No fundamental obstacles to IMF agreement
At Friday morning's joint press briefing with the IMF, Minister of Finance Dr Peter Phillips stated that after two weeks of negotiations, there were "no fundamental issues of principle" to an IMF agreement, but two or three "technical issues that need to be resolved".
Starting with the projected increase in the primary surplus from the 2012 budget, he advised that the government had made substantial and significant progress on the structural issues, including tax policy and administration, pensions, the wage bill and the growth agenda, to allow the discussion of a draft outline of a letter of intent that would embody the programme.
Although there was still work to be done, including the refinement of the language of a draft agreement, "overall there was substantial agreement on the basic framework of the programme."
He noted that it was "still possible" to get an agreement this year, but that "not all the elements were under our control". The Minister advised that they had begun discussions on "prior actions" (meaning actions that the government would need to take before the IMF agreement could be taken to their board) but that he couldn't say what they will be at this time. They were however committed to working on the issues as fast as possible.
He advised the fund team would now need to talk to their staff in Washington, and a team from Jamaica would travel to Washington over the next few days and weeks for these technical meetings. Minister Phillips himself, along with Governor Brian Wynter, would for the next ten days be attending the IMF and World Bank meetings in Tokyo.
He advised that an example of these "technical issues" was that the Fund would need to make projections, using its econometric models, of the key macroeconomic variables for next year and the years thereafter. He noted that the objectives of the 2012 IMF programme were "very similar if not the same" as the 2010 programme but that Jamaica now faced a different local and international economic environment requiring a different programme .
Phillips elaborated that there were "no issues of policy disagreement", but specific issues of timing, benchmarks, definitions and measuring performance. They were, for example, awaiting the results of studies on the incentive regime and tax waivers, which would then need to be reviewed by both the government and the IMF.
In his own comments, the Fund's Dutch mission chief, Jan Kees Martijn, noted that he had enjoyed very good collaboration with the authorities and technical staff, and had made "substantial progress in identifying a programme".
Although, as he put it, "We are not done yet", and there was "More work to be done", he emphasized the IMF and the Government had a "shared diagnosis" of both the short term vulnerabilities and the long term structural challenges facing Jamaica, particularly the cycle of low growth and high debt, and that everybody agreed on the need for a medium term programme. He stated that they already had a "preliminary timetable" for specific targets.
According to Martjin, the IMF programme was not just about getting fiscal deficits under control, but put a strong emphasis on economic growth and employment creation. However, to get to a growth path, Jamaica needed financial stability. He added that, as a result of his meetings in Jamaica, he believed that there were many opportunities here, that if the right business climate and environment was put in place, entrepreneurs would have the incentive to go after them.
In their press release, the IMF noted Jamaica's challenge of "how to attain higher and sustainable rates of economic growth, while reducing macroeconomic risks, including from the high public debt and high unemployment. Recent fiscal actions, anchored on the Fiscal Responsibility Framework, are a promising first step to address the cycle of low growth and high public debt."
The IMF also noted the need for a growth orientated environment that improved productivity and competitiveness, followed strong macroeconomic policies (a significantly higher primary fiscal surpluses, narrower current account deficit, fiscal and financial reforms, and strong financial sector regulation and supervision), and fosters social cohesion, including well -targeted health care and education spending and a more effective social security net.
Finally, it noted that the mission had made "significant progress in identifying policies that could underpin a letter of intent and Memorandum of Economic and Financial Policies". These included a growth agenda consistent with debt reduction and fiscal consolidation, structural reforms (to promote growth, support fiscal and external sustainability, and enhance financial market sustainability) and a preliminary timetable for implementing various structural benchmarks to monitor progress in meeting programme objectives.
Encouragingly, despite "the complexity of the Jamaican situation", the mission and the authorities had agreed "the next steps to be pursued", and were committed to working as fast as possible to agree an economic programme that can be supported by the fund.