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IMF left Jamaicans with a bad taste
Floyd Morris
Wednesday, July 08, 2009
In 1977 Jamaica entered into a borrowing relationship with the International Monetary Fund for the first time. This led to tremendous controversy with the Michael Manley regime and has left a bitter taste in the mouth of Jamaicans.
The PNP government was forced to go to the IMF because it had developed major problems with the balance of payment accounts. The increase in the international oil price in 1974 and problems that emerged with the bauxite companies when the levy was introduced by Manley contributed to the deterioration of the country's balance of payments. The regime was searching for answers to the problem. There were two options - an Emergency Production Plan or go to the IMF. The latter was chosen because the country needed emergency funding and, according to Manley, the Emergency Production Plan could not bring in the cash to buy goods and services needed to keep the country going.
The IMF offers two windows to its borrowers - the Extended Fund Facility and a Stand-by Agreement. The EFF is a long-term facility with various conditionalities. The Stand-by Agreement is short-term with milder conditionalities. It was the EFF that was accessed in the 1970s.
Various scholars, including me, have done extensive work on the IMF-Jamaica relationship. In 2000, I completed a Master of Philosophy thesis on the social and political effects of the IMF in Jamaica. The thesis analysed the effects of the various policy prescriptions of the IMF on the politics of Jamaica. Data from the research forced me and other scholars to conclude that the borrowing relationship with the IMF had a deleterious effect on Jamaica.
For one to understand how the IMF operates, one would have to know why the institution was established. In the early 1940s, there were serious concerns as to what was taking place with the international financial system. Moreover, it was felt that capitalism was not achieving its objectives as citizens across the globe were starving and getting poorer. On the other side of the ideological divide, many believed that communism was the answer. There was a plethora of countries, especially in Eastern Europe, logging on to this new ideological path. The contagious ideology spread even as close to Jamaica in our neighbour to the north, Cuba.
The growth of the new ideology coupled with the growing levels of poverty forced the proponents of the capitalist system to Bretton Woods, New Hampshire, to map out a new strategy to deal with the crisis looming around the world. It was during this time that the IMF, the International Bank for Reconstruction and Development and the General Agreement on Tariffs and Trade were formed. The GATT later evolved into the World Trade Organisation and the IBRD into the World Bank, and this troika - the WTO, World Bank and the IMF- have had a transforming effect on the world's economy. These institutions had distinct functions but their efforts were to result in the attainment of one singular purpose - to establish an international economic order hinged on market principles and to ultimately repel the growth of communism.
The IMF was always clear on its mission and no matter the situation its prescriptions were going to be the same: free up the market; minimise the government's involvement in the economy; devalue the currency for greater competitiveness and divest all state-owned properties. These prescriptions did not work and contributed to a major setback of the country in the 1970s.
But Edward Seaga (whom I have grown to respect) went back to the IMF in 1981, after the Manley regime had terminated borrowing relationship with the Fund in 1979. Seaga believed that in light of his preference for the capitalist system, the Fund would have showered him with some special treatment. This never materialised as the IMF felt that Seaga was not liberalising the economy fast enough. As a matter of fact, they believed that Seaga was practising state capitalism.
The PNP regime of the 1990s continued with the borrowing relationship until 1995 when PJ Patterson announced in Parliament that Jamaica was terminating it. This, I believe, was one of the many outstanding achievements of the Patterson administration. Patterson systematically ended 15 years of continuous borrowing relationship with the IMF and Jamaica has since been out of a loan arrangement with the Fund.
Fast-forward to 2009. Déjà vu! Jamaicans are once again engaged in a debate as to whether the country should enter into another borrowing relationship with the Fund. The debate has been triggered because of the turbulent waters the country has been travelling through, brought about largely by the global economic tsunami. My friend and fellow Taylorite Dr Denzil Williams, in a recent article, cautioned any move to enter into an arrangement with the IMF. Ian Boyne has been spot-on in his analysis of the current posture of the IMF although I adopt a more cautious approach.
I argued earlier the rationale for the establishment of the IMF and pointed to the fact that the Fund was established as a part of the strategy by the advocates of capitalism to counter the rapid growth of communism that was taking place across the globe. Communism has since fizzled away and is no longer a threat to US or British hegemony. Moreover, capitalism has emerged victorious with most, if not all emerging economies adopting the market as the mechanism for managing their economies. Of the over 192 member states of the UN, more than 180 are using the market as the means of managing their economies. Therefore, the stringent policies of the Washington consensus have become more or less irrelevant.
These days, we have been hearing soundings from the financial institutions in Washington of the need to invest in social services. The new IMF president, Dominique Strauss-Kahn, has been giving tremendous support to African countries for poverty reduction. Up to this month, the IMF has provided assistance to Sub-Saharan Africa to the tune of US$1.6 billion - more than double that allocated in 2008. The IMF also intends to make available concessional assistance, to the tune of approximately US$3 billion, to low-income countries. Jamaica, under normal circumstances, should qualify for this latter window. But these resources are minuscule in comparison to the total resources that the IMF has under its control. This is why I have a cautious approach towards the IMF. The Fund has billions of dollars under its influence and when one compares what reaches developing countries, it amounts to a trickle. The Fund needs to be more aggressive in its new approach in order to win the confidence of citizens in developing countries.
But while new expressions are coming from the IMF, we need to get much more than that before we openly embrace the institution. However, if we do enter into a borrowing relationship, I would advise the government to do the following:
. Ensure that it is as short as possible. We do not want the IMF to become comfortable in our house and take charge of the decision making. Familiarity breeds contempt.
. Join forces with other developing countries and speak through a bullhorn in advocating for the IMF to formalise its new policy thrust and to allocate more of its resources to developing countries. Verbal expressions from the Fund are just not enough.
. Never cede our rights to make decisions as a sovereign nation. The IMF has often held a dagger at the throat of nations because they know the challenges with which they are confronted. Often it wants to make the final decision on behalf of the borrowing country.
. Ensure protection of the gains we have made to rebuild the health and education sector after being ravaged by IMF policies in the 1980s. In other words, we must not countenance any cuts in social expenditure designed to improve the quality of life of Jamaicans.
. Embark on a national effort to expand production for export. We cannot continue to borrow our way out of our problems. In this particular context, I like the sounds from Minister Audley Shaw of the need to expand production but I want this talk to be rapidly translated into action. Some of the funds from the IMF must be used to stimulate the productive sector so that wealth can be generated to pay back the loan. This money cannot be used to merely finance "recurrent" expenses. We cannot afford to make the mistakes of the past if we enter into a new arrangement with the IMF. We must bear in mind that we are "too blessed to be stressed, too gifted to be restricted and too anointed to
be disappointed".
Floyd Morris is a former senator and minister of state for social welfare.
morrisfloyd@gmail.com
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