The IMF will not grow our economy for usWednesday, April 10, 2013
Now that Jamaica seems set to ink a new pact with the International Monetary Fund (IMF), the country needs to learn from the lessons of its 35-year relations with the Fund or risk repeating that sordid history.
First, it has been an unhappy and unsuccessful relationship because the IMF practices a brand of economic fundamentalism which is theological in its inflexibility. It has a standard set of policy prescriptions. The tool box consists of devaluation (whether by one-time action or by letting the exchange rate deteriorate, as is now the case with Jamaica), deflationary fiscal policy by sudden and sharp budget cuts (unavoidable even without IMF insistence), privatisation (even if it's a fire sale like Air Jamaica) and deregulation (giving government less ability to manage the economy).
Second, the IMF has at times been insensitive to political and social limits of adjustment, even while knowing that its performance tests and policy measures undercut the political support of governments eg the Michael Manley administration in 1979-80 and the Golding administration in 2011. The high priests of the IMF may even derive a certain perverse but self-righteous pleasure as the next government would be more supine.
Of course, we must take note that in its news release on Monday announcing the imminence of the agreement with Jamaica, the IMF said: "Recognising the sacrifice involved for the Jamaican people, the strategy also aims to minimise the impact on the poorest and most vulnerable."
Third, IMF programmes do not necessarily produce economic growth because of their deflationary stabilisation measures which are antithesis of growth. Stabilisation of the macroeconomic fundamentals is a necessary step but that does not by itself generate growth. If economic growth occurs during an IMF agreement it is probably due to some fortuitous event such as favourable export prices, a surge in tourist arrivals and the like.
Fourth, IMF programmes involve little money for much pain, but the real benefit in having a programme is that it provides the imprimatur that the Fund will make the country pay its debt, even if there has to be a cutback in social programmes. Having an IMF programme is a promise to practise responsible financial housekeeping which the borrowing government could not find the self-discipline to do.
Critically, the IMF agreement facilitates funding from institutions such as the World Bank and the Inter-American Development Bank, as well as on the international financial markets. The current agreement is no exception.
Fifth, no government of Jamaica has completed the full duration of an IMF agreement. This is a depressing record which the IMF blames on poor implementation because of lack of political will and technical incompetence. These are factors, but the truth is that the IMF targets were unrealistic, the policy measures inappropriate and the programme under-funded.
Despite the bitter medicine prescribed by the Fund, we must accept that they did not create our economic problems and it is our responsibility to work our way out of the quagmire. This is Jamaica's last chance to go to the well of international financial support. The country has got to stay the course and survive the duration of the agreement, therefore, it cannot be business as usual.
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