Ian Boyne, Contributor
THE JAMAICAN Government received a ringing endorsement of its macroeconomic programme last week from no less a significant global player than the International Monetary Fund (IMF), with which it has had a stormy and turbulent relationship in the past.
In the 1970s, the IMF was an acronym of ill-repute, revulsion, 'backwardness', and was the epitome of 'reaction' to the leftists who were influential in policy-making and in the public square. Every Jamaican then knew the acronym 'IMF'. It was written on walls all over the island, especially in the Corporate Area, and was the subject of intense debate not only at the University of the West Indies (UWI), the media and at the many fora held in Jamaica, but in the bars, street corners, youth clubs and on verandahs.
The right-wing had its own local version of what IMF meant - Is Manley Fault! The IMF was anathema to the political left in Jamaica - as it was to the left all over the developing world - and no one who would call himself progressive would say a kind word about that 'primary institution of imperialism'.
That Michael Manley's party today and the Government which it now forms can look so favourably and with appreciation to the IMF for validation of its economic programme, is indeed one of the ironic twists of history. And that Finance Minister Dr. Omar Davies, a protégé and recruit of Michael Manley and a socialist of the 1970s, is now the poster boy of the IMF, is another ironic twist. If Manley is in heaven and Saint Peter allows him time to keep abreast of Jamaican affairs, he must be quite bemused!
GLOBAL LIQUIDITY
The IMF now says that while global liquidity conditions have been favourable, "the generally positive results of the last two years owe much to renewed fiscal consolidation, reflected in very high primary budget surpluses." Dr. Wesley Hughes, Planning Institute of Jamaica (PIOJ) director-general, who has been involved in IMF negotiations for over 20 years, told me in an interview that he has never seen an IMF team more bullish, more enthusiastic and more supportive of Jamaica's economic direction.
On Tuesday, the IMF issued its latest report on Jamaica titled, 'Jamaica: Interim Staff Report Under Intensified Surveillance', which eulogises the fact that in Jamaica, "domestic interest rates have declined sharply from their March 2003 peak; the exchange rate has been stabilised and inflation has decelerated markedly. In fiscal 2004/2005, the economy showed resilience in the face of severe external shocks, including Hurricane Ivan and high oil prices."
The IMF agrees with the projection of an approximately four per cent growth in Gross Domestic Product (GDP), a return to single-digit inflation and decline in the debt-to-GDP ratio from 143 per cent to approximately 130 per cent in this fiscal year. Critics of the People's National Party (PNP) and pro-Jamaica Labour Party (JLP) apologists have been embarrassed by this report and have been seeking to cast doubt on it, some suggesting that the IMF has its own selfish and cynical reasons for issuing this report; the kind of partisan poppycock and asininity which do not even merit mention, let alone critique.
One only needs to think of what political mileage would be made had the powerful and influential Bretton Woods institution upbraided Jamaica in this report. Then, in the eyes of the political tribalists, the report would have credibility. Sophisticated analysts and economists around the world must be amazed at the level of backwardness, ignorance and partisanship which would lead people, whose positions should make us want to take them seriously, to take such preposterous positions. The IMF, whatever criticisms one makes of it and there are many to be made is committed to a set of neo-liberal principles it applies largely inflexibly and rigidly to developing countries. The IMF doesn't fix things just because it happens to like Dr. Davies, the PNP Government or P.J. Patterson. (Or just because it wants to disturb the heavenly rest of former Socialist Prime Minister Michael Manley!)
SCEPTICISM
Perhaps the larger issue is that the political Left is such a phenomenon of the past - and so extinct - that there is no real critique from that position. All we have is uneducated scepticism from the right and full endorsement from the centrist PNP Government of this validation from Washington. But let's not be disingenuous: Dr. Davies and the PNP Government have to be commended highly for managing the economy responsibly despite the ravages of Hurricane Ivan, higher oil prices and other exogenous challenges.
No matter what the left has to say, what is undeniable is that sound macroeconomic policies have to be at the base of any economic development strategy. Macroeconomic soundness and fiscal prudence are non-negotiable. Populist economic policies and reckless redistributionism end up hurting the poor and jeopardising sustainable economic development. We can talk about what we do with the fruits of economic growth after we have had the economic growth. Chalking up huge deficits, piling up the debt, fuelling inflation to suit populist pressures and subsiding inefficiency are not ways to build an economy which is in the interest of the poor and oppressed. The economic literature is unambiguous and decisive: these things hurt the poor and marginalised.
As I have written before, Audley Shaw's and the JLP's hysterical claims about "the Government mashing up the economy" or "the Government's reckless economic policies" are just laughable pronouncements in the eyes of people who understand economics and are not blinded by anti-PNP sentiments. I have long called on the JLP to mount a more credible critique of the Government's economic programme than the usual histrionics in which Shaw and other JLP spokesmen, such as Delroy Chuck, like to engage. It's time the guys talk to people outside that narrow group of partisan and fanatical supporters.
EMPIRICAL GROUNDS
That all these macroeconomic achievements are counter-intuitive and seem contrary to everyday reality, are no empirical grounds to dismiss the IMF's positive assessment of the economy. Those schooled in the sciences and the humanities know that truth is not dependent on common perceptions or intuition. What we should be arguing about is the Government's overall development thrust and how it intends to use the fruits of its fiscal discipline to support social development. That is where the discussion needs to go. But denying the solid achievements of this PNP administration under Dr. Davies as finance minister is silly, dishonest and lacks credibility in the eyes of the fair-minded and well-read.
And when one considers how the PNP had been criticised since the 1970s for populism and promoting a philosophy of redistribution rather than production, its achievements now ought to be lauded unequivocally.
The Government's goal of balancing the budget and reducing interest rates will contribute meaningfully to reducing the debt. The Government was strongly praised by the IMF for its large primary surpluses and this was also highlighted by the World Bank in its recent report on the Caribbean titled, 'The Caribbean in the 21st Century'.
All Jamaica - PNP, JLP, No P - should feel proud that the primary manager of the international financial system, after Jamaica has ceased its borrowing relationship with the Fund and decided to design its own macroeconomic programme without IMF pressure or dictate, could say of the country: "Following the adverse economic impact of Hurricane Ivan, the outlook for fiscal year 2005/2006 is for a rebound in growth in the context of broad macroeconomic stability."
MACROECONOMIC POLICIES
As P.J. Patterson said in his recent Budget speech, "we have paid off our debt to the IMF in full. We have demonstrated for all to see that as a small country, we can design and implement macroeconomic policies which can both stabilise the economy and grow it as well." Indeed, the IMF itself acknowledges that the macroeconomic achievements are national rather than merely governmental.
Says the Fund significantly, in reference to our achievements, particularly to our "very high primary budget surpluses": "A key factor in this consolidation has been the high degree of national ownership, evidenced notably by continued adherence to the Memorandum of Understanding agreed in February 2004 between the Government and the trade unions..."
This is a key point and it highlights the fragility of our macroeconomic achievements in light of the fact of our low social capital - that is, our divisiveness, fractiousness, tribalism, high crime rate, poor conflict resolution skills and low levels of trust. Besides, our small size, import-dependence, high trade-to-GDP ratio, production imbalances and low levels of backward and forward linkages, plus our vulnerability to natural hazards, make the sustainability of our growth fragile.
The Government should not be fooled into complacency that it does not have a lot of work to do in the global arena and the multilateral theatres of action. Foreign affairs should be priority, for much of our prospects for sustainable development impinge on developments overseas - from the United States' management of its current account deficits, what it does with its interest rate policy and its exchange rate, and how China manages its huge foreign reserves, to how Chinese light industrial exports will affect developing countries' export prospects.
EXTERNAL ECONOMIC FACTORS
To underscore the continuing significance of external economic factors, the IMF report notes that, "the export-to-GDP ratio will likely decline over the next two years, due mainly to expected price movements (associated with erosion in the European Union preferential treatment for sugar and bananas; and a projected decline in alumina prices)..." The IMF acknowledges "the economy's vulnerability to exogenous shocks."
The IMF says further that "stress-testing these scenarios for major macroeconomic shocks, highlights the vulnerability of the Jamaican economy under the relatively benign baseline assumptions...The dynamics is particularly sensitive to exchange rate and interest rate shocks in reflection of the large share -about three-fourths - of foreign currency and floating rate debts in total public debt." What G-8 countries do in the next few days will be important to developments in Jamaica, and we are living in a fool's paradise if we underestimate the impact of the global economy on this small state.
Prime Minister Patterson in his budget presentation gave every indication he understands what needs to be done, now that we have been making strides in macroeconomic policy.
"Our challenge now is to accelerate that growth and to spread the benefits to the poor and the unemployed. Our approach is driven by a social cohesiveness strategy that seeks to protect the most vulnerable and to ensure that all our policies are geared at poverty reduction."
His challenge is to turn that rhetoric into reality.
Ian Boyne is a veteran journalist. Send comments to ianboyne1@yahoo.com or infocus@gleanerjm.com
