Editorial: IMF must push ahead with Jamaica
Look out for the bolt from the woodwork by naysayers and populists at this first hint of a potential hitch in Jamaica's economic reform agreement with the International Monetary Fund (IMF). Neither the Jamaican authorities nor the Fund should allow them to gain traction and derail the deal.
If that were the case, it would signal a reversal, if not total abandonment, of the most serious attempt in decades at a fundamental fix of the island's economy. That would be bad for Jamaica and the IMF. Christine Lagarde, the Fund's managing director, would have egg on her face. So, the IMF has to manage this issue with care.
The matter at hand is the Government's narrow miss, by J$4.1 billion, or 3.4 per cent, of the nominal J$121.3 billion of primary surplus that, under its agreement with the Fund, it should have recorded for the fiscal year to March. All things being equal, that nominal figure would have translated to a balance of 7.5 per cent of gross domestic product (GDP), or the most ambitious target for a primary surplus for any country in the world.
There are many people, you sense, who would will Jamaica to fail - driven by political opportunism and/or search of personal vindication, the populists' intolerance of economic austerity, or, in some cases, an ideological opposition to the IMF and its policies. It is this newspaper's view, however, that Jamaica has no option but to endure these stringencies and fiscal discipline, the lack of which placed it among the most indebted nations, stagnated the economy for 40 years, and placed it on the brink of credit default.
We have been impressed with the tenacity with which the Government, and in particular the finance minister, Peter Phillips, have gone about the project, and the tangible results that have been achieved over the past two years, to the point that Ms Lagarde felt compelled to come to Jamaica last year to personally endorse these efforts, as did United States President Barack Obama on his visit in April. Indeed, Jamaica is perhaps the best poster child for the IMF: one of the few countries undertaking tough economic adjustments while maintaining relative social cohesion. Further, as recent survey data indicated, business and consumer confidence has risen. But, as this newspaper previously noted, support for the project is fragile and could unravel if it takes too long to deliver the conditions that generate the investment and growth from which jobs are created and people's lives are improved.
The Government's failure to achieve the nominal primary surplus - although it says it met it as a ratio of GDP - was partly because it didn't collect enough taxes, which, in part, was the result of lower-than-projected growth, as well as of the downside of one of the programme's successes - low inflation. The question now is how will the IMF treat this nominal shortfall in the primary balance: as a performance failure or an adjustable target?
This will be subject to technical analyses, but the latter interpretation, in the circumstance, would make sense. Further, even to suggests a "waiver" for the agreement to continue would be a psychological blow to the programme, given the commitment the Government and the supporters of reform have put into the project. The Fund's poster child might even be tarnished.