The Economist praises Jamaica for its 'Redemption song' at leaving IMF

By Alex Monteith
Observer writer

Wednesday, November 13, 2019

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The internationally-known publication, The Economist, which offers commentary and insight into current affairs related to various aspects of business, economics, politics and technolog, took a close look at Jamaica's successful economic reforms which were required by the International Monetary Fund (IMF) over the past several years.

The story was entitled 'Redemption song: Jamaica's tumultuous relationship with the IMF has a happy ending'.

“Jamaica is leaving its IMF programme in better shape than when it entered,” the article explained. “Its debt ratio has plunged. The country has US$3.5 billion of foreign exchange reserves, about eight months' worth of imports. Financial regulation has been strengthened. The tax base has been widened and the revenue-collection agency has been reformed.”

Going into the IMF programme, public debt was 147 per cent of GDP while the main earners of foreign exchange, tourism and bauxite were in decline and unemployment was unacceptably high.

The piece looked at the challenges the IMF reforms presented to Jamaica from austerity measures which demanded the highest primary surplus (7.5 per cent of GDP) ever required from a country as well as additional taxes and the freezing of public sector wages over a three-year period.

“This austerity resulted in low growth rate while the reforms were in force. However, the pain did result in gain as Jamaica did achieve the financial targets laid out by the IMF programme” and the article pointed out that “for the first time in decades its finances are stable enough that it can move beyond crisis management”.

The article in The Economist also took a close look at how the Jamaican Government, the Opposition and business leaders sold the reforms to the island's people, starting with the description of a scene in Trench Town where Opposition Member of Parliament (MP), Mark Golding is taking questions about the economy from residents gathered at a local bar.

“The Economic Programme Oversight Committee (EPOC), a motley group of officials, businessmen and civil-society representatives, has held such meetings across the island during the six years of Jamaica's latest IMF programmes,” The Economist explained.

It noted that, unlike other countries in the region, Jamaica's people accepted the burden of the reforms. Recent riots in Ecuador are an example of the difficulties that governments can encounter when engaging in austerity.

Jamaican banks, businesses and public sector trade unions, the article revealed, played their part by ensuring the Government did what it had to do even as banks and businesses were “hurt” as the Government sought “relief from private sector creditors in the form of longer maturities and a lower interest rate”.

The contribution of former Prime Minister Portia Simpson Miller was also acknowledged because it was helpful that the reforms were endorsed by a leader who was respected by the poorer classes.

The creativity of the Bank of Jamaica's internationally acclaimed reggae music campaign to explain inflation was highlighted, too.

Not to be left out from praise was the IMF which rallied to the cause, as well.

“Although it set tough targets, the IMF gave Jamaica flexibility in meeting them,” the article pointed out. “It agreed to a 'social-spending floor' that ring-fenced spending on such services as school meals and poverty relief.”

Infrastructure loans from China, rising alumina prices and tourism growth contributed to Jamaica's recovery, as well as Venezuela accepting a Jamaican offer of a “lump sum to repay debt” accrued from buying discounted oil. The agreement benefited Venezuela because of its own financial challenges and “cut Jamaica's debt ratio by 10 percentage points”.

The Economist struck a cautious note, however, in its piece and warned that “graduating with good marks from the IMF is not the same thing as economic success”.

The publication listed underinvestment in infrastructure, growth that will continue at one per cent this year, corruption, the murder rate, a weakening dollar, moderate foreign investment and vulnerability to external shocks like hurricanes as challenges that the country is yet to overcome.

Nevertheless,according to the article, an important step forward has been achieved and the final paragraph of the article contained a quote which reminds the reader that “the first responsibility of adulthood is paying your own bills”.

There were varying reactions to the article on Twitter with one user saying “not quite sure about who benefits from the happy ending though” while another was more upbeat, declaring that “this is what happens when you have the coolest central bank…”

Economics lecturer at The University of the West Indies Damien King noted on his Twitter account that “ The Economist mag claims that the IMF programmes required steep austerity. However, two-thirds of the fiscal adjustment was achieved through debt restructuring, incentive rationalising, and NHT transfers. So it was mostly borne by the relatively well-off.”

Twitter user @kevinobriencha1, commenting on King's tweet, said “Two- thirds borne by the relatively well-off. Meaning one-third borne by the relatively not well-off. Sounds like a reasonable societal balance.”


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