Latest update April 18th, 2024 12:59 AM
Aug 24, 2009 Editorial
It has been quite a see-saw experience for PM Golding of Jamaica since his querulous outburst last year about the “mendicancy” of some Caribbean leaders who go around, cup in hand, begging for international aid.
With the financial meltdown in the developed economies precipitating a collapse in his country’s tourism industry and in remittances from the millions of Jamaicans that reside in those countries, Jamaica has been forced to turn to the International Monetary Fund (IMF) to deal with the US$ 1.3 billion deficit in the 2009-2010 budget.
The expansion of the Special Drawing Rights facility by the IMF has fortuitously provided Jamaica with US$320 million so that the loan should be US$1 billion.
For a country where many still have vivid memories of the disastrous experience of their country with that institution in the 1970’s and “80’s, the move has raised widespread scepticism. The IMF loaned money to Jamaica, but there was a host of conditions attached.
Jamaica had to remove its import taxes on vegetables, meat, and milk. American and Canadian subsidised produce and powdered milk flooded the country, resulting in the collapse of the local farming and dairy industries that never recovered.
Unfortunately, after the IMF relationship ended in 1995, successive governments appeared to have forgotten the fruits of their previous profligacy and went on a spending binge that saw their debt escalate to a present dangerous J$1.165 trillion – 120 percent of their GDP. Jamaica has to practically use its entire tax revenue to service that debt.
In a press briefing last week by PM Golding on the IMF loan being negotiated, President Jagdeo who was present (and was the widely assumed target of Golding’s “mendicancy” outburst) must have felt some satisfaction when he pointed out, “We (Guyana) now have a debt overhang of 47 per cent of GDP and we are using about 4.8 per cent of revenue to service that debt. Because we have removed that (old debt of 750% GDP) debt, we can now spend much more on health, education and our capacity to address crises.” The President magnanimously promised to share our country’s experience with his Jamaican hosts.
The question for Jamaica, as it has been for us, however, is whether the IMF programme will address the fundamental weaknesses of the Jamaican economy or will it become a mere palliative.
The bottom line will be growth of GDP. Much of the answer depends on the nature of the “conditionalities” that the IMF will impose on Jamaica for the loan. While there has been a great of chatter of a “kinder and gentler” IMF, its behaviour in the recent period after it received a second life from G20, does not signal any great change from its traditional draconian medicine.
The Jamaican government’s pre-emptive actions this year – interest rate hike, public sector wage freeze, the significant devaluation of the Jamaican dollar and announcement of a 20% slash in public spending in the next budget all suggest that the IMF’s terms re performance criteria is not going to change for the better.
Its recent terms to Pakistan may offer a clue as to what Jamaica should expect: reducing fiscal and current account deficits, discouraging government borrowing from the central bank as a source of deficit financing, maintaining high interest rates with a view to reducing inflation, exchange rate flexibility, and increase in tax-GDP ratio. In addition to the abovementioned actions that will be insisted on for “stabilisation”, we can also expect- as with the old IMF programmes in Jamaica – additional privatisations and liberalisation of trade and finance.
In 2006, the IMF commissioned a paper, Public Debt and Productivity: The Difficult Quest for Growth in Jamaica, that concluded Jamaica’s staggering debt may be the source of its problems. We doubt that the IMF will deal directly with that debt and Jamaica’s growth rate will remain stagnant. We can expect more “mendicancy”.
JAGDEO ADDING MORE DANGER TO GUYANA AND THE REGION
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