Maturity, wisdom required in current IMF review

Thursday, September 14, 2017

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We note that this week the International Monetary Fund (IMF) is in Jamaica to conduct its quarterly review under the three-year stand-by precautionary arrangement.

As Jamaica continues on the difficult path of achieving its fiscal targets, it must be noted that the country has achieved a new world record in succeeding to implement the toughest fiscal programme by any country in recent history and is continuing to do.

This battle is being won with great sacrifice and an uncommon collaboration between the two main political parties to agree that bringing down the debt is too important to be compromised by petty political squabbles.

In 2013, our debt had reached 150 per cent of gross domestic product (GDP) — one of the highest in the world — and was about to choke us. We had no choice but to return to the IMF. Few in Washington believed that we would make it through the first year of the programme.

The programme goals were designed to be austere with the upfront debt exchange and real devaluation of the currency. Real pain was meted out as the Jamaican people were asked to bear higher taxes, reduced public services, delayed wage increases, and drastically reduced capital investment so we could meet the draconian 7.5 per cent of GDP primary fiscal surplus. No other country has ever tightened its belt this much for so long.

In addition to the willingness of the Jamaican people to accept the pain, there were factors vital to the success of the programme that remain largely invisible to most. It is important to shed light on them.

First, the Opposition mostly refrained from seeking political advantage from the tough fiscal measures that had to be imposed. Second, there was bilateral support: from Venezuela in the form of PetroCaribe that bridged our precarious foreign exchange gap, and from China to finance essential infrastructure. Third, the Inter-American Development Bank and the World Bank filled the financial void left when the IMF ran a negative flow with Jamaica for the first two years of the Extended Fund Facility (EFF), although the World Bank never fully met its commitment. Fourth, the IMF was wise in its management of the programme.

The last point deserves amplification, given the quarterly review of the programme currently under way by the IMF. The EFF started during the crisis in 2013 and morphed into the Stand-By Agreement at the end of last year. The Jamaican team that negotiated and implemented the EFF is almost completely gone. The same is true of the IMF team. That team was wise and knowledgeable of the complexity of such a unique stabilisation programme in a parliamentary democracy.

Although the People's National Party held a strong majority in Parliament, the measures were very difficult to impose on the populace and the IMF knew when to be flexible and when to be firm. That made it possible to delay fundamental reforms like reducing the wage bill to nine per cent of GDP, pension reform, and reducing borrowed international reserves. The IMF realised that for the programme to succeed it had to focus on the big picture — debt was falling, and falling fast.

The new Jamaican team, under the strong leadership of the prime minister and the finance minister, has made every effort to carry on with the same rock-steady credibility as their predecessors. There is every indication that they are achieving this task. We expect that the new IMF team has a similar level of sophistication in its understanding of parliamentary democratic governance in Jamaica and the astounding complexity of continuing an extraordinary fiscal programme that the people of Jamaica have already been enduring for well over four years.

There are many more rivers to cross before we reach the hallowed land where the debt demon has been slain and debt is below 60 per cent of GDP. We can get there before the target date, but it will require maturity and wisdom from all parties, including the IMF.




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