Tue | Sep 26, 2017

Editorial | IMF - the next phase

Published:Friday | July 22, 2016 | 7:00 AM

Prime Minister Andrew Holness, in his statement yesterday, didn't go into the details of his talks with the team from the International Monetary Fund (IMF), but we are encouraged by his further commitment that any future programme will ensure "that macroeconomic discipline is maintained". Much, however, will depend on the kind of agreement for which the Government opts.

Indeed, Mr Holness' remark was in keeping with the recent theme of his finance minister, Audley Shaw, including the latter's statement in the House this week in which he dealt with the subject as part of his report on his recent roadshow to Europe and the United States to prime markets about the big rollovers that are on the horizon - perhaps J$350 billion over the next three years.

While bondholders and potential lenders are generally optimistic, Mr Shaw conceded that they had concerns: about prospects for growth; about macroeconomic stability; and about the likely effects of external shocks, especially if there is a total collapse of the PetroCaribe arrangement and global oil prices continue to rise. What is implied in these questions is whether Jamaica's economic managers would possess the discipline to pursue prudent fiscal policies in tight circumstances.

 

FOUR DECADES OF DEFICITS

 

This is not an unfounded concern. First, Jamaica doesn't have a good record of being fiscally prudent or of maintaining sound economic policies. This reflected in the country's four decades of running big deficits, resulting in a debt that was near 150 per cent of GDP, and annual growth over the period of around one per cent.

There has been some turnaround of the past indiscipline over past four years. But whatever may have been the previous administration's commitment to reform, it happened against the backdrop of oversight from the IMF under an extended fund facility (EFF).

The programme ends next March. So, many people are fearful that Jamaica will return to old bad habits. Mr Shaw would probably appreciate, that some these concerns have to do with his own history in the finance portfolio, given the collapse of a previous IMF agreement under his watch in 2010.

While he has done little to cause concern in the four months since his return, memories linger.

 

BALANCE-OF-PAYMENT PROBLEMS

 

The issue here is that the balance-of-payment problems that created the conditions for the EFF do not now plague Jamaica. Normally, the completion of a Fund programme like this one would be followed by some kind of monitoring agreement, with specific performance targets or conditionalities and sanctions if they are not met. But Mr Shaw seemingly acknowledges the deepening consensus of the need for successor arrangement with teeth, saying that there are various options that might be pursued, "such as a standby liquidity support".

He needs to spell out what these are and precisely how they work so that stakeholders can be part of debate. It would seem to us that the Government might consider, if it is available, a modified precautionary liquidity line, for two years, with quarterly, rather than semi-annual, reviews, under which it would complete the reforms, with clear monitoring.

Further, as Richard Byles suggested, the administration of the Economic Programme Oversight Committee, which, by its independent and transparent efforts, helps to keep the Government on track with the reform project.