Sun | Jan 20, 2019

Column: Was Jamaica hoodwinked by the IMF?

Published:Friday | May 15, 2015 | 12:00 AM
Minister of Finanace and Planning Dr Peter Phillips speaks ata press briefing on the eighth IMF-Jamaica economic programme review on Tuesday, May 12, 2015 in Kingston. Newly appointed International Monetary Fund mission chief, Uma Ramakrishnan, is at right.

WE HAVE been reminded constantly by officials at the Ministry of Finance and the co-chair spokesman of the Economic Programme Oversight Committee (EPOC) that the 7.5 per cent primary surplus target was and is untouchable.

It has been treated as sacrosanct in its importance by these parties, and they and the International Monetary Fund (IMF) have made it clear it is the linchpin of the Extended Fund Facility (EFF) agreement between the fund and Jamaica.

Well, after seven very successful and progressively difficult passing of the IMF's quarterly tests, the linchpin has been breached. In the last fiscal year which ended on March 31, 2015, Jamaica missed the $121.3-billion primary surplus target by $4.1 billion.

All of a sudden, missing the publicly preached sacrosanct target was no longer sinful since it was just a small nominal figure of 'Jamaican' $4.1-billion, a mere 'technicality'. Virtue has just been slightly violated but we were being winked at and assured that virginity is intact. If that is so, the press by the IMF to put the largest-ever primary surplus burden for any country on the Jamaican taxpayers' backs, and for our negotiators to have accepted it, reminds me of Tom Sawyer and this quotation: "Tom Sawyer famously hoodwinked the other boys into thinking there was nothing more enjoyable than whitewashing a fence".


While the IMF may be sanguine, or appears so to be in public, this mere $4.1-billion miss translates to a very substantial GDP missed growth number and, by extension, a foregoing of jobs and cash for Jamaican persons and businesses.

As the $121.3-billion PST was set at 7.5 per cent of GDP, the target GDP figure was to be 121.3 divided by 7.5 per cent or $1.617 trillion. Since the primary surplus out-turn was only $117.2 billion the corresponding GDP figure was only $1.563 trillion, which works out to a shortfall of $54.67 billion.

That shortfall is a big thing in terms of tax collection, jobs and benefits to workers, and profits to business people. The classification of the $4.1 billion miss on the primary surplus is more than "no big thing" - the phrase used by Uma Ramakrishnan, the incoming IMF replacement for mission chief Dr Jan Kees Martijn.

The 'no big thing' phrase may apply to the IMF and possibly its big financial institutional colleagues, but every cent of that almost $55 billion of missed GDP growth matters to each Jamaican. It matters to the Government, too, even though they are putting a similarly casual and near-cavalier spin on the missed primary surplus target, and, by extension, the unachieved GDP growth which the $4.1-billion shortfall represents.

There has been enough literature on the subject for those who are managing the country's economic affairs to have educated themselves to get Jamaica in the right comparative position with those few countries whose debt-to-GDP ratios were similar or worse than ours. Greece is one example.

Professor of economics and political science, Barry Eichengreen, of the University of California-Berkeley has written extensively on the primary surplus issue. He and Professor Ugo Panizza of the Graduate Institute in Geneva studied data for 54 emerging and advanced economies from 1974-2013 and arrived at a number of findings. One was that many of the cases, what they called "episodes", in their sample had primary surpluses of at least three per cent of GDP that last for at least five years. The economists stated that: "Primary surpluses as large as four per cent of GDP that last for at least a decade are extremely rare."

The Kiel Institute for the World Economy, based on its assessment of historical events in numerous countries, concluded that "it is extremely difficult for a country to prevent its debt from increasing when the necessary primary surplus ratio reaches a critical level of more than five per cent".

Greece's PST would be above seven per cent going by assumptions used to estimate the primary surplus target. Greece is working on a current three per cent target from the IMF, the European Commission and the European Central Bank. So why did Jamaican negotiators acquiesce to this supernormal 7.5 per cent primary surplus target? Was it naÔvetÈ, being uninformed of the meaning and on-the-ground in terms of financial and poverty consequences, or was it hoodwinked?


The editorial writers at The Gleaner have adopted the practice of calling those who raise queries about Dr Phillips and his IMF deal, and the primary surplus, in particular, "alarmists". When we - at least one who questions the primary surplus target works in the Gleaner's building and with the EPOC - make the point that the EFF's debt-consolidation approach will not lead to robust growth, the writers trot out the weakening refrain that "the programme is of itself growth-inducing".

How the exceptionally high primary surplus target came to be imposed on us is to be questioned and not taken for granted; the missed dollar target needs to be explained in terms of the much larger GDP numbers; and the anaemic 0.4 per cent economic growth last fiscal year should be the basis of agitation for a growth-facilitation and enabling programme accompanied by a radically efficient government.

The editorial writers can continue to render support to Dr Phillips and his IMF plan; free speech and a free press are big parts of our entrenched democratic structure. That privilege is a shared benefit, however, with those who may see things differently or opposite to those of the editorial writers. Just as the editorial writers would not see themselves as knee-jerk apologists for the Government, so too would those who query or comment on the EFF deal see themselves as patriotic Jamaicans, not alarmists.

Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the opposition leader.


Twitter: @hillaubyn