Financial Times highlights Jamaica's history with the IMF

Financial Times highlights Jamaica's history with the IMF

Looks at the motivation of the main players in the rocky relationship

BY ALEXIS MONTEITH

Wednesday, February 19, 2020

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“Has Jamaica crashed yet?”

That was the question that was jokingly asked at the beginning of follow-up meetings related to negotiations taking place between the Jamaican Government and the International Monetary Fund (IMF) in 2013, according to an official who was involved.

The story comes to us through a Financial Times ( FT) article published recently in two parts entitled 'Inside the IMF's outrageous, improbably successful Jamaican programme'.

Jamaican government officials of the People's National Party's (PNP) Administration at the time would not have found the question funny. As the article stated, “Jamaica was on the precipice.”

While many tales in the international media of Jamaica's near miraculous turnaround over the past few years have focused on the facts and figures that underline the positive shift, the piece from FT also looks at the events and the players which took Jamaica from desperation to innovation.

After the debacle of the Tivoli Gardens invasion to capture drug lord Christopher “Dudus” Coke during the Jamaica Labour Party (JLP) Administration in 2010, FT explained that a politically weakened Prime Minister Bruce Golding “reneged on an IMF agreement to freeze pay for civil servants and wrecked the tortuously negotiated package with the Washington institutions”.

The decision put the IMF agreement in jeopardy which led to its disintegration.

“It became stressful for me, on a personal level,” said IMF mission chief to Jamaica at the time, Trevor Alleyne, according to the article. “I had taken the programme more to heart than perhaps I should have.”

His statement alluded to the intense pressure experienced by all those involved.

The JLP lost the next election and were succeeded by Portia Simpson's PNP Administration which was immediately faced with a sobering challenge.

“The tepid recovery from a three-year recession was already fizzling out, and the unemployment rate climbed to over 13 per cent,” the FT story explained. “To boot, the central bank's rapidly depleting foreign reserves were unnervingly low — enough to only cover six weeks of imports. Most alarmingly, debt to GDP ballooned to a new record high of 145 per cent in 2012, the servicing costs consuming a third of the budget.”

The PNP's attempts at new negotiations with the IMF led by Peter Phillips, the minister of finance at the time and BOJ Governor Bryan Wynter were handicapped by the IMF's mistrust in Jamaica due to multiple failed IMF programmes over the years. Jamaica, too, carried its own mistrust of the IMF.

The article explained that it is at this point that the Government kicked into overdrive with a last-ditch effort to avert a collapse of the island's economy. The Jamaicans sought the help of the head of Congress' Financial Services Committee, Maxine Waters, a well-known politician and black woman said to be of Jamaican descent, to rally the “Congressional Black Caucus to put pressure on the IMF.”

Although at first the IMF viewed this “behind-the-scenes lobbying” negatively it did eventually force them to sit down and begin working out a programme. That tough programme of austerity is now well-known to Jamaicans.

It involved extremely tough “prior actions” before assistance would be given such as a “7.5 per cent primary budget surplus — before interest payments are deducted — for the foreseeable future”, the highest in the world devaluation of the currency and further debt restructuring. This resulted in lower interest rates and the freezing of public sector wages.

In 2013 an agreement was reached on a four-year programme sourcing $958m from the IMF and “$510m from each of the InterAmrican Development Bank (IIADB) and World Bank.” However, the majority of these funds ended up servicing old IMF loans.

Thankfully, the Government had the Venezuelan PetroCaribe loans-for-oil plan in place and FT explained that “a 2015 paper published by the Centre for Economic and Policy Research estimated that Jamaica paid $138m more to the IMF than it received in 2014 and concluded that 'without hundreds of millions in financial support from Venezuela and China the impact of IMF-led austerity would likely be far worse and, ultimately, politically untenable' ”.

But it was the tough IMF targets that brought out the innovations for which Jamaica, during this period of austerity in its history, has become most famous. With the IMF holding the belief that at some point the Jamaican people would not be willing to take these measures anymore, members of the private sector put forward a plan to oversee the Government's commitment to the programme.

This became what was known as the Economic Programme Oversight Committee, an undertaking so unique that former IMF Managing Director Christine Lagarde commented that the Fund had never seen anything like it anywhere before and that “this is surely a role model that should be emulated elsewhere. With everybody inside the tent, all voices are heard, and everyone has a stake in success”.

FT went on to relate that this commitment by the wider Jamaican community at large was a key factor in the continuation of the programme by the JLP administration which succeeded the PNP in 2016.

The IMF programme which ended in 2019 brought unemployment down to record levels, restored international reserves, fuelled a 500 per cent climb of the stock market, contained inflation and brought the ratio of debt to gross domestic product to below 100 per cent last year, an achievement that the island has not seen since 2001.

While the measures undertaken by the Government to attain these results have stunted economic growth, former IMF Mission Chief Uma Ramakrishnan expressed that if Jamaica followed technical recommendations from the IADB, World Bank and IMF, they will assist with the reforms aimed at addressing the issues which remain.

Improvements in tax collection, liberalisation of the exchange rate, addressing inflation, reconditioning of the public pension system, contingencies for natural disasters, and a “fiscal responsibility framework” are moves that are being advanced in the right direction by the government.

The FT account gives insights through quotes from various officials into the desperation that preceded the IMF programme, the tensions between different parties during its implementation, and the optimism that exists now.

“The collapse of the 2010 programme put us beyond the pale with some people,” FT quoted former BOJ head Brian Wynter in reference to the negotiations preceding the successful programme. “We weren't negotiating for an agreement, we were negotiating about starting negotiations.”

Regarding the early period of the new measures, he said, “We couldn't even think about light at the end of the tunnel. Delivering on the programme targets became all-consuming.”

In contrast, after seeing years of effort paying off, Nigel Clarke, the island's current finance minister expressed, “We still have a ton of problems. But we have never enjoyed a moment like this before.”

'Inside the IMF's outrageous, improbably successful Jamaican programme' is a story we have heard before but told in a more personal way. It is a roller coaster ride of emotion. It helps the reader to see what was at stake through the eyes of those who were involved and in so doing gives us a greater sense of appreciation for what the country has achieved so far and the importance of staying the course for further improvement.


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