Thu | Aug 16, 2018

Mark Ricketts | Jamaica has a problem with the IMF

Published:Sunday | December 10, 2017 | 12:00 AM
Christine Lagarde, IMF managing director, at a panel discussion with heads of government at The Jamaica Pegasus hotel on November 16.

It's IMF fault. For decades, that has been the swansong of many Jamaicans. That is understandable because the society is an excuse-driven one, and its problems are the fault of someone else and never of its own making.

Take the case of people being robbed and killed and you hear on the TV that the police couldn't respond because there were no cars, yet you read about money being allocated to buy 200 cars for the police that were never delivered.

Lives might have been lost, money squandered, cronyism, incompetence, corruption - who knows! This will be news for a few days, satisfying our very short news cycle and interest, then we'll move on to the next horrific blunder. Most times, the society doesn't have enough time to grieve or be outraged. Whenever the cumulative effect of all the abysmal things hits, the society blames slavery, capitalism, neo-liberalism, US imperialism, the plantation system, IMF, or the Chinese.

Jamaica's propensity to blame the outsider, in this case the IMF, was captured in a column 'Debt, dishonour, and deceit' in the Public Affairs section on The Gleaner's editorial page on November 26.

The writer, Glenn Tucker, established a premise that Jamaica, like other Caribbean countries, is caught in a web of deceit masterminded by the IMF and the World Bank, and, our problems are not due to fiscal profligacy, as suggested by Prime Minister Holness.

This web of deceit, according to Tucker, started in the 1970s "when OPEC states were allowed to cut supplies and cause the price of oil to skyrocket. This created a vicious circle that saw developing countries needing loans to pay for this expensive commodity. As inflation and recession loomed, countries like the United States and the United Kingdom pushed up interest rates to unserviceable levels. And institutions like the IMF and World Bank encouraged us to engage in a reckless lending strategy devised by Western banks."

Is Tucker right that the IMF and World Bank web of deceit is responsible for Jamaica's problems in the seventies, or is the prime minister correct that it is due to our fiscal excesses? In answering this question, we don't have to confine it to the seventies. Why not bring it to the present?

In 1972, Jamaica's GDP jumped an astounding 9.2 per cent, and with a growing middle and professional class, there was a sense of a brighter tomorrow. Underlying this patina of immense possibilities were some worrying signs that had to be addressed. Unemployment was high income inequality perverse rural-urban migration produced urban overcrowding and tribalism and political garrisons, with their homogeneous party affiliations, accelerated group violence.

 

GHETTO YOUTHS' CRAFT

 

Overlaying all this were the unemployed ghetto youths with "their mastery of the gun," as Professor Carl Stone pointed out in 1972, "their hostility to all symbols and figures of authority, and their affinity for crime and violence."

Accelerated growth had to be the objective then, especially as the country had to withstand OPEC's sharp increases in oil prices in late 1973. Shortly after that, the Government imposed a new bauxite levy, and the country's revenue jumped from $24.5 million in 1973 to $168.4 million in 1974. The declared intention was to put revenues from the levy into a capital development fund, but this windfall was squandered.

There was an emphasis on controlling the commanding heights of the economy, and Government acquired several enterprises, including large companies such as JPS and JOS, although we had an underdeveloped managerial, professional, and capitalist class, and the financial markets were tightening. Losses mounted, annual audits were spasmodic, and government revenue and expenditure projections were way off.

By 1976, the economy was in a tailspin, unemployment was rising, and the major sectors, tourism and bauxite, were declining and the manufacturing sector lost a third of its workforce. The Government beckoned the IMF, and secret negotiations were started. When the Fund looked at the trade imbalance and the capital flight occurring, it insisted on an immediate devaluation of 40 per cent. It was austere, it was severe, but that's the price a country pays for bad policies. The IMF was ignored as 1976 was an election year.

The Government was re-elected and assumed that politics trumped economics. It did not recall that the IMF, opting instead for a programme of economic reconstruction based on democratic socialism, national self-reliance, and mobilisation of the people.

Continued declines in the overall economy forced the Government to send for the IMF in 1977. Luckily for our Government, world leaders Jimmy Carter, Pierre Trudeau, and James Callaghan persuaded the IMF to extend moderate terms to Jamaica, which it did. Even with that, the Government failed its first quarterly test in December 1977, then two more, before announcing that it was unable to reach a new agreement with the IMF.

It should be noted that after the initial setback of the oil price shock, many countries adjusted late in the decade and recorded growth. Jamaica did not and lagged behind its Caribbean partners.

In the 1980s, a new administration was elected and relied on assurances from President Reagan and the Rockefeller commission to locate possible sources of capital investment. However, Jamaica missed out on some major developments because of an inability to reconcile overseas goals with local interests.

The Government's distaste for market-driven exchange-rate pricing for small, open, import-dependent economies like Jamaica proved costly. Investors and speculators took advantage of Jamaica's overvalued currency by purchasing foreign financial assets. The haemorrhaging put downward pressure on the Jamaican dollar. By 1989 when the Government left office, Jamaica's external debt skyrocketed, forcing rapid devaluations in years to come.

It's bad policy that kills us every time, not a web of deceit by the international funding agencies. The problem is that by the time the IMF comes on board, things have deteriorated so badly that painful adjustments and corrective measures that must be adopted are expressed best by Turkish writer Barcin Yanic, "Austerity measures by the IMF not only tighten the belt, but tighten the throat."

What of the 1990s and FINSAC - a time when Jamaica's entrepreneurs were stopped in their tracks by the most heinous of public policies? Usurious interest rates stood in sharp contrast to declining rates in the US. So much of the economic and financial life, as well as the human spirit of Jamaica, was destroyed.

For a country that bragged that we were not for sale, today, as we look around, so much of what is left is not ours. Cement is gone, so is beer, so is our national airline, our liquor, our banks, our insurance companies, you name it.

What has changed? We have benefited from sharp declines in oil prices over the last few years and we have an uncanny ability to borrow big time in foreign currency. But our priorities are misplaced and our politics are still too coarse and tribal, with cronyism a critical component. Competence and due diligence, as a cultural imperative, continue to elude us, so the system that perpetuates the cruelty and horror of undelivered police cars at a time of violent crimes says that not much has changed.

- Mark Ricketts is an economist, author, and lecturer living in California. Email feedback to columns@gleanerjm.com and rckttsmrk@yahoo.com.