The feasibility of a non-IMF economic policy

Wednesday, October 17, 2012    

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THE big question on most people's minds these days is whether the Government will be able to secure an acceptable agreement with the International Monetary Fund (IMF).

What is not at issue is the absolutely correct statement by Mr Chris Zacca, president of the Private Sector Organisation of Jamaica, that with or without an IMF agreement there will be economic pain. It is clear that the Portia Simpson Miller Government is not enthusiastic about signing and implementing an IMF agreement.

What is also a fact is that the Bruce Golding Government lost its commitment to sticking to the course and/or failed in its implementation of the IMF agreement.

The history since the first IMF agreement in 1976 shows two facts. First, neither political party demonstrated the political will and the economic management to successfully implement an IMF agreement. Second, neither political party is willing to subject itself to the strictures of an IMF agreement because the resulting economic hardship erodes political support and eventually leads to the Government being voted out of office.

No politician wants to be out of power, so they all try to avoid having to implement an IMF agreement. The question is, therefore, can a government manage the economy on a sustainable basis without an IMF agreement? It means implementing the same policy measures which the IMF would have required, but without funds from the IMF and, more importantly, budget support loans conditional on having an IMF agreement, such as those from the World Bank and Inter-American Development Bank.

If the Government can borrow enough, it can do without the IMF. The problem is that this course of action is not sustainable. The PNP Government can make the hollow claim that it did not have an IMF agreement during its 18-year reign. It left office just before it could borrow no more, leaving the newly elected JLP Government no alternative but to sign an IMF agreement.

The question is, how long can the Government borrow enough to avoid an IMF agreement?

That, we hold, is not likely to be a sustainable course, given the debt/GDP ratio of nearly 130 per cent and dwindling international reserves.

The rationale for a non-IMF path eludes us because it will not improve the negotiating position with the IMF, and will make the eventual adjustment even more drastic. The short time without an agreement is not going to be sufficient for the Government to boost economic growth to improve its fiscal and other macroeconomic indicators to the point where it could do without IMF-triggered funds.

We do not think that a non-IMF path, whether by accident, expediency or as deliberate strategy, is feasible. Therefore, the Government must have in place an IMF agreement as quickly as possible to preserve the stability of the exchange rate and to maintain international reserves.





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