What the IMF MD said and did not say

Sunday, June 29, 2014

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THE visit by the International Monetary Fund (IMF) Managing Director Ms Christine Lagarde to Jamaica was meant to not only send messages to international and local audiences about us, but also to all those governments who need to subject themselves to the medicine of an IMF programme.

Accordingly, what was not said by Ms Lagarde may be as important as what was said by her. She sent four messages to Jamaica:

First, Jamaica has accomplished a major feat of fully implementing, on schedule, without waivers, an economically arduous, wide-ranging and politically difficult set of policy measures, legislative acts and administrative reforms. For those who should be listening, such as Barbados, this is what will be required by the Fund.

Second, Jamaica has made a good start but the course is long. For those who should be listening, getting the macroeconomic fundamentals under control takes time and the gains take even longer to materialise.

Third, there is no gain without reform, a euphemism for pain. There is no alternative from the IMF's viewpoint.

Fourth, the international politics matters in getting an IMF agreement. For those who should be listening, a small developing country needs the US to help push the IMF.

What was not said by Ms Lagarde include the following implications:

First, the IMF needs a success story to prove to the world that the standard IMF package of policy measures can work if a government has the political will. But that is difficult to find.

Second, the news is all good if some critical factors are deliberately omitted from the discussions. Unanswered questions include the impact of the ongoing depreciation of the exchange rate on inflation, ie the cost of living. For those who were listening it is clear that for the Fund, devaluation is a part of the programme.

Third, the bitter medicine is unavoidable with or without the IMF, for example, the budget deficit was unsustainable. However, the policy measures which were necessary for stability are not sufficient to ensure sustainable economic growth. For those who were listening there is no guarantee that implementing the full IMF programme, both in content and duration, will lead to economic growth.

Fourth, for those who were listening the missing comfort was the answer not given to the obvious question: What else has Jamaica got to do? The problem is that the bitter IMF medicine suppresses the symptoms but is not a cure. That is why there is no end to conditionality. Indeed, no matter what and how much a country does, the IMF always has some additional reforms that it requires.

For those who were listening they did not hear that the exchange rate depreciation is a structural problem of not earning enough foreign exchange. The IMF cannot fix this because it squeezes down the symptom, which is inadequate supply of foreign exchange. The cure is to earn more foreign exchange, which is not the job of the IMF to fix.

Fifth, domestic politics is even more important than US support. For those who were listening they did not surmise that the IMF programme is working because of a unique combination of Dr Peter Phillips' management and Mrs Portia Simpson Miller's mantra that the Government will cushion the poor.

Not every country will be fortunate to have this combination.




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