The second coming of the IMF

Published: Sunday | September 30, 2012 Comments 0

Martin Henry, Contributor

As everybody knows, the International Monetary Fund (IMF) is now here at the country's request to negotiate a new loan agreement after the P.J. Patterson administration told the Fund ta-ta in 1995.

The last administration had renewed a borrowing relationship between the desperate country and the IMF as the cheapest source of funds and the Grand Endorser of economic reform which will make other lenders want to turn out their pockets.

Negotiations have been in the doldrums for more than a year, despite campaign promises by the PNP for an early and quick agreement following the December 2011 general election. For many, indoctrinated by warped media and political communication, the IMF is another name for the Devil.

The Fund first arrived in 1977 and maintained a lending relationship with the country for several years before adopting a non-lending monitoring role. Michael Manley opened his famous 'We are not ashamed' Budget Debate speech of 1978 with these words: "Everybody knows that we have dealt with the International Monetary Fund because the country has no foreign exchange and needed to work out the kind of agreement that would make foreign exchange possible." His Budget Debate speeches, 1969-1991, have been collected by Delano Franklyn in Michael Manley: The Politics of Equality.

Manley went on to say in that famous 1978 speech: "I think everybody must know by now that there are many things, tough things, that would have had to be done, in any case, and there are some things in the present economic package that are tougher than we would wish and will exert more pressure on the people than we would wish."

The country is now in 2012 watching helplessly as its net international reserves, its savings of foreign exchange, basically US dollars held by the Bank of Jamaica, dwindle away from their highest levels ever in 2010-2011. Finance Minister Dr Peter Phillips is in full accord with his predecessor, now in Opposition, Audley Shaw, that a new IMF deal is absolutely necessary if the leaking country is to keep afloat. The private sector joins Government and Opposition in one accord.

President of the PSOJ, Christopher Zacca, appeared in the press last week solemnly announcing that the alternative to the IMF pain is even more pain. In truth, there is "no IMF pain". The country's pain, with or without the IMF, is by and large the product of its politics and governance over many destructive years.

Zacca says that, in the short run, the most pressing economic issue facing the country is the pending (dis)agreement with the IMF. Be that as it may, surely, in the longer-run past and future, the most pressing economic and political issue facing the country is why we need the IMF at all. The IMF only enters by invitation. Chris Zacca himself points out that over the 50 years of Independence, figures from the World Bank indicate that our per capita GDP has grown at an annual average of 0.6 per cent. This is only one-third of the average global per capita growth rate of 1.8 per cent since 1962.

INCOME GROWTH

If Jamaica had grown at the world average rate for per capita GDP over the last 50 years, GDP would have been three times higher than it is today, Zacca points out. What the rest of the world has achieved in income growth per person in the last 50 years will take us another 100 years to achieve, plodding along at our 1962-2012 average rate of growth in per capita GDP, he warns.

Long before the demonisation of the IMF became entrenched in the popular mind through manipulative communication, Michael Manley thundered in Parliament in 1978: "Let me be clear, and do not let anybody come and tell me you cannot deal with the IMF if you are critical. Anybody who believes that is living in some dream world that they invented for themselves."

The country having failed an IMF test in the very first year of borrowing, the prime minister advised, "Internally, we must work to meet the [next] test, be careful with the foreign exchange, careful and strict of the expenditures, monitor what is to happen, and it will happen. It can happen and we are going to make it happen." This is four years after the snap announcement of universal 'free education' which subsequent history proved to be unsustainable.

The looseness of language in the tail of Mr Manley's statement on fiscal responsibility under IMF manners is indicative of the looseness of governance through much of our period of Independence. The punchline of the speech was, "We are not ashamed."

And here is Mr Manley on the matter: "There are some that were trying to make this political movement ashamed, because there is an economic crisis, and I am going to tell you very frankly, you know, when I listen to that noisy minority, I really do not feel ashamed." (emphasis mine) He then rolled out in inimitable Manley style a long list of achievements of which he would not be ashamed.

LET US BE CLEAR

Jamaica has mostly been governed on the premise that good political intentions can trump the laws of economics, that you can distribute that which was never gathered, grow what is not watered and, like God, speak development into existence.

Let us be quite clear about it: The International Monetary Fund is part of a global economic and financial system (including our local commercial banks) which is inherently unjust. The colonial powers had an unfair historical advantage in industrialisation, modernisation and development, which resources sucked out of the colonies helped to drive. The prices of raw commodities, the mainstay of most developing, postcolonial countries, have regularly tumbled on world markets.

It must have been a feisty and perceptive Jamaican donkey weh sey, "Di worl' nuh lebel." It isn't. But, in an unlevel world, developing countries have pursued their development at uneven pace, with Jamaica having some particularly bad stats on some critical indices like the ones Chris Zacca of the PSOJ spoke of last week. And the domestic politics of countries is more to blame than external economic forces.

The IMF is, fundamentally, a bank, a development bank. Jamaica, too, has an internal development bank. Banks lend clients money under terms and conditions designed to ensure loan repayment, and, the higher the risks, the tougher the conditions.

Michael Manley said in that 'We are not ashamed' 1978 Budget Debate speech that Jamaica, with several other developing countries, was pushing for a reform of the IMF as the world's development creditor owned by all the member states, however unequally. "The time has come when the Third World must have a voice of decision-making in the IMF," he forcefully argued.

Mr Manley was in the forefront of the struggle for a New International Economic Order, the famous NIEO, which he later said US President Ronald Reagan "killed with a smile" in a CANCUN meeting with Third-World leaders. Prime Minister Portia Simpson Miller, a successor of Michael Manley, has just been, like him, elected a vice-president of Socialist International (SI).

The SI congress in South Africa heard from a keynote speaker that "a truly democratic economic system with opportunities and financial justice for all can be achieved if we are able to learn from the previous mistakes made". The pursuit of this dream is likely to be as costly to the advocates as the pursuit of the NIEO was a generation ago.

Mr Seaga, as prime minister and minister of finance in the 1980s, had his own quarrels with the inherited IMF, a quarrel which he details in Volume II, Hard Road to Travel, of his autobiography.

POLITICAL COST

At the heart of the disagreement were the political cost of the structural adjustment programme and the possibility of ensuing social unrest. "Several discussions with Fund officials," Mr Seaga writes, "failed to ease the pressure of performing under such rigorous conditions. It was not that we were not going to endeavour to reach the targets, but the political fallout would have been so great that the Government would have been unable to carry the people with the programme."

The problem is, a stagnant or declining economy imposes the same, or even higher, costs, although more slowly and less directly. Case in point: Mr Seaga quarrelled with the IMF over the Fund's insistence on a 2.5 per cent depreciation of the Jamaican dollar, then at $5.50 to US$1. The dollar has subsequently broken loose and galloped away, approaching 90:1, without any help whatever from the IMF.

Perhaps the two biggest political sins committed in Independence, one economic, one social, is the wanton debasement of the Jamaican currency, which is at the very heart of the Jamaican economy as the storehouse of value of personal and public property; and the sharp decline in public order and public safety, with the murder rate being the most stark manifestation.

The IMF is back by invitation, perhaps more flexible, more willing to listen, to support the country's doing what has to be done anyway, if we are to escape our malingering past. It is the country's structural adjustment programme with Government, Opposition and private-sector consensus, not the IMF's.

The critical elements remain precisely what they were when the Manley Government of the 1970s went to the IMF 35 years ago in 1977: Close the Budget deficit, even if this means reducing expenditure on social services; reduce the cost of the public service, including pension costs; increase tax revenue and reduce dependence on borrowings, while paying down the existing debt.

Suppose we had done all this beginning 35 years ago?

Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com and medhen@gmail.com.

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