2018 marks 41 years of IMF 'rescue' of Jamaica


Sunday, May 13, 2018

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IN 1976 the Bank of Jamaica (BOJ) ran entirely out of foreign exchange, leaving the Net International Reserves (NIR) balance at zero.

There was no foreign exchange to buy oil to provide the country with electricity and gasoline — key sources of energy. No money to buy medicine and other vital supplies for the health sector, to purchase basic food supplies — most of which are imported, requiring foreign exchange to purchase.

The country, through the convergence of various dynamics including the destabilisation of the Jamaican economy by the United States of America (a fact that the USA has acknowledged publicly), was brought to its knees. Four years later in 1980, the worsening situation gave birth to the song Everything Crash — sung by musical group The Ethiopians — which summed up most succinctly the simmering state of negative economic, political and social affair existing in the country during those heedless days.

Desperate solutions were quickly needed to put a brake on the deteriorating condition of our country's economy, and especially with it being an erupting and disrupting inharmonious social order catalysed by the clashes — verbally and physically — of the two major political parties, the JLP (Jamaica Labour Party) and PNP (People's National Party).

This is when principal advocate for a New International Economic Order Michael Manley, an avowed disciple of anti-imperialist and anti neo-liberal politics, as Prime Minister, made his volte face (about face) and went hat in hand to the IMF for 'rescue' in 1977. That 'rescue' is now 41 years old.

In 1985, under Hugh Hart as Minister of Mining and Energy, the Bank of Jamaica again ran out of foreign exchange completely. The captain of a crude oil ship that arrived in the Montego Bay Harbour only agreed, based on previous experiences, to unload the shipment of crude oil after he received payment for same. Private citizens in Montego Bay and surrounding areas were rallied by Hugh Hart on behalf of the then Jamaica Labour Party Government to make cash contributions to this particular oil bill. The monies collected were transported to Kingston by three policemen from the motorcycle division of the Jamaica Constabulary Force, and taken to the Bank of Jamaica where it was lodged and a cheque drawn. The motorcycle policemen returned to MoBay and paid the ship's captain, who unloaded the oil and left Jamaica's shores immediately.

This was a time when Edward Seaga was prime minister of the country. This article is intended, as far as possible, to take a dispassionate and objective scrutiny of the outcome of the relationship with the IMF and, by extension, other multilateral agencies over the period of this relationship.

On April 1, 2017, Jamaica would have begun its 15th medium-term agreement with the IMF. Over this 41-year period Jamaica failed 11 of the 15 IMF agreements and was assisted to pass two of the remaining four by way of debt forgiveness and waivers etc. Without that help, the country would have failed 13 out of 15 IMF agreements in 41 years. This fact imports the urgent and timely question — whose fault is it? The IMF and its conditionalities, or it is the fault of the country of Jamaica?

Read a statement from the IMF published by the very respectable British newspaper The Guardian quite recently regarding countries, like Jamaica, within the Caribbean that are experiencing similar difficulties with stabilising, balancing and growing their economies despite heavy international borrowings: “Since growth in the current environment is virtually non-existent, significant fiscal consolidation (tax increase and budget cuts) is inevitable but may not be enough to bring down such high debt levels….”

Let's translate this. What the IMF is acknowledging is that countries like Jamaica need to make deep budgetary cuts, but because there is and will be no growth (note), the debt will remain. As the debt increases, more of each dollar earned by the country goes towards debt repayment, leaving less to finance a budget to run the country. In 2011/2012, 80 cents out of every dollar earned by the country was spent to pay back loans and debt service charges, leaving only 20 cents to run the country. Over 40 years, Jamaica repaid $19.8 billion, than it has been lent (18.5 billion) yet still owes $7.8 billion as a result of huge interest payments.

Government foreign debt payments ($1.2 billion) are double the amount spent on education and health combined. Throughout the over 40-year life of IMF agreements, that preceding pattern remained predominant, starting with the oil price shocks of the 1970s and 80s which pushed interest rates up and which in turn caused the cost of debt servicing to rise. Sixteen per cent of exports in 1977 paid Jamaica's external debt, but by 1986 the figure rose to 35 per cent of export earnings.

In 1990, 97 per cent of students completed primary school. Now it is 73 per cent. In the same period, 59 mothers died in childbirth for every 100,000 births. Now it is 110.

In all this, successive Governments can point to some positives accomplishments undertaken by each major political party in power, but there exists and continues to persist, the waste of public resources, corruption, greed, dishonesty and a constant decline of the marginal productivity of labour throughout the society. In this, no grouping within the society can successfully claim innocence or lack of knowledge. So, after, all it is not just the fault of IMF conditionalities that has plunged the Jamaican economy into the doldrums in which we are now borrowing loans in order to pay previous outstanding loans.

When a person gets to that stage in life, when one begins to “borrow from Peter to pay Paul”, that is most definitely not a good nor comfortable place for such an individual to be. This is where, inspite of the heavy doses of public relations stunts and gimmickry, and the marinating by 'slick' politicians of the citizens' creative imagination through carefully crafted propaganda, Jamaica has arrived at for quite sometime now.

The alarm raised by the political drumbeats about a two per cent growth in the third quarter of 2016 did not postpone the introduction of the need for the supplementary estimates to be tabled to provide additional money to run the country until March 31, 2017. Budget cuts and increased taxes (fiscal consolidation) has been at the heart of the IMF 'rescue' mission for the last 40 years.

Jamaica is now among the highest indebted countries in the world. Debt, deficit and decline have continued throughout the period of the IMF/Jamaica relationship, and so it is not caused by wickedness on the part of the present JLP Government. They will have to take some very unpopular and painful decisions going forward, but there are no other options.

This forces both political parties in Government to recite the same mantra and talk the same language to the Jamaican people as to why neither Government in office can perform to the satisfaction of the citizenry. Here is one thing on which both political parties concur: Due to fiscal constraints we are unable…”

In the absence of growth, debt write-off of the countries in the Caribbean Basin led by the IMF is the only remedy to our collective monetary, fiscal and growth problems.

The IMF 'Rescue' is a rescue for Jamaica's creditors, including IMF sister agencies The World Bank, Inter-American Development Bank, Organization for International Economic Cooperation, and Development et al… spelling more suffering for the Jamaican people. The newly appointed Jamaica Minister of Finance, Nigel Clarke has begun to give out some interesting and powerful sounds about the fiscal and monetary management of Jamaica's economy going forward. Minister Clarke must know that when Europe entered its fourth year of debt and austerity, Jamaica had entered its fourth decade!!! This further underlines the urgency of our economic situation.

This is unsustainable if there is no growth, says the IMF which arranged the same programme. And now we know the photo op at Jamaica House — under the Jamaica Coat of Arms — comprising Prime Minister Andrew Holness, Michael Lee-Chin and Aubyn Hill, each with hands crossed and collectively displaying 27 outstretched fingers depicting the economic growth trajectory of “5 in 4” prophesised by them … just did not happen!

Political commentator and historian Shalman Scott served as the first mayor of the city of Montego Bay

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