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A fleeting illusion — Where has all the money gone?

GARFIELD HIGGINS

Sunday, March 30, 2014    

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"If you want a Big Brother, you get all that comes with it." — Erich Fromm

JAMAICA passes third IMF test read the headline in The Gleaner of March 20, 2014. The report went on to comment inter alia: "The International Monetary Fund (IMF) has confirmed that Jamaica has passed the third test under its economic support programme, which enables the country to benefit from a disbursement of US$71.4 million."

Nowadays it seems that the mere passing of an IMF test is a splendiferous achievement for many people, and this Administration in particular. Having read the story, the thought occurred to me: we have been passing and failing IMF tests for over 40 years, and then the inevitable question came. What have we got as a country to show for it?

A little history as to how we became entangled with the IMF is instructive. Jamaica became a member of the IMF on February 21, 1963. Three months after, Jamaica entered into a one-year Stand-By Agreement (SBA) with the fund, which permitted drawings up to a limit of SDR [Special Drawing Rights] $10 million. The arrangement was unutilised and expired in June, 1964.

In 1973, Jamaica engaged in a borrowing relationship with the IMF and this continued until 1996, when borrowing arrangements were suspended under the PJ Patterson Government. The country continued being a member of the IMF and in 2001, signed an Intensified Surveillance Programme (ISP) — a Staff Monitored Programme — with the fund. But what precisely are the stated objectives of the IMF?

Its homepage — www.imf.org — says: "The work of the IMF is of three main types. Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction.

"Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics."

Jamaica's borrowing relationships with the fund between 1973 and 1996 were predominantly aimed at correcting balance of payments problems emanating from negative economic and financial trends, including commodity price shocks (in particular oil) and high inflation. A fundamental difference between the IMF and other lending agencies such as the World Bank, Inter-American Development Bank, etc is that the IMF does not lend money for project spending or onlending.

Michael Witter, senior research fellow at Sir Arthur Lewis Institute of Social and Economic Studies, UWI in an article, in the Gleaner of July 8, 2013: entitled: 'Lessons from the IMF experiences' says that: "Since 1977, seven of the 12 agreements with the IMF were cancelled because Jamaica failed some performance tests. Of the five that were completed, two required special waivers of performance tests by the IMF.

"The critics of the IMF among us believe that the conditions of the loans were too harsh for Jamaica to meet. The defenders of the IMF among us believe that governments' mismanagement of the agreements caused us to fail so many, and not to benefit much from those we managed to complete."

An agreement with the IMF serves as the green light for other multilaterals such as the World Bank and IADB, etc to lend for project assistance. These loans are often considerably larger when compared to the IMF's. Over the last 40 years, Jamaica has borrowed millions of dollars from the multilaterals, but the nagging question of what have we done with this money detains my thinking.

Have we been made better economically having borrowed, borrowed and borrowed? Or is it that we have mismanaged as a country the monies we have borrowed and that some administrations have done more of the mismanagement than others?

Just after we gained political independence from Britain Jamaica was seen as a model of growth and economic progression. The figures in the diagram below are illustrative of the point.

So admirable was our performance that Lee Kuan Yew, the father of modern Singapore, wanted to discover what made the Jamaican economy -- then grounded in a rapidly expanding bauxite industry, giant manufacturing base, and meteoric tourism and agricultural growth -- so impressive.

The Jamaican economy in the 60s was like a 'stepping razor', to borrow a phrase from one of Peter Tosh's songs. Lee Kuan Yew, who led Singapore [a country slightly larger than St James in terms of area but with a population larger than Jamaica's] for 31 years and is credited with turning a resource-poor, malarial island into a modern financial centre with one of the highest per capita incomes in the world, was not, however, impressed with all that he saw, and recounted:

"At Kingston, Jamaica, in April 1975, Prime Minister Michael Manley, a light-skinned West Indian, presided with panache and spoke with great eloquence. But I found his views quixotic. (Quixotic: Exceedingly idealistic; unrealistic and impractical) He advocated a "redistribution of the world's wealth." His country was a well-endowed island of 2,000 square miles, with several mountains in the centre, where coffee and other sub-tropical crops are grown. They had beautiful holiday resorts built by Americans as winter homes... One Sunday afternoon, when Choo and I walked out of the barbed wired enclosure around the hotels used for the conference to see the city on foot, a passing car came to a halt with the driver shouting, 'Mr Lee, Mr Lee, wait for me!'

"A Chinese Jamaican, speaking Caribbean English, came up. 'You mustn't forget us. We are having a very difficult time.' He gave me his card. He was a real estate agent. Many professionals and business people had left for America and Canada and had given him their homes and offices to sell. He had seen me on Jamaican television and was anxious to speak to me. Chinese, Indians and even black Jamaican professionals felt there was no future under the left-wing socialist government of Michael Manley. The policies of the government were ruinous.... Thereafter, I read the news of Jamaica with greater understanding."

-- Lee Kuan Yew Page 364, From Third World to First the Singapore Story: 1965-2000.

After reading Lee Kuan Yew's book, tons of newspaper articles from the 70s and several other pieces of research from the era of the 70s and 80s, the puzzle as to why Jamaica's fortunes took a nosedive after 1973 became obvious to me. The ideology of Democratic Socialism was the lion's share of the answer.

The Manley regime was concerned with the redistribution of income, not the creation of income. Thus, myriad social policies and programmes were pursued which, though well-intentioned, were not cost-effective, prudent and/or sustainable. Far too much emphasis was placed on taking from the haves and giving to the have-nots, and far too little on creating a climate in which the haves and the have-nots would create for themselves.

While the oil crisis in the mid-70s and the downturn in bauxite sales were important negatives to Jamaica's balance of payment problems, the weight of the redistribution policies were death knells to economic growth. Between 1974 and 1979 Jamaica experienced negative growth in GDP. Where did all the money borrowed from the multilaterals go?

This largely disastrous experiment with Democratic Socialism, as Edward Seaga says in his book Edward Seaga - My Life and Leadership: Vol II was characterised by 'shortages, stoppages and outages'.

Audley Shaw, then minister of finance in a December 28, 2011 article in the Jamaica Observer entitled 'The other side of truth -- figures don't lie', summarises the 70s this way: "Despite economic growth in 1972 and 1973 which were 'momentum years' bequeathed by the JLP, the period 1972 - 1980 was characterised by economic mismanagement and ideological polarisation, where the policy of Democratic Socialism was formally announced and the PNP declared their intention to take control of 'the commanding heights of the economy'.

"People were invited to take five flights a day to Miami. And they did. Over 20,000 professionals left Jamaica, including my brother and other family members. It is widely acknowledged that although the oil crisis of the 1970s contributed to Jamaica's economic challenges, the primary reason that the economy fell into persistent decline was due to a diversion from the management of our economy along the fundamental lines of a market economy."

While there was obvious economic stabilisation and growth in the 1980s, I am still disappointed that Jamaica did not progress far beyond the point that it did. Compared to the 1970s, the Edward Seaga Government did a far better job at managing the economy. There were seven years of positive economic growth between 1980 and 1989.

In my view, we owe a debt of gratitude to Seaga. Small wonder that Dr Carl Stone, eminent Jamaican professor and political scientist, when asked to name those who most influenced Jamaica's development since independence, said this: "I have a deep respect for Seaga, unlike most of my colleagues, but he is probably too far ahead of his time. I think he represents the future. I see him as a sort of Lee Kwan Yew ...I think history will remember his as the most significant influence."

The 'Pattersonian' period of the 1990s into the 2000s witnessed overall anaemic and mostly negative growth.

Economist Errol Gregory, in an article in the Jamaica Observer on January 13, 2013 tilted 'In the clutches of the IMF' summarises the period this way: "The Administration of the 1990s eventually said goodbye to an IMF borrowing relationship, but had its cake and ate it as the Government chose to be part of a staff-monitored IMF programme. This move allowed the Government to take advantage of a flush international financial system where, given the IMF imprimatur, it could borrow in the overseas financial market. This, of course, without IMF conditionalities.

"It is interesting to note that one perspective on this period is that since there were no conditionalities guiding the Government's macro-economic policies, its expenditure programmes went out of whack and paved the way for the current debt crisis."

Another period of PNP rule produced limited growth and resulted in an almost total wipe-out of the business sector. Some 40 financial intuitions had to close their doors and over 35,000 businesses capitulated. While the Patterson Government adopted largely capitalist policies, some argue that they were innate socialists who did not understand capitalist machinations and that this accounted for the molasses pace at which the Jamaican economy staggered along, like the sick man of the Caribbean. By the end of 2007, Jamaica's debt stood at nearly US$1 trillion.

The period of 2007-2011 also saw overall negative growth. Some have argued that the JLP Government did not have enough time to recover from the debacle of 18 years of PNP mismanagement.

Shaw in that December 28, 2011 article in the Observer, rebutted those who argued that the JLP had mismanaged the economy in four years more than the PNP over 18. He listed the Administration's achievements:

"Notwithstanding the worst global economic crisis in over 80 years, and notwithstanding the economic mess that we have inherited, this Administration has been able to achieve, in just 3 1/2 years, the kind of macroeconomic stability that Jamaica has not experienced in a long time. Let us acknowledge the following remarkable achievements which are all occurring at the same time: Stable exchange rate; no capital flight; record net and gross foreign exchange reserves; record low BOJ/GOJ interest rates, especially to the real sector; single-digit inflation; rising employment; deficit target which is being met; improvement in our balance of payments; and comprehensive tax reform underway."

At present, our debt is quickly racing towards the US$2 trillion skyline. Having borrowed so much money -- from 1973 up until now -- one cannot help but continue to ask, where has all the money gone? Why do we have hospital and prison infrastructure that is falling apart and an education system where hundreds of our poorest children in some 150 basic schools across the island are still using pit latrines?

Why do we have nearly 700 out of the just under 1,300 public schools in 2014 without proper fencing? Why is 40 per cent of the youth population unemployed? Why are there so many structural impediments to persons who live below Cross Roads achieving socially, and economically? Why do we have the second highest murder rate per capita in the world? I could list the whys for another 10 pages.

I take no great pride that after 50 years of Independence we are like what the first prime minister of Barbados, Errol Barrow, described as "mendicants holding flags". We have to graduate beyond passing and failing IMF tests; this cannot be our salvation. It is my view that passing IMF tests in the hope of realising economic growth and development, to borrow the words of Bob Marley, is but 'a fleeting illusion'.

"Even the IMF payment is nothing much to cheer about because nothing on the ground has changed, the Government's policies are still lopsided and the economy is still in trouble."

-- James Jowa

-- Garfield Higgins is an educator and journalist. Comments to higgins160@yahoo.com

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