support. It continues to maintain that the IMF will come to its aid, which in turn will lead to other multilateral agencies pouring money into Jamaica. The IMF has yet to indicate when it will come to Jamaica’s aid and may well be watching and evaluating whether the Government will comply with its terms and how quickly it will do so. Like any banker, the IMF loan will have conditions. There is no similarity between the beggars on the country’s roads and the Government. One gives gratis to the boys on the street who bang on one’s car windows and, in most cases, nothing is expected other than to be allowed to go on one’s merry way. The IMF on the other hand will be looking to the Government to reduce its public sector, sell its non-performing assets (Air Jamaica, and government sugar estates), reduce its fiscal deficit and generally display prudent fiscal management.

The Government can no longer procrastinate — it has to act now and dance to the tune set by the IMF. The notion that the IMF has changed and is a benevolent entity that acts at the behest of incompetent governments is a fallacy perpetrated by those who are naive to the ways of realpolitik and international donor capital.

Speaking at the Observer’s Monday Exchange, economist and lecturer Dr Davidson Daway contended that the philosophy of the IMF had not changed since Jamaica received assistance from the agency in the 1970s.

“The IMF has not yet changed; they implement the same attitudes since the 70s. The people who go to the IMF are emerging nations… they put you in a situation where you always have to beg.” He went on to add that the Government’s debt model will only lead to more debt and so the question of mounting debt just continues ad infinitum regardless of what party is in power.

Speaking with Caribbean Business Report from New York, former IMF executive Jose Cura said: ” It is wrong to say that the IMF puts countries like Jamaica in a situation where it has to beg. The IMF exists to help countries to get their economies on a sound footing. Conditionality in its broad sense embraces both the design of the IMF-supported programmes — that’s to say, the underlying macroeconomic and structural policies — and the specific tools used to monitor progress toward the goals outlined by the country in cooperation with the IMF. Conditionality is aimed at helping member countries solve balance of payments problems without resorting to measures that may put national or international prosperity in jeopardy. At the same time, the measures are meant to safeguard IMF resources by ensuring that the country’s economy will be healthy enough to repay the loan.

“The IMF is guided by the principle that the member country has primary responsibility for selecting, designing and implementing the policies that will make the programme successful. The member country’s policy programme is described in a letter of intent that accompanies the country’s request for IMF financing. The objectives of a programme and the types of policies involved depend on country-specific circumstances. But the overarching goal is always to restore or maintain balance of payments viability and macroeconomic stability, while setting the stage for sustained, high-quality growth.”

Tony Minvielle, formerly of Barclays Capital, was somewhat more forthright: “It is not the IMF who made Jamaica beg –that was its own doing. It has gorged itself on debt, mismanaged the economy and failed to prepare itself for the twenty-first century, instead choosing to rely on preferential treatments from a bygone age. Mind you, this is not peculiar to just Jamaica but many other Caribbean islands whose economies are predicated on one sector — tourism, which in itself is unpredictable.

“The IMF, like any other financial institution, is looking for a return. In order to reap that return a country must display the propensity to place its economy on a sound footing. Jamaican banks are notorious for placing arduous conditions on lenders so why expect otherwise from the IMF?”

IMF must change the impression of itself

One of the criticisms that the IMF must take note of is its inability to debunk the impression that it is an insensitive organisation that places countries under the yoke of debt and austerity, particularly in the Caribbean. This will require a huge public relations excercise and a new way of how it conducts its business. All too often the IMF is perceived as this faceless entity manned by men in suits who lay down the law to poor inept third world countries in return for providing a subsistence at best.

Dr Daway’s impression of the IMF not having Jamaica’s best interests at heart bears testament to this view. Speaking at the Observer’s Monday Exchange, he declared: “With the IMF situation, having an opportunity to see them operating before, they will bring you to your knees before allowing you what you’re supposed to have.

“I can honestly say that the IMF is not in anybody’s interest; they have their own interest and they will not change, because this is the culture of the IMF.”

A common criticism levelled at the IMF by economists is that financial aid is always bound to so-called “conditionalities”, including Structural Adjustments Programmes (SAP). These conditionalities (economic performance targets set as a precondition for IMF loans) retard social stability which may well be the case in Jamaica, with rampant inflation and mass unemployment becoming a reality in the near future. The IMF tends to insist that countries in distress are mandated to sell many of their national assets which then go for discounted prices. Already it can be seen that the government wants to divest itself of the national carrier Air Jamaica and is seeking to broker a deal with Trinidad’s Caribbean Airlines as quickly as possible. Only this week it was announced that the Italian company, Eridania is no longer interested in buying the government-owned sugar estates which means Jamaica will have to court another potential buyer as soon as possible.

Coming up with a workable plan

Another concern is that the IMF is prone to advocate “austerity programmes” increasing taxes even when the economy is weak in order to generate government revenue and balance budget deficits. This can clearly be seen in Jamaica’s case where a harsh tax package has been announced in order to appease the IMF into releasing much-needed financial relief- rather like a pet performing tricks to earn a treat.

What is apparent is that a clear plan to prevent the recurrence of having to go cap in hand to the IMF every two decades or so has not been devised. There is still no blueprint for production and growth that Jamaica can buy into, and this signals the abject failure of successive administrations whose ineptitude has meant that the Jamaican economy has languished in anaemic growth and indebtedness. Resorting to the IMF has happened to many countries. In the seventies, the UK found itself having to go that route. More recently, the Dominican Republic and Indonesia have gone that way also. However, this should not be a generational occurrence but, rather, a temporary measure.

It is imperative that following this lifeline from the IMF, the Government puts in place programmes to stimulate growth and ensure that targets are met. It cannot be business as usual.

Begging bowl

It is insightful to compare Jamaica’s approach to that of Sri Lanka. In June of last year Sri Lanka’s Central Bank chief, while waiting for a prolonged period for IMF approval –rather like Jamaica — defiantly said that Sri Lanka would never go after donor countries or agencies with a begging bowl. The country was awaiting approval on a loan request for US$1.9 billion.

“We will never go after donors or lending agencies with a begging bowl. We are capable of standing on our own and raising funds through the capital markets,” The governor of the Central Bank of Sri Lanka, Nivard Cabraal, told AFP.

“We have the capability to stand on our own and necessary funds are available locally for the resettlement and reconstruction in the North. With our new-found dignity and identity in the international community, Sri Lanka does not want to go after anyone for aid on bended knees. But we accept whatever assistance is offered without strings and with respect,” Cabraal added.

Sri Lanka approached the IMF in March of last year, in a bid to stave off its first balance of payment deficit in four years after its foreign currency reserves fell to around six weeks’ worth of imports.

Commenting on the IMF loan, Cabraal made it clear that: “No risk is involved in obtaining the IMF loan as it is entirely a non-political transaction between the IMF and a member state. Besides. we have a right to seek IMF funds as a member and the IMF has an obligation to approve in due course. The IMF has categorically said the loan will be approved.”

A decision on the loan was put off due to political pressure from the US and Britain over Sri Lanka’s handling of the final stages of the war and charges that thousands of civilians were murdered by Sri Lankan security forces in the final months of the war.

The IMF should not be Jamaica’s salvation

It is imperative that Jamaica guards against the dark side of going to the IMF. This was clearly the case when Michael Manley went this route, back in the seventies, only to serve up misery and an economic malaise on the people of Jamaica. Dr Darway suggested that rather than employ the IMF funds for balance of payments and foreign exchange stability, they would be better used for infrastructural development and to ensure growth in the country so that Jamaica does not have to continually go to the IMF with a begging bowl. There are those who argue that this cannot happen, as the IMF specifically grants loans for balance of payments purposes. But these are exceptional circumstances requiring exceptional solutions, and furthermore, this route is not beyond negotiating. Nothing ventured, nothing gained. Jamaica must be bold and assertive and look to its national pride.

Business Week surmised that “we live in a deflationary world, that austerity policies forced upon countries in return for loans turns bad debt problems into economic debacles.”.

Jeffery Garten, former Dean of the Yale School of Management (also former managing director of Lehman Brothers and Blackstone Group) and author of the The Big Ten: The Big Emerging Markets and How They Will Change Our Lives, commenting on the IMF — (and this is what Jamaica should take note of) said: “I believe personally — now, a lot of people disagree with me — that the IMF asks these countries to do too much at one time. It wasn’t just to get their monetary policy and their trade policy in order, or their fiscal policy in order, but they immediately started to ask for wholesale restructuring of the economies themselves.

“While all of that had to be done, if you do it all at once, the social cost, the cost in terms of unemployment and, you know, the sheer human misery that is created, it was too much. But reasonable people can disagree on that, and it will need a few more years to see if these countries recover and recover in a very strong way. Then, maybe in the end, the pain was the right way to go.”