Lessons from Jamaica's economic turnaround The IMF's Dr Ramakrishnan's last interview

BY KEITH COLLISTER

Wednesday, November 13, 2019

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Jamaica's Internationa Monetary Fund (IMF) agreement ended last Sunday. On Monday, Jamaica's IMF mission chief, Dr Uma Ramakrishnan gave her final interview representing the IMF, as she has now become the IMF Mission chief for Egypt, and has been replaced as the media point of contact by resident representative Karim Youssef.

In response to a question as to what are the lessons from Jamaica's IMF programme, a reference to a presentation at the recent IMF/World Bank Meetings in Washington 'Learning from Jamaica's Economic Turnaround', Dr Ramakrishnan observed firstly that Jamaica's story was one of ownership across administrations, most particularly across an election cycle.

She observed that the commitment to retaining policy discipline, especially on the fiscal side, was something for everyone to take note of and take on board as a lesson.

Secondly, she argued that rallying and building social consensus and support for the reforms, particularly through the Economic Programme Oversight Committee (EPOC) “and just bringing the entire country behind these reforms in a way that we have not seen elsewhere, is also a huge takeaway”.

Referring to Jamaica's social partnership signed in 2013, she noted that the various stakeholders — the private sector, the trade unions, civil society and media — created an ownership structure to achieve social consensus behind the reforms, so that “As difficult as they (reforms) may have been, the society, as a whole, has embraced it … and that is a huge mark of success for Jamaica. So it is a story of the country coming together behind these reforms to make sure that the economic policy is sustained, and that the fiscal policy is put on a path that is sustainable for the future.”

A third lesson from Jamaica is that difficult reforms need to be phased. So the government pension reform was phased, as was the move from direct to indirect taxation, and the Bank of Jamaica recapitalisation.

In a sharp contrast to what used to be called “shock therapy”, she believes when difficult reforms have to be done, it is a good idea to “lighten the load” so that the country can get behind the reform.

In terms of what still needs to be done, she emphasised institution building including the creation of the fiscal council, Bank of Jamaica independence, building a disaster resilience framework and improving the governance of public bodies.

GROWTH UNDERPERFORMANCE

With respect to our growth underperformance, she agreed Jamaica still has a way to go in terms of improving our resilience to shocks. For example, we need to reduce our vulnerability to drought or flood (in agriculture), and our dependence on bauxite (referencing Alpart's closure).

Other areas in need of improvement include reducing crime, improving access to finance (accelerating land titling, factoring, leasing, credit reporting and the credit registry) and agriculture for example, through improved domestic linkages to hotels.

Other areas included more and better public private partnerships, and achieving consolidated supervision by regulators of financial conglomerates.

In response to a question on corruption, she emphasised that “governance issues” are now a key policy issue for the IMF, as it affected growth, social consensus, the fiscal balance and indeed all aspects of a country's economy.

In response to a question on the exchange rate, she noted that Jamaica was still coming from a place where the exchange rate was the key monitored price. Moving away from this emphasis, as part of the new inflation targeting regime, would require more education of the public, getting them used to the idea that there would be “swings” in the value of the exchange rate — particularly as the Jamaican economy became more dynamic, with “capital flowing in and out”.

For Dr Ramakrishnan, the issue of whether the Bank of Jamaica should intervene when the market is “disorderly” depended on what was the reason for the shift in demand — such as whether it was speculative, portfolio flows or large capital movements like an overseas acquisition. This required market intelligence to understand which issue was affecting the exchange rate. One needed to know what the true difference was between supply and demand, meaning greater price transparency.

The Bank of Jamaica foreign exchange platform, which should be available next year, would allow one to look at the underlying determinants.

In the longer term, she argued, the solution was foreign exchange market development, particularly of hedging instruments such as forwards and options. She argued that the Bank of Jamaica should aggressively increase its education campaign on this issue.

When asked whether there was any other small open developing country (at a similar level of development) that had moved to a full free floating exchange rate alongside an inflation targeting regime (rather than some form of managed float), she observed that New Zealand had been in a similar position before it had reformed, and now had decades of experience with an inflation targeting, floating exchange rate regime.

She added that confidence was key so that the local private sector would also be willing to bring money back, and called for an EPOC-style engagement by the private sector to create a forward market.

She argued that Jamaica needed to improve its productivity, noting that Jamaica was moving to put more government services on line, but that skill and other resource constraints were still a problem.

In response to a question as to whether GDP was properly measured, she argued strongly for more resources for Statistical Institute of Jaaica (STATIN), whose economic survey benchmark needed updating.

She also commended the authorities of Jamaica for allowing the IMF access to the media, which was not true of every country that they dealt with.

Finally, in response to a question as to how Jamaica would fare “after the IMF”, she observed that our “track record speaks for itself. We were on track to reach our Fiscal Responsibility Law target of a debt to GDP ratio of 60 per cent by March 2026, and the fiscal council, an idea that Dr Nigel Clarke introduced when he became Minister of Finance, should be institutionalised by April 2020.


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