Full throttle in the thrust for growth, as 'graduation' approaches

Wednesday, November 22, 2017

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The message delivered by International Monetary Fund (IMF) Managing Director Christine Lagarde during her meeting last week with regional policymakers in Kingston was entirely predictable. Once again, she called for fiscal compression to break out of the low growth/high debt trap crippling our countries.

However, she offered no new ideas for boosting growth or even preserving our fragile social capital gains. Her admission that the IMF has neither the tools nor the mission to lead the growth agenda sent a powerful message to Jamaica that we should heed.

The IMF agreement is now mature. The tough days in 2013 have given way to an “entrenched stability” that has resulted from the strong local ownership of the stabilisation programme.

In 2013 Jamaica was in desperate straits. Our international reserves were low, fiscal deficits drove debt to over 145 per cent of GDP, growth was negative, our creditors were withdrawing, and inflation and unemployment were spiking. The IMF programme provided the financing bridge and credibility to bring us back from the brink. Jamaica then implemented what is acknowledged to be the toughest stabilisation programme in recent world history.

Thanks to that extraordinary effort we have created a new 'normal'. Inflation is at historic lows, international reserves are strong, unemployment is down, debt is falling, and we are now able to borrow at rates reserved for investment grade issuers.

Importantly, the strict fiscal discipline segued seamlessly from one Government to another. However, there is one lingering problem: growth remains stagnant.

What the IMF is saying is that Jamaica has advanced significantly along the road to repair. The multilaterals and the international financial markets have confidence in our autonomous commitment to macroeconomic stability. We no longer need to borrow from the IMF, so its support under the current programme is limited to technical advice. The word “graduation” is now being used as Ms Lagarde sent the clear message that her job is nearly done and the time has come for Jamaican policymakers to start taking back the reins of macroeconomic governance.

We must now begin spurring bold growth-inducing policies that the IMF cannot design nor promote. Any policy that withholds productive capital from investors will only create dangerous distortions when too much money chases an artificially limited set of assets. Risk is not properly priced and bubbles result. The upshot is that even our anaemic growth could actually be undermined. If we want to grow, it is time to update the rules of the game.

The IMF will always lean toward an ultra-conservative “belt and braces” approach to the financial sector. The Government needs to regain balance in the economy by modernising our prudential requirements to mirror those of countries like Canada and the UK. This will free our valuable national savings to be lent to the real sector to boost growth.

Unless we do so, Prime Minister Andrew Holness's ambitious goal of five per cent growth by 2020 will become an albatross around his neck for the next general election cycle. Our Economic Growth Council must come front and centre now.

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