Going for growth — the IMF’s insidious agenda

BY PAUL WARD

Tuesday, August 30, 2016

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The recent International Monetary Fund (IMF) 11th/12th Extended Fund Facility programme review for Jamaica included an annex titled ‘Growth Drivers and Constraints’. Is this technically rich paper in fact pointing us in the right direction as regards this elusive goal of growth on which a more detailed national economic conversation is needed?


We cannot simply wait on Michael Lee-Chin’s supposed magic to get the much-needed five per cent-plus equitable (job-enhancing?) growth, partly because he is, in any case, compromised by the unhelpful role of our local banking sector mentioned in this IMF paper. The same goes for Economic Programme Oversight Committee Co-chair Richard Byles. Nor in fact can we wait on the IMF, which earlier this year had to admit that its neo-liberal economics has failed all but the very wealthy across the world (Neo-Liberalism – oversold, June 2016) , and that it completely mishandled the Eurozone financial crisis.


The IMF commends the Jamaican Government for its implementation of many structural economic reforms in recent years, but concludes that "the reform dividends in the form of growth and job creation have been disappointing". This is hardly surprising, given that the name of their game is austerity, which is squeezing the local economy for one reason only that is to pay debt, especially foreign debt.


The IMF identifies the problem correctly (if somewhat implicitly) as a lack of domestic demand (given an underperforming global economy), saying that "as a small open economy, Jamaica’s growth is largely export-driven due to limited domestic demand".


Why is domestic demand limited? Because the majority of us are just poor, without money to spend, either without jobs or suffering from a long-time public sector wage freeze, which has reduced real spending power by as much as 50 per cent over the last six years.


The sagging value of the Jamaican dollar is part of this. Since the global economy is fragile, Jamaica cannot rely in the future on export demand, including tourism receipts, nor on remittance income, or even foreign direct investment inflows which, despite what Government boasts, have been lower than for most other Caribbean countries as a percentage of GDP. Thus the need to stimulate the local economy, not just the opposite as the IMF suggests by cutting the public sector wage bill and net pension benefits, limiting social provision and allowing the currency to slide.


Contrary to Government claims, the IMF paper shows low growth in the tourism sector by global standards. The Seychelles gains nearly four per cent in GDP for every one per cent increase in tourism arrivals, against Jamaica’s 0.4 per cent. Tourism-led growth is thus not a secure way forward, nor is it especially equitable.


The IMF notes that, "Jamaica’s exports have drifted towards lower value-added products such as foods and commodities at the cost of knowledgeintensive goods." So how can this change without much more spending on education (as evidenced by recent poor Grade Six Achievement Test maths results), which the IMF effectively rejects with its insistence on austerity? Costa Rica is quoted in the report as succeeding, with INTEL’s arrival, only after many years of high educational spending and commitment.


Crime is identified as the biggest impediment to growth by many firms. Thus the IMF report suggests that "crime-prevention elements should be integrated into social programmes in health and education, especially among the youth population". Happily, this is a better suggestion than increased repression by our para-military police force, but again, how can such prevention happen when unemployment remains high, incomes low, and health services underfunded because of the austerity agenda? This is why I consider the IMF programme insidious; that is proceeding in a gradual, subtle way, but with very harmful effects, or from its Latin origins, an ambush.


Some may counter that the Programme for Advancement Through Health and Education, the only government programme prioritised by the IMF, is there to alleviate poverty, frustration, anger and crime. But what an insult to expect people to be satisfied with handouts, completely inadequate handouts at that! Yet our politicians are well-versed in this art, in garrison communities and elsewhere, so no wonder that they are so willingly ambushed.


Bemoaning the brain drain, the IMF has the temerity to suggest that high (yes, they same high) minimum wage here is part of the problem, as well as high separation (aka redundancy) costs. This race to the bottom, whereby Jamaica and Jamaicans can only compete by selling themselves back into slavery, is just what that earlier-cited critique of neo-liberalism identified: that the austerity policies, resulting from the deliberately engineered debt burdens of now more than half the countries in the world, cannot, and were not designed to benefit the majority, even in the long term.


Finally, for now, let me comment again on our unhelpful banking sector. Interest rate spreads increased from 10 per cent in 2003 to 14 per cent in 2011, falling back now to about 12 per cent. In contrast, The Bahamas has averaged about three per cent, which results in that bank sector lending to the private sector there up to over 70 per cent of GDP; against Jamaica’s 30 per cent. Only 25 per cent of Jamaican firms borrow from banks, compared to nearly 50 per cent in many other Caribbean countries. Exorbitant and always-increasing bank charges also discourage enterprise in Jamaica. Together these factors inhibit growth, allowing instead our financial institutions to recover almost overnight from each of the two local (why only local?) debt exchanges.


My answer to austerity has always been twofold. First, as much as half of the national debt is odious and used for doubtful or corrupt purposes, or to bail out our now-much-heralded financial sector, we need a debt audit and a write-off, including the IMF-caused Financial Sector Adjustment Company part of the debt. Secondly, the primary surplus must be much reduced from the world’s highest seven per cent of GDP down to that of Greece (four per cent) or even lower, releasing billions into the economy for job creation, job-enhancing productivity improvements, infrastructure, etc. Economic growth may then allow the debt, as well as poverty and crime, to be eliminated even more quickly by strong and equitable growth.





Paul Ward leads the Campaign for Social and Economic Justice. Send comments to the Observer or
pgward72@gmail.com.

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