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Editorial: As Obama says, stay the course

Published:Sunday | April 12, 2015 | 12:00 AM

It is not one that the populists will like, but if Barack Obama left one message with Jamaica, it is that there are no sustainable shortcuts out of the island's economic crisis and America is not about to encourage any such fancy.

In other words, there may tweaking here and there, but, fundamentally, there are no alternatives to the tough economic reforms being pursued by the Simpson Miller administration.

Mr Obama's assertion of America's stance during his visit last week came against the backdrop of the latest trumpeting of the effects of austerity on the country's citizens and implied call, if not outright suggestion, that Jamaica jettison its economic reform programme with the International Monetary Fund (IMF) and insist that the multilateral financial institutions write down its debt.

Mr Obama publicly endorsed the programme after the bilateral meeting with Prime Minister Portia Simpson Miller, but went further when he spoke to young leaders at the University of the West Indies, Mona: "The current Government has been wise to work hard to abide by the IMF provisions - that was the right thing to do Ö ."

Among the institutions that raised concerns about Jamaica's economic reform programme is a Washington-based think tank, the Center for Economic and Policy Research (CEPR), which, just ahead of Mr Obama's visit, issued a paper highlighting the stringencies of Jamaica's agreement with the Fund that commits the Government to run a primary balance of 7.5 per cent of gross domestic product (GDP), thereby severely constraining public spending. That is part of a strategy to tackle Jamaica's debt, which is still nearly 140 per cent of GDP, but which, not very long ago, was closer to 150 per cent.

 

OBVIOUS FACTS IN CONTEXT

 

The CEPR, rightly, points out that, as yet, there is no significant growth in Jamaica since the agreement and that after two decades of "negative average annual per-capita GDP growth", not only does the debt remain among the world's highest, but the economy remains smaller now than it was at the onset of the world financial crisis in 2008.

The CERP concludes: "Rather than subject the Jamaican people to further declines in living standards on the back of continued austerity, multilateral development banks should work with Jamaica and other creditors to provide meaningful debt relief, freeing up needed resources to invest in the future of the country."

Those, as they relate to the performance of the economy, thus far, are the obvious facts. Then there is the context. We, too, would welcome it if the country's debt disappeared, by write-offs or magic. But unilateral default, as others have found it, and Greece is understanding, is not an option for a small nation, especially with, truth be told, a globally insignificant economy like Jamaica's.

Further, Jamaica's debt didn't just appear. It is the result of decades of fiscal recklessness, exacerbated by inappropriate economic policies that, over four decades, delivered annual average growth of under one per cent.

This raises two other points about the IMF agreement: it is not only about fiscal containment, but also broad reforms of the macroeconomy to enhance efficiency; and, second, its intention to reorient dependence on spending by the state to drive economic growth to private investment, which used to be crowded out because our Government gourmandised on debt.

Jamaica should seek a regional strategy on debt, but it must also stick with the programme.