IMF waiver: an opportunity lost
Two and a half months ago when I sat down to write the article 'Economy faces moment of truth', I was not aware that the Government was about to miss the nominal primary surplus target set by the International Monetary Fund (IMF).
The article was intended to highlight the fact that Government's inability to achieve the 9% of GDP target set for public-sector wages on schedule was caused by its
failure to grow the economy; and that other failures would follow, if meaningful growth continues to elude us. The Government's failure to reach the nominal primary surplus target for the fiscal year just ended is just another consequence of Jamaica's continuing inability to generate economic growth.
Despite some success in shrinking the real cost of public-sector wages through attrition and inflation, the Government has been unable to reach its public-sector wage goal because economic growth fell short of its target by 75%. The nominal primary surplus objective was missed for the same reason.
Since the details of the extended fund facility (EFF) were made public two years ago, I have been warning through this column that without a clear and credible strategy to increase Jamaica's economic output, the IMF programme could not be sustained. Of course, not many would have been persuaded to that view in light of the Government's success in passing quarterly IMF tests. Now, as the stagnancy of the economy has begun to affect commercial activity and revenues, the difficulty of the test is likely to rise exponentially.
Government's commitment to fiscal discipline and debt reduction is admirable, and no doubt the IMF is impressed. But if the means it uses to maintain that discipline are themselves inimical to economic growth, meeting the quantitative targets of the programme will not be possible.
The finance minister has now promised to discontinue the productivity-destroying practice of cutting capital spending on the social and economic infrastructure. But it will take much more than that to induce growth and avoid making waivers a permanent feature of the programme in the future.
environment supporting growth
Government is not expected to be the engine of economic growth. However, what it must do is what only it can do: Ensure there is a framework of policies within which private capital and human effort will be motivated to increase economic output.
Outside of a public-relations campaign to convince Jamaicans that it is "going for growth" and a Growth Agenda document to reinforce it, what are the game-changing policies the Government has introduced to quicken the pace of economic growth from the present crawl to even a brisk walk? What are the tangible policy and operational steps taken by Government to foster the growth needed to continue meeting the programme's targets?
Economic growth does not arise from the imagery of advertising. It is the outcome of an economic environment conducive to productive, wealth-creating activities.
So absent have these conditions been that at a time when we are benefiting from the unexpected reduction in energy costs, Government has not been able to stir the economy to growth. According to the World Bank, the Caribbean as a whole, not including oil-rich Trinidad, grew 11 times faster than Jamaica did in 2014.
Instead of growth, what we have had is a surge in excuses. God's weather, the perennial bogeyman for economic underperformance, has been hoisted high on this list. Whether there is too little rain or too much, weather is always to blame for our economic failure.
Whatever the weather, agriculture has consistently run between 4.5% and 6% of the economy. If this small portion of the economy, when affected by the vicissitudes of weather, is preventing the other 95% from performing, it must indeed be the fault of the gods.
Are our economic managers aware that although California contributes most to the USA's agricultural output, agriculture contributes less than 2% to the state's economy? Do they know that despite being in the grip of a three-year-long drought believed to be the driest in its history, California has maintained its agricultural output and increased its overall economic growth rate by almost 50 per cent?
This economic performance is possible because California's economy is diversified, incorporating activities ranging from agriculture to high-value manufacturing and export services. And although Jamaica's and California's economies are not comparable, we could, like Chile and Costa Rica, attain success by adopting the same model of economic diversification.
Removing 7.5% of our economy solely for debt repayment and having no workable policy to generate growth to even partially replace it is a losing formula. Having failed to meet two of the IMF's targets, this fact must be becoming clear to the Government. It should also be clear that waivers cannot be expected to improve the economy's resistance to growth. All they will do is perpetuate the damage already inflicted on the economy by actions taken to achieve the Fund's targets.
The present and future difficulties of meeting the targets are symptoms of an economic programme that will not work. Waivers from the IMF can only be a Band-Aid. What is needed is help to motivate capital and people, to make production and exports grow. We must treat the missed targets as an opportunity to restructure the programme to incorporate the growth strategies that are now widely acknowledged to be needed. This is our chance to convince the Fund that measures to induce investments in production, export-generating and real job-creating activities are necessary.
It is also our opportunity to address the fiscal and economic disadvantage the country suffers in our trade with CARICOM.
I have long argued for Government to address the enormous fiscal and foreign exchange cost to the economy, resulting from the protective cover the Common External Tariff (CET) provides for imports from CARICOM to be priced well above comparable extraregional products, thereby depriving the Government of revenue and the economy foreign exchange it cannot afford. The call has now found fertile ground in the PSOJ, JMA and JCC in respect of petroleum products. Perhaps the Government will now move to open a substantial revenue stream for itself; save valuable foreign exchange for the economy and improve the country's current account balance.
But CARICOM's CET is not the only duty regime that weighs against Jamaica's economic interest. The entire system of excessively high protective import duties must be revisited. The
fundamentally important objective of ensuring the viability of strategically important agricultural industries must be pursued by less economically debilitating strategies. A restructured arrangement with the IMF could be our opportunity to bring change to these harmful policies.
The failure of an IMF test needn't be the end of the world. It could be Jamaica's opportunity to change our economic horizon. If only the Government would seize it.
- Claude Clarke is a businessman and former minister of industry. Email feedback to email@example.com.